What is a subrogation agreement?

Subrogation is a figure by which a person or thing replaces another, within the framework of the fulfillment of rights and obligations of the same legal relationship.

Subrogation consists of a person or thing replacing another, within the framework of the fulfillment of rights and obligations

There are many cases of subrogation, although the most common is that of debtors or creditors. However, it can also exist for different types of contracts, such as rents or mortgages 

Types of surrogacy

There are two types of surrogacy: personal and real.

  1. Personal surrogacy

One person replaces another in the exercise of rights or fulfillment of obligations. Both the creditor and the debtor can be replaced.

  • Subrogation of the creditor: the rights of the creditor are transferred to a new entity or person. Normally it occurs in debt consolidations, which allow the debtor to improve his position concerning the debts he has with different entities.
  • Subrogation of the debtor: the payment obligations are assumed by another person. The creditor must accept the new debtor. The most frequent cause is the acquisition of a mortgaged home. It avoids making a new transaction and only requires the registration in the notary of the new debtor.
  1. Royal surrogacy

It occurs when one good is replaced by another in a person’s assets so that the new good takes the place of the old within the same regime.

There must be a causal relationship between the output of one good and the input of another. In addition, the asset must be subject to a special affectation, for example, third-party rights over it.

The most common causes of real subrogation are those of acquisition of marital property, alienation of hereditary reserve assets, the substitution of real estate in case of mortgages for compensation or expropriation, among others.

mortgage subrogation

We will analyze below the characteristics of mortgage subrogation, since it is the most common cause of subrogation.

Mortgage subrogation appears when one of the parties is replaced, be it the debtor or the creditor. It is regulated by Law 2/1994 on subrogation and modification of mortgage loans.

Creditor Subrogation

According to this rule, mortgage debtors can change the financial entity with which they have subscribed the mortgage if another entity offers them the same product in more advantageous conditions.

In practice, the entities must be banks, savings banks, credit unions or other financial companies.

When the loan has been made by public deed, according to article 1211 of the Civil Code, the agreement of the original creditor is not necessary.

The debtor may make the subrogation without the consent of the creditor, when to pay the debt he has borrowed the money by public deed, stating his purpose in it, and expressing in the payment letter the source of the amount paid.

The subrogation must be formalized by means of a deed stating the new conditions, such as interest rate and term of the loan. Unregistered subrogations are not valid.

The mortgage subrogation is exempt from the payment of the tax for the Documented Legal Acts.

Debtor Subrogation

In the case of replacement of the debtor, the current regulation is the Mortgage Law. It occurs when a person acquires a mortgaged home.

Unlike the subrogation of the creditor, there must be consent, since the operation involves three parties: the seller, the buyer, and the mortgagee.

However, the latter can only manifest itself on the subrogation, but not prevent the sale. The new debtor can request the novation or modification of the mortgage conditions.

In the event of the sale of a mortgaged property, if the seller and the buyer have agreed that the latter will be subrogated not only in the responsibilities derived from the mortgage but also in the personal obligation with it guaranteed, the former will be released from said obligation, if the creditor gives his express or tacit consent.

If the transfer of the guaranteed obligation has not been agreed upon, but the buyer has deducted its amount from the sale price or has withheld it and upon expiration of the obligation it is satisfied by the debtor who sold the property, the latter will be subrogated in the place of the creditor until the buyer reimburses the total amount withheld or discounted.

Floor clause

One aspect that must be taken into account in mortgage subrogation is the floor clause.

The floor clause is the minimum amount of interest to be paid in mortgage payments and can be included in the mortgage loan.

However, the new debtor can request the annulment of the floor clause in an existing mortgage loan.

Tenant Subrogation

The subrogation of tenants is the possibility allowed by law, so that, upon the death of the tenant, another person can continue renting the house under the same conditions as the previous one.

It is regulated by Law 29/1994 on Urban Leases for rental contracts entered into after January 1, 1995.

The people who can subrogate a rental contract, in order of priority, are:

  • The spouse or the person with whom they were living in a similar emotional relationship, the two years before the time of death. Except that they had children in common, with which mere coexistence will suffice.
  • Descendants subject to parental authority or guardianship of the deceased or who had lived with the deceased for the two years prior to death.
  • Ascendants or siblings in the same case.
  • Other people with collateral kinship up to the third degree, who had lived with the deceased for two years before death, and suffered from a disability equal to or greater than 65%.

If there are several people entitled to subrogation of the lease, and there is no unanimity about who will be the beneficiary of the subrogation, the order of priority can be altered as follows:

  • The septuagenarian parents have priority over the descendants.
  • Between descendants and ascendants, the closest degrees have preference.
  • Between siblings, the double bind takes precedence over the half-sibling.
  • In case of equality, preference will be given to those who suffer from a disability, or who have greater family responsibilities.
  • Among the descendants, the youngest or the youngest sibling will be preferred.
  • Among ascendants, the oldest.

1. In the event of the death of the tenant, the following may be subrogated in the contract:

a) The tenant’s spouse who lived with him at the time of death.

b) The person who had been living with the tenant permanently in a relationship analogous to that of the spouse, regardless of their sexual orientation, for at least the two years before the time of death, unless they had had offspring in common, in which case mere coexistence will suffice.

c) The descendants of the lessee who at the time of his death were subject to his parental authority or guardianship, or had habitually lived with him during the preceding two years.

d) The ascendants of the lessee who had habitually lived with him during the two years preceding his death.

e) The brothers of the lessee in whom the circumstance is foreseen in the previous letter concurs.

f) Persons other than those mentioned in the preceding letters who suffer a disability equal to or greater than 65 percent, provided that they have a collateral third-degree relationship with the tenant and have lived with the tenant for the two years before death.

If at the time of the lessee’s death none of these persons existed, the lease shall be terminated.

2. If there are several of the aforementioned persons, in the absence of unanimous agreement on who of them will be the beneficiary of the subrogation, the order of priority established in the previous section will apply, except that the septuagenarian parents will be referred to the descendants. Among the descendants and the ascendants, the one closest in degree will have a preference, and among the siblings, the one with a double bond over the half-sibling.

Cases of equality will be resolved in favor of whoever has a disability equal to or greater than 65 percent; Failing this situation, whoever had the greatest family responsibilities and, ultimately, in favor of the youngest descendant, the oldest ascendant or the youngest sibling.