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ENGLISH SPEAKING LAWYERS IN MALAGA (ANDALUCIA / COSTA DEL SOL) SPECIALIZED IN PROPERTY LAW & CONVEYANCING

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MORTGAGES IN SPAIN TO BUY PROPERTY

Mortgages in Spain to buy property

Mortgages in Spain to buy property

Fixed rate, variable rate interest & Euribor

If you want to buy a property with a Spanish mortgage you should know that the standard in Spain is the variable interest. The Euro Interbank Offered Rate, also called Euribor, is the reference rate for variable-rate mortgages and is currently at very low levels. Most mortgages in Spain are established according to the Euribor plus the interest rate offered by the bank.

Some banks offer fixed-rate mortgages but the number of fixed-rate mortgages obtained in Spain is very low compared to that of variable-rate mortgages.


A mortgage in Spain or another country?

If you are non-tax resident in Spain and you are thinking of getting a mortgage to buy a home in Spain, it is very likely that a bank in your tax-residence country can offer you a better interest rate than a Spanish bank. Therefore, you should try to find out which banks in your country give mortgages in Spain.


Ways to reduce the interest rate 

In Spanish mortgages with variable-interest usually offer a series of extra products are offered that may reduce the interest rate of your mortgage loan. Each of these financial products / conditions can reduce the interest rate between 0,25% - 0,50%, with a maximum of non residents of 0,75% en 1,00%.

Some of these products / conditions are:

  • Setting up a direct credit of your salary or pension
  • Keeping a minimum monthly balance in the account linked to the mortgage
  • Signing up online banking or a virtual mailbox
  • Direct debits of service companies (water, electricity, taxes, etc.)
  • Having a debit/credit card
  • Having a pension plan with a minimal yearly contribution
  • Taking a life insurance and a house insurance / contents insurance


Starting the procedure with the bank

If you already know the bank where you want to apply for your mortgage, we suggest that you apply for the financial approval of the mortgage.

At this stage you will provide the bank with a complete list of your income and loans as well as your employment status and the amount of the mortgage loan you need. The bank will enter all these details into the system and tell you if they would approve the mortgage at your income level.

Through this, you can save time and money since you can find out, right from the start, that the bank will not give you a mortgage and it will not be necessary for you to provide all the financial documentation at the beginning. Besides from this it´s not necessary yet to pay the taxation of the property by the bank. This documentation for the bank, by the way, needs to  include an extract (´nota simple´) of the Land Book Registry, the Registro de la Propiedad, of the property you are interested in buying. If the bank analyses your financial details and cannot grant you a mortgage, you always have the possibility to go to a different bank.


Extra costs of the Spanish mortgage

Updated information due to the sentence of the Supreme Court in October 2018 as well as the change in the Spanish law based on which the banks pay most of the initial costs of the mortgage. 

  • Legal expenses:

These are usually between 3% - 4% of the amount of the mortgage, but are since October 2018 paid for by the banks (and they can be claimed back for mortgages signed since October 2014). They refer to taxes, the notary´s invoice (the Mortgage Deeds are different from the Title Deeds and so they are charged separately), the invoice from the Land Book Registry and processing fees. These expenses are the same regardless of whether the mortgage is obtained from a Spanish or a foreign bank.

  • Solicitor fees:

Even though you can negotiate your mortgage directly with the bank, it is advisable for your solicitor to help you with this process as you will obtain professional advice. Besides of this his work with the bank will be more efficient because he knows the different conditions of the banks, the can check the Spanish general Terms & Conditions and he can negotiate on your behalf.

  • Extra bank expenses:

Opening fee (usually 0,5% - 1% of the mortgage), obliged home insurance (contents insurance) and life insurance for each mortgage account holder.

On this point, I would like to make a special mention about the life insurance policy that most banks usually require to obtain. This insurance policy is obtained for the mortgaged amount and guarantees that the bank can collect the amount due to the bank from the insurance company in the event that the account holders die.

