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Buying a property direct from the bank in Spain

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Over the last few years Spanish Banks have unwittingly become the biggest estate agents in Spain. The banks have had to repossess so many properties from owners who could no longer pay the mortgage that almost by default they have become the biggest property owners in Spain.
Clearly, the commercial Banks in Spain didn’t envisage owning property but nevertheless found themselves under pressure from the Bank of Spain and the Government to reduce their asset ratio. And as a result had to look at ways of selling the vast numbers of properties that they had repossessed.
For the last few years we have seen many people and companies claiming to be “exclusively” selling properties in Spain directly from the bank(s). Some British buyers looking for a bargain property started looking at these properties on the assumption that they were getting the very best value. Unfortunately not everything is as it seems.

Exclusive access to Spanish Bank inventory

Often you will be told by a Company or an estate agent that they have “exclusive access to the property inventory of a Spanish Bank”, giving the impression that their particular properties are not available through any other channel and/or through anybody else. This, in virtually all instances, is not the true position.

Over the years we have encountered vast numbers of clients, agents and companies (mostly UK based) claiming to have exclusive access to the property stock of a particular Spanish Bank. Pretty much everybody makes this claim these days. We have even received the complete list of all bank properties available in Spain. They are not, and never have been exclusive to one entity and this becomes evident when the same property is being offered for sale by different people, at different prices and at the same time.

Stencil house on the beach

Just because it is a repossession doesn’t mean that it is a bargain.

Many purchasers of overseas property will assume because they are buying from a Bank that the property will be a bargain. There is good sound logic behind this and in some cases the property may be a bargain, but not in every case. In fact in many cases the property is not a bargain at all.

Let us take an example of a typical property in Spain. The owner purchased the property for €250,000 at the peak of the boom. They perhaps paid too much for the property as very few people knew what the actual market price was at that time. The property was possibly only worth around €210,000. The owner then took out a mortgage of €150,000 to buy the property via a bank in Spain. After experiencing financial problems the owner defaulted on his obligations towards the bank, and when the bank finally repossessed the property the owner still owed €110,000 on the mortgage but the property was now only worth €100,000. When the bank repossessed it added on another €40,000, made up by a combination of legal fees, late payment penalties and interest.

The bank therefore needs to recover €150,000 to break even and therefore sells the property for this amount. On the face of it this looks like a bargain compared to the €250,000 that the property was worth only a few years ago, but it is actually still €50,000 over the actual market value. However, selling a property that “used to be worth €250,000” for an amount of €150,000 appears on the surface to extremely attractive - even though in real terms it remains overpriced. Of course the banks in Spain do also have some genuine bargains to sell.

Essentially the banks in Spain need to recover enough money from the sale to cover the outstanding mortgage plus any interest and penalties due and of course ideally their legal fees. They are not too worried about recovering anything over and above this as that money would have to go back to the owner.

Therefore providing that the amount that the bank need to recover is less than the current market value of the overseas property then it is possible to get a genuine bargain.

Do I need a lawyer when buying a repossession property in Spain?

The vast majority of people, when buying a repossession property in Spain, will be looking at keeping costs down to a minimum with a view to getting the best property bargain that they can. They take the view that because they are buying a bank repossession they won’t need to take legal advice, carry out a valuation or obtain a survey.

This can be a dangerous approach. Just because you are buying a property from a Spanish Bank doesn’t mean that you don’t need an independent solicitor to help you with the legal process of buying the Spanish property. You will still need advice on the purchase contract provided by the bank and the terms of that contract and ideally somebody independent (i.e. not the seller, who in this case is the bank) to carry out all the relevant checks on the property and to advise you on whether it is safe to proceed.

You will additionally need somebody to help you with the registration of the property at the Spanish land registry and advise you as to how the formal completion takes place. Dependent on your financial position, you may also need advice as to who should own the property.

Relying solely on the fact that a legal entity such as a Spanish bank is selling you the property should never be taken to mean that everything is going to be OK – the bank will be looking first and foremost after its interest and not yours. “Do I need a lawyer to buy property abroad “

Has the property actually been repossessed?

In certain situations a Spanish bank may be selling a property in Spain that they don’t actually have registered in their name – i.e. they haven’t actually repossessed it. The property is still in the name of the owner of the property and the bank is simply selling it for them.

Fundamentally, as explained, Spanish Banks don’t want to own property. They are under pressure to reduce the number of properties under their ownership and to repossess fewer properties. The Bank can therefore seek ways to get around this by not actually repossessing the property. What sometimes happens is the bank reach an arrangement with the owner that they (the bank) take control of the property and try and sell it on behalf of the owner, but in the meantime the owner still remains the registered owner of the property.

The Owner, therefore, remains responsible for all the costs of that property including insurance, Community Fees, IBI (rates), maintenance costs and so on. This means that the Bank is not responsible for these costs and therefore keeps its costs down, it doesn’t have yet another property under its ownership, but at the same time “takes” control of the property with a view to selling it to recover what is due to the Bank.

If you are considering buying a property in Spain, either as a repossession from a Spanish Bank or from an individual you should take specialist independent legal advice. If you would like to speak to a specialist Solicitor who deals with Spanish law you can contact us.

Disclaimer – International legal issues are a complex area of law and this information is no substitute for independent legal advice on an individual basis taking into consideration your personal circumstances and legal requirements. This information is provided to provide general information only and was correct at the time of publishing. The legal position in relation to international transactions can change frequently and this page may not have been updated following any changes in the law. You should therefore not rely on this information and should seek legal advice in relation to your personal circumstances.