Spanish Property Buying Case Studies

What follows are details of a number of cases where buyers have fallen into nightmare situations that could have easily been avoided if unbiased professional advice had been sought during the purchase of the property. Whilst none of these clients originally used our services in most of these case studies we managed to help find solutions. Had our service been secured upfront none of these issues would have occurred.

Mr and Mrs Padley

Bought in 2002 off plan. As development came to completion the developer went bankrupt. The Padley's were advised to complete the purchase before this happened to ensure the bank did not take over the property and they lost their deposits.

The Padley's went to Notary to complete intending and because of short timescale having to take over developer mortgage as they were not cash buyers. The Notary and Lawyer changed deed into their name but left outstanding mortgage payable to bank secured against property still in name of developer and not agreed or transferred to their name.

The Bank issued court order to possess property and get back their debt and refused to grant the Padley’s the mortgage as the property had no 10 year building warranty or first licence of occupancy certificate despite the fact the bank funded the project in the first place and mortgage already existed.

The Padley’s had to pay in excess of € 50.000 to the bank over a period of 2 years to postpone legal action with interest being added at a rate of 18% a year but bank still refused to grant mortgage to them and no other bank would lend because the property had an embargo.

How we helped

The Padley’s were about to lose the house, their initial deposits and the extra € 50.000 paid to the bank when we sorted for them a lawyer who by threatening to sue the bank, the original agent and developers main company managed to get the mortgage granted, the embargo lifted and full ownership to the Padley’s. The property is also now fully legalized.

Because of the issues when they signed for the property it ended up costing them 50k more and the final mortgage amount was in excess of € 100k when all they needed was a mortgage of € 80.000 to complete. The Padley’s however have not lost everything they own and do now fully own their home in sun.

What went wrong and how could it be avoided?

The bank guarantee was not in place and deposits were handed over without this if the bank guarantee had been in place they would not have had to rush to completion before build was legal but could have chosen to have their money back with interest and look for something else.

They were advised to complete but no-one checked at completion their legal interests were being protected

They had no loan approval agreed prior to completion and had not applied for the developers mortgage

There was no 10 year building warranty set up at start of build

They allowed the bank to bully them and their lawyer only acted to postpone repossession rather than tackling the underlying problem

All of these issues were unnecessary and despite the developer gong bankrupt; which can happen; with proper advice and understanding everything that happened after could have been avoided.

Mrs. Cheams

Bought a fully licened property on Rustica land. 3 months after buying workmen visited the property to place flags on land that designated where a new road was going. Over one third of the land was being compulsory purchased and rustic land would only provide compensation of between 3 to 9 euros a meter squared.

The regional government would not even communicate with the new owner as they had the property registered as land alone and in another person's name.

Fortunately whilst digging out another part of the route an old Roman Road was uncovered and the road had to be re-routed. The property has now been full registered with regional government and part of the land urbanized.

How we helped

We advised Mrs. Cheams of what rights she did have and made sure she knew what was required in order to fully legalize the property.

What went wrong and how could it be avoided?

Mrs. Cheams only checked the licenses at local level. No checks were made to ensure the property was also registered with the regional government and that the property was recognized under the regional plan. The property was only registered at local not regional level

No checks were made on what if any known new infrastructure changes were in planning stage

Mrs. Cheams did not check and was not advised what the implications were of owning country land and the difference in protection of the land between that and urbanized land.

Mr Shimmer

Mr Shimmer visited, at his own cost, Spain to look at an existing resale property that appeared very good value for money. Mr Shimmer required a mortgage of 80% of purchase price in order to be able to buy.

After the cost of visit, a reservation fee, initial lawyer fees and hours spent on the purchase when Mr Shimmer came to us for a mortgage we were able to tell him within hours that the property sat on Rustic land and therefore maximum loan would be 70% of valuation not the 80% he required

We were able to tell him that over half the property was not actually registered and therefore legally did not exist. This level of overbuild could leave the property exposed to demolition orders and be un-mortgageable.