Life insurance is an interesting product for mortgage holders but it may involve a high premium, especially if the insured people are elderly or have any health problems. This is because, in these cases, the premium will be higher as the risk that the mortgage holders die increases. It´s important to know that after the first year you can switch from insurance company to one that offers you better conditions on your life insurance.

It is also common for some banks to require you to pay a single premium for this life insurance policy, i.e., when the mortgage is granted, the bank already charges you for the total insurance premium for the entire mortgage period.

It is important for you to have a summary chart of ALL mortgage costs, so you can know the net amount of the mortgage (after deducting expenses) you will have available to pay for the property.


Legally binding mortgage offer

Once the bank confirms that your mortgage is approved, the legal document that guarantees this is the binding offer (´oferta vinculante´). This bank document functions as a contract and binds the bank to giving you the mortgage under the terms established in the document. The binding offer is usually valid for one month but it may not be valid for less than ten days.


Recommendations when buying a property with a mortgage 

Since the final approval of the mortgage by the bank will take 2 or 3 weeks. Therefore it´s wise to start the mortgage procedure as soon as possible, even if you haven´t selected a definitive property yet.

Have you already decided on the property you want to buy, but you do not yet know if you are going to obtain a mortgage? In this case you could try to negotiate with the seller that the reservation document and/or private purchase contract are ´subject to mortgage´. This clause avoids that you would lose your reservation fees and/or down payment if no bank in the end doesn´t grants you a mortgage loan. However, most (Spanish) sellers do not like to sign contracts that are subject to the mortgage so the best thing is to have everything prepared with the bank so that it takes as little as possible to receive a reply.

Also please keep in mind that not all banks are willing to grant mortgages for house in the countryside, or only for a limited percentage.


Saving money by subrogation of a mortgage

If you are a home owner with a Spanish mortgage than -after one year- you have the right to subrogate your mortgage to another band with a lower interest rate of better conditions. In this case the new bank will pay the rest of the loan plus the transfer commission (if this exists) to your current bank and you will pay your mortgage from that moment to the new bank according to the new conditions.

The subrogation cost is very low compared to the cost of signing a new mortgage. Therefore, if the interest rate that the bank offers you is lower, it is very likely for subrogation to be beneficial to you.

 

Read the extended information about this subject in our pdf-file: Mortgages in Spain to buy property For general information about buying a house in Andalusia you can also watch this video:

 

Author: Gustavo Calero Monereo, C&D Solicitors (lawyers)
Torrox-Costa (Malaga/Costa del Sol/Andalucia)

Less AJD-tax in co-ownership termination property and potential claims for Spanish Tax Office

"Can I claim back AJD tax from my earlier Extincion de Condominio?"

It's usual when couples break up and they own a property at 50% -or in properties belonging to several heirs- that for various reasons one of the joint owners would want to sell his or her share and the other one would want keep the entire property. Said sale or purchase can be made effective through executing a Deed of co-ownership termination (Extincion de Condominio).

Over these deeds 1.5% AJD Tax (Actos Juridicos Documentados / Stamp Duty) is paid instead of the normal 8% ITP / Transfer Tax. There now is an important change that even lowers this AJD-tax and makes it possible to claim back money from the Spanish Tax Office.

 

What is the Extincion of Condominio and what are its benefits?

It's usual when couples break up and they own a property at 50% -or in properties belonging to several heirs- that for various reasons one of the joint owners would want to sell his or her share and the other one would want keep the entire property. Said sale or purchase can be made effective through executing a Deed of co-ownership termination (Extincion de Condominio)Co-ownership termination consists in transferring something that belongs to several owners, who agree to award it/sell it to one of them, with the other joint owner/buyer paying a price for acquiring the share that belonged to the others.Termination entails the end of joint ownership and this asset becomes the property of a single individual but it's only applicable to properties belonging to several owners, if they decide to sell everything to one of them. It wouldn't apply if the sale of this share goes to more than one owner, e.g. if there are three joint owners and two of them keep the other one's share.

Termination of co-ownership offers one main advantage over a sale: the tax paid by the buyer to acquire this share of the property is significantly lower. While in Andalusia the tax on asset transfers for the purchase of a home is 8%, the tax paid for termination of co-ownership is 1.5%, as Stamp Duty (AJD Actos Juridicos Documentados). In other words, to benefit from the tax rate for co-ownership termination, there can only be one owner of the property in the end as, otherwise, this would be considered a normal sale and be taxed at 8% ITP Transfer Tax.

 

Examples

% ITP tax

  • 3 Couples have a joint property. 1 Couple sells their 33,33% on a 50-50 base to the other 2 couples. Both remaining couples pay 8% over their bought share because the property stays in co-ownership.
  • 2 Couples have a property and 1 couple sells to the other couple that is married in separation of goods. They pay 8% ITP tax because the tax office sees this married couple as 2 parties.
  • 3 Brothers inherit a property and 1 sells his part to 1 brother that then owns 66,66%. The buyer pays 8% ITP because there still is a co-ownership of the property.

1.5% AJD tax

  • A married couple gets divorced or 2 non-registered partners end their relationship. One sells to the other, so there is no co-ownership anymore and the remaining owner pays 1.5% AJD over the bought 50% of the property.
  • 2 Couples have a property and 1 couple sells to the other couple that is married in joint assets. They pay 1,5% AJD tax because the tax office sees them as 1  party.
  • 3 Brothers inherit a property and 2 sell their part to 1 brother that then owns 100%. The buyer pays 1.5% AJD over the bought share of 66,66% because there still is no co-ownership anymore.

The owner/buyer now pays less tax

Since 9 October 2018, thanks to a Judgment of the Spanish Supreme Court, the tax cost assessed for termination of co-ownership has been significantly reduced. Up to that date –incomprehensibly– the tax of 1.5% was paid on the entire value of the property, even if, for instance, the share transferred was just 50% of the property. However, with this judgment, a new approach is established, in which tax will only be paid according to the value of the share effectively being transferred, i.e. only on the price to be paid to the seller, thereby avoiding the extra cost that this type of transfer entailed when tax was paid for 100% of the property value, even if the share acquired was just 30%.

 

Possibility to claim previous payments

Likewise, this change in taxation through the aforementioned judgment can have positive consequences on Deeds of Co-Ownership Termination executed within the last four years. Owners who were already joint owners of a property and acquired the rest by paying the price and paying 1.5% tax on the total property value can file a refund claim for undue payments before the corresponding Tax Office. The tax office of the Andalusia Council is the oficina liquidadora.

They can claim a refund of the 1.5% paid for the share of the property they did not acquire, as they already owned that share. If they purchased 30% of the property two years ago and had to pay 1.5% of the total property value, they can claim a refund of the 1.5% paid for the 70% of the property they already owned when they purchased the remaining 30%.

Important: You can only claim back any tax paid within the four years prior to the date of filing the claim for undue payments, as this is the maximum time period to file a claim in accordance with Spanish tax law. I.e. the submission date of the claim cannot be later than four years after the due date of this tax, which is 30 days after the execution of the Deed of Co-Ownership Termination.

Author: Gustavo Calero Monereo (C&D Solicitors / Lawyers, Torrox Málaga)

INHERITANCE TAX IN ANDALUSIA: CHANGES AHEAD

inheritance tax paid by the heirs

inheritance tax paid by the heirs

On 1 August, the Regional Government of Andalusia approved the first of two reforms of inheritance tax in Andalusia. This reform and the upcoming one aim to improve taxation for heirs.

The first reform affected the acquisition of a person's usual residence by heirs and a series of reductions were approved, ranging from 100% to 95% when the value of the home exceeds €242,000. The reduction in inheritance tax in this sense is very significant.

However, it should be noted that only in estates inherited from parents by children (whether biological or adopted), spouses, relatives in the ascending line and persons related collaterally (siblings, cousins or grandparents) over the age of 65 can an heir in Andalusia opt for the reduction for the acquisition of the usual residence. Likewise, the following requirements must be met:

  1. Having lived with the deceased person in the usual residence during the two years preceding death.
  2. Maintaining ownership of this residence for 3 years.

Furthermore, the Regional Government of Andalusia has announced that it would complete a second reform of Inheritance Tax, which will enter into force on 1 January 2017.

In this case, the minimum exempt from Inheritance Tax in Andalusia will be of €250,000 per heir. I.e. heirs inheriting assets valued at an amount equal to or smaller than €250,000 will not have to pay Inheritance Tax in Andalusia.

As explained in a previous article, this exemption only applies to descendants or adopted children of the deceased person, as well as their relatives in the ascending line or adoptive parents and spouses, provided the pre-existing assets of the heir are equal to or less than €402,678.11.

Lastly, another substantial change should be noted as, for estates with a value of between €250,000 and €350,000, a minimum value of €200,000 is established. I.e. if the inheritance received by a child or widowed spouse is valued at more than €250,000, the first €200,000 would be exempt from inheritance tax and only the remaining amount would be paid, provided that the total value of the estate does not exceed €350,000. If this amount is exceeded, inheritance tax would be payable on the entire value of the estate, without the possibility to apply any exemption.

Lastly, I would like to remind you that the best way to plan your inheritance begins with your will, for which reason it is always best to go to an appropriate professional who can examine your situation and give you personal advice.

 

Author: Gustavo Calero Monereo, C&D Solicitors, Malaga, Andalusia.

 

 

ENERGY CERTIFICATE AND IBI PROPERTY TAX REDUCTION

energy performance certificate, IBI, propertyIn September, the Government of Spain, through a legislative amendment, opened the door for city governments to be able to offer a discount (reduction) in Property Taxes (IBI) from 1 January 2016.

This legislative amendment introduces the possibility of offering a reduction of 20%, 16%, 12%, 8% or 4% of the IBI of a property if its energy performance certificate shows a rating of A, B, C, D, or E, respectively.

Now that the central government has allowed for this modification of the IBI, it will now be up to each city government to decide whether they want to apply this discount.

This is so because Property Taxes are of a local nature. City governments are responsible for their management, as long as collection of this tax is carried out pursuant to the Law on Local Treasuries, which is the one amended by the central government to allow for this IBI discount.

That said, if you own a home in Spain and you want to know whether you can save on property taxes, I advise you to do the following:

  • Ask your city government whether it plans to apply this IBI discount from 1 January 2016. If the answer is NO, this settles the matter.
  • If your city government says YES to the previous question, look at the energy performance certificate of your home to find out its rating.

If you have purchased a home in Spain within the last 2 years, be aware that this certificate will be part of your deed of sale.

If you do not have an energy performance certificate, you may be interested in ordering one, so you can know the energy rating of your home and find out whether you can get an IBI discount to pay less every year.

Regarding the energy performance certificate, most properties “fail”, i.e. they have a very low rating. Without a doubt, it can be said that homes in Spain are not energy efficient.

If the rating in the energy performance certificate of your home is very low, do not panic since, unfortunately, this is normal. According to the information published by the idealista website at the beginning of this year, 95% of homes fail in energy efficiency.

In my opinion, this measure, introduced by the central government, is positive, as it is always good to “reward” homes that are better insulated and require lower energy use to be habitable. When they use less energy, they pollute less.

From a seller's point of view, this certificate is seen as yet another expense and another bureaucratic hindrance to sell a property. But, if the certificate is completed well, it provides very valuable information to buyers, as they will know the energy efficiency of the home before buying it and will be able to make improvements in this sense.

Regarding the energy performance certificate, it should be said that it must be available when a home is on sale or up for rental (leases longer than 4 months) so that, from a buyer's point of view, one can know the energy efficiency of a home from the moment one becomes interested in it.

Author: Gustavo Calero Monereo, C&D Solicitors (lawyers)
Torrox-Costa (Malaga/Costa del Sol/Andalucia)

FUTURE REFORM IN ANDALUSIA FOR THE OWNERS OF HOMES CONSTRUCTED ON NON-DEVELOPABLE LAND

Andalucian houses constructed non-develople land

Andalucian houses constructed on non-develople land

Three weeks ago the Junta de Andalucia (Andalusian Regional Government) announced a reform of the Urban Development Law for Andalusia (LOUA) which aims to provide further legal security for owners of homes that are built on non-developable land (rustic land).

With the current LOUA regulations, for those buildings constructed on rustic land in Andalusia and which are within a zoning plot, the prescription period of six years that the administration has to "attack" these constructions on rustic land does not apply. In other words, no time limit is established, therefore the government leaves open the possibility to begin administrative procedures against said plot and the constructions that are on it, when it deems convenient, even if it has been over six years since the home was built.

The above has the main effect that a building on rustic land, built over six years ago on a property that has not been segregated, cannot be penalised or "attacked" by the government, whereas if the construction is part of a segregation/plot division it could be penalised in spite of being built over six years ago, and demolition of the homes built on this plot could be ruled, as established in article 49 of the Regulations on Urban Development Discipline. Regarding this article, I point out that in spite of it and in my opinion, I do not think that it is feasible to carry out any demolition under this precept due to several legal reasons.

The problem with current regulations since the LOUA came into effect in 2003 is that no serious monitoring or inspection policy has been implemented by the Junta de Andalucia and the Town Halls on rustic land. This has led to the proliferation of thousands of new homes and plot divisions throughout Andalusia, especially during the times of the real estate boom, and more so on the Costa del Sol, where this speculation reached unsustainable proportions.

In spite of the fact that it was feasible to control these constructions, it was not done and this led to the buildings entering the legal level, with many owners purchasing in good faith with all the appearances of legality. This has shown that current regulations in Andalusia on rustic land, and specifically on plot zoning, are pointless, because no one has made sure that they were enforced, making them inefficient at best.

Now the intention is to modify the LOUA and provide the possibility for isolated constructions located on plots of rustic land to regularise their situation through the figure of assimilating it as unregulated, that was introduced by the Decree of 2012. This will be so provided that the period of 6 years has elapsed without the government beginning any penalisation procedures against these buildings, therefore to these purposes the legal situation is considered as equal to those homes that are not located on a zoning plot.

It will take a period of 5 or 6 months for this reform to be approved, and it will be approved by parliamentary proceedings, therefore changes will be included during its approval.

I understand that this initiative by the Junta de Andalucia is a first step towards solving this problem. We all would have preferred for this not to have happened and that rustic land would never have been part of town planning speculation, but this problem started many years ago and the issue is clear; what to do with thousands of homes that cannot be demolished now?

Most of these homes are inhabited and they are still being bought and sold between private persons, therefore it is necessary to regularise them so that third parties acting in good faith have legal security as owners of these properties. Likewise, it is reasonable that those that were built without a building permit, which is most of them, should assume a cost for the regularization procedures and they should contribute the same as any citizen who wishes to build a house, and this bearing in mind that the acknowledgement by AFO is not the cure-all either. From an ecological and environmental standpoint, the legalisation procedure must guarantee that these homes do not cause any further damage to the area where they are located, and that their waste water is completely purified by autonomous installations, because as long as they are fully illegal, and cannot be "attacked" by the government, each owner will do what they see fit and damage to the environment will be higher.

In short, given the current situation and bearing in mind the problem that has been created due to the inactivity and lack of control by the public administrations, from a legal, financial and environmental standpoint, we must establish a regularization procedure for these homes. If not, if we continue with the current situation, it would be a great mistake and it would only continue to aggravate the problem as the years go by.

 

Author: Gustavo Calero Monereo, C&D Solicitors (lawyer)

Torrox-Costa (Malaga/Costa del Sol/Andalucia)

SPANISH GOLDEN VISA FOR NON-EUROPEAN RESIDENTS

Golden Visa Spain

Golden Visa Spain

During our stay at the Second Home fair in Utrecht this March we received several questions about the new Spanish ´Golden Visa´ (or ´Investor Visa´) from professionals with wealthy clients in China and Africa. With the rapidly growing middle and upper-class in these new economies, these questions are rather interesting for us as a law firm specialized in property law / conveyance.

With this new investor visa law the Spanish government tries to attract foreign investors in order to stimulate the national economy, to give an impulse to the real estate market and to create more jobs. Politicians up to now are rather enthusiastic, as up to the 14th of April already 661 Golden Visa were granted to investors from China, Singapore, Japan, the United States, South America, the Middle East and Russia. With this article we´d like to inform you about the details of this Spanish law that became active on the 27th of September 2013.

Non-European residents can apply for the Golden Visa under several conditions. The ‘cheapest way’ for them is to buy a Spanish property with a purchase price of over € 500.000. But there are more options for the lucky few that can financially afford to immigrate to Spain. Investing in Spanish companies with shares of € 1.000.000, or having a Spanish bank deposit in Spanish financial entities of the same amount of money, will also do.

There is another option for obtaining a Golden Visa, which is buying Spanish bonds / public debt titles with a worth of € 2.000.000 or more (minimal duration 5 years). In addition, it´s also possible to obtain the Golden Visa by starting a business activity in Spain with a significant worth to the national economy, such as job creation, socioeconomic improvement or scientific/technology innovation. Of course, this officially needs to be approved by the Spanish administration (Economical and Commercial Office). The last option concerns high qualified professionals or transactions within the same company (issued by the Big Companies and Strategic Group Unit).  The condition, of course, is that these professionals can´t be found on the Spanish employee market.

The rights of the residence permit apply to the permit holder and his spouse, children up to 18 years and also -due to health reasons- dependent parents or children over 18 years.

The Golden Via is granted for one year (a normal tourist’s visa only lasts for 90 days) and is renewable for two years, after which another two more years can follow (as long as the investment maintains). After these 5 years you would be entitled to apply for a long-term residency, but this permit will not be granted automatically. The requirement here for is that the applier has lived in Spain legally and effectively for five years, which means that within these 5 years he hasn´t lived abroad for more than 6 months consecutively and for not more than 10 months in total.

Of course, along with the permission comes a set of demands, of which the following are the most important. The person may not have stayed illegally in Spain before, can´t have a criminal record in Spain (o due to the Spanish legal system in the last 5 years) and he needs to have sufficient economic recourses for his (and his family´s) stay in Spain. It´s not obligated to have a tax residency within Spain, though, which makes the Golden Visa even more attractive for foreign investors.

 

Author: Francisco Delgado Montilla, C&D Solicitors (lawyers)
Torrox-Costa (Malaga/Costa del Sol/Andalucia)

 

SUCCESSFUL DUTCH REAL ESTATE FAIR FOR C&D

Seminar ´Buying a house in Spain

Seminar ´Buying a house in Spain

As we already informed you in our previous news letter, C&D has been present at the Dutch Second Home fair in Utrecht last month. Being the only Spanish law firm on the fair, our daily seminars about the Spanish purchase process turned out to be the best attended during these three days, which proves that Spain is still a very attractive country for the Dutch to invest in. Also more than half of all exhibitors (mainly real estate agencies and developers) were focussed on Spain, which according to the organisation already has been the case for many years now.

In our stand we were able to speak to a lot of people with serious plans on buying a property in Spain, in most cases on the Costa del Sol or even particularly the Axarquia. The main issue in our conversations was to explain the important role of the lawyer during the purchase of a property in Spain. This situation is different from the Netherlands as in this country the lawyer´s work is completely done by the notary. We also got a lot of questions regarding wills and tax issues, for example on the subject of renting out a new bought property.

Author: Gustavo Calero Monereo, C&D Solicitors (Lawyers) Torrox-Málaga

Stand of C&D Solicitors on Dutch Second Home Fair in Utrecht

Stand of C&D Solicitors on Dutch Second Home Fair