In Spain, the general rule is that when you buy, you take over the burdens associated with the property. A burden can be an easement, for example, but is often a financial debt. As the new owner of a Spanish property, creditors can therefore address you directly. For that reason, here you will find more explanation on how to you can safely buy a property in Spain with debts.
The video below is a summary of this blog created using artificial intelligence.
What are the most common debts?
A property in Spain with debts is common. The most common debt, of course, is a mortgage loan. The seller of the property took out a loan at the time of purchase in order to pay for the property. For this, the bank took a mortgage on the property as collateral.
Small debts, such as council tax (IBI), contributions to the community of co-owners or charges to utilities.
In addition, the buy-sell also creates tax liabilities on the seller's part. For instance, he will have to pay capital gains tax. If the seller is a non-resident in Spain, as a buyer you have to deduct 3% from the purchase price and pass it on to the tax authorities. Also, the municipal capital gains tax (plusvalia municipal) a cost to the seller, but if he is a non-resident, the municipality can claim this cost from the new owner.
Finally, various debts are possible depending on the seller's personal situation. For example, there may be other tax or social debts for which the property serves as collateral. This is less common in practice.
What to look out for when buying a property in Spain?
How can you buy without debt?
It is important to have an idea of the debt situation before you make a final commitment to buy. After all, the notary in Spain does not automatically cancel the registration of a mortgage. Other debts are also not paid automatically.
Read more about the duties of a Spanish notary.
Therefore, it is customary to deduct the debts from the purchase price when the deed of sale is executed and vouch for payment to the creditors yourself. You can also take out a retention for the cancellation costs. This way, you can be sure that you buy the property free of debts.
Alternatively, you can withhold a retention of the purchase price until the seller demonstrates that the property is free of encumbrances. In that case, it is advisable to take a generous retention: the full outstanding debt + costs + substantial damages. In addition, you attach a time limit to it.
An example. You buy a property worth EUR 1,200,000.00. The outstanding debts amount to EUR 300,000.00.
Option 1: you pay the creditors EUR300,000.00 directly and the seller EUR900,000.00 minus any costs.
Option 2: the seller pays the creditors, but you deduct EUR 400,000.00 from the purchase price until he can demonstrate within two months that the property is free of encumbrances. This way, the seller has a incentive to act quickly. If he fails to meet his obligations on time, you retain the retention (and can pay creditors), with the compensation.
Read more about paying for a property in Spain.
What is the process of cancelling a mortgage?
The seller should notify his bank of his intention to sell. At the same time as signing the sale deed, a separate deed will then be drawn up. Through this deed, the bank cancels the registration of the mortgage. You will then pay the purchase price in two bank cheques: one for the bank and one with the balance for the seller. The cancellation fee is for the seller.
What if the mortgage cancellation did not happen, because the bank was not informed, for example, and the seller does not pay off his loan in full? Then the bank can still foreclose on your property. After all, the mortgage registration remains in force.
It is possible that the seller can prove that his debt was economically repaid (read: paid off), but that the mortgage has not yet been cancelled. In that case, the mortgage can still be cancelled after deed. It is then advisable for you to deduct a retention from the purchase price for the cost of cancelling the mortgage.
Finally, if you want financing yourself, you can also take over the loan with the bank's permission.
Conclusion: how do you safely buy a property in Spain with debts?
Before signing the compromise and making the first payment, it is advisable to have the legal situation of the property checked. This includes the urban planning aspects, the ownership situation, but also an overview of the debts. Once you have a correct picture of the status of the property, appropriate arrangements can be made in the compromise. For example, you can fix the method of payment in advance so that no misunderstandings arise later.
Here you will find the buying process of a property in Spain practically explained.
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