How we helped

By checking the details of the Nota Simple upfront we were able to advise Mr Shimmer before he spent any more money that his requirement for a mortgage of 80% was not achievable and that the property was not fully and legally registered.

What went wrong and how could it be avoided?

Mr Shimmer did not have enough information before visiting Spain to understand if the purchase was practical for him in his current position.

The agent did not check or chose not to tell Mr Shimmer upfront that a large part of the property was not registered at land registry.

Basic legal and mortgage checks were done after costs were incurred not before.

Mr Garfield

Mr Garfield bought a number off properties off plan as a seasoned property purchaser in UK who made his money out being a landlord he wanted to try and do the same in Spain.

After committing himself to deposits of 30% across 6 properties he found himself in a position where he could not obtain the gearing or funding he required to make venture commercially viable. This was because he resided in an off shore haven and most banks would not lend to him. The properties also did not obtain, at completion, full licences of occupancy certificates. The habitation licenses were in fact only granted under the &#34Administrative Silence" rule.

Without a first licence certificate he could incur many future problems. Unable to get main utilities connected, unable to buy or sell because banks won't lend against it. Legally he should not rent out the properties without it and many renting agencies would not take it onto their books. Exposed to any future disputes between local and regional governments over whether planning should have been granted and at risk of demolition.

By the time Mr Garfield found all this out he had completed on one unit with the developer mortgage. The developer's bank did not care about the issues because the mortgage was already in place and it was better for them that he completed and took over loan than loan remained outstanding and they relied on developer to pay it.

The developer started to charge him interest because he could not complete on time despite the fact the property did not have the certificate and Mr Garfield's only way of contesting this would have been to go to court and counter sue developer.

How we helped

As a seasoned investor Mr Garfield was used to taking measured risks and was comfortable to do so for the right properties. We made sure before he completed on any further units he knew exactly what risks he would be taking so he could make an informed not un-informed decision to complete. We also gave him enough information to challenge the developer over his threat to add interest for not completing on time without having to recourse to court action.

What went wrong and how could it be avoided?

Mr Garfield did not check general mortgage availability before he committed himself. He assumed lending in Spain was the same as UK and that buy to let mortgages were available.

His lawyer did not explain when he was told completion would be in a couple of months that the first license of occupancy was only granted under the silence rule and what the implications of that might be. In fact the lawyer should have advised him not to go to completion and have challenged the developer upfront.

There were no protections built into the Private Purchase Contract stating under what basis the property would be deemed as ready to be completed allowing the developer to use a custom practice rule rather than law to force completion and charge interest.

Mr Jones

Put down deposits on an off plan property in a village he knew well and already friends living in. During construction the first developer went bankrupt. The project was taken over by another developer who also failed to complete it. The project is now on permanent hold as full license and planning was not actually granted and the project does not meet the current 5 year build plan for the area.

Whilst the project had a bank guarantee Mr Jones passed over 30% deposits direct to the developer who failed to pass them onto bank and no Private Purchase Contract was put in place.

How we helped

Sadly in this instance as a cash buyer because Mr Jones bought through an agent, handed over monies that were not protected and only used advisers recommended by that agent by the time he came to talk to us the position could not be resolved, both agent and developer had disappeared and his deposit money was lost.

What went wrong and how could it be avoided?

Mr Jones dealt only with the developer's lawyer who worked on behalf of developer not him and this lawyer did not supply a Private Purchase Contract or check build was legal and had all relevant papers on his behalf.

Mr Jones passed deposits direct to the developer without a Private Purchase Contract and did not check under what basis he could actually evoke the bank guarantee and therefore protect these deposits in the event of the project not being completed or the developer going bust. On this occasion the agreement the developer had for his bank guarantee was that deposits went direct to the bank.

All of these cases could have been avoided with the right advice upfront and a company working solely on the buyers behalf. The law is in place or the information is available up front to protect buyers against every situation found in these case studies.

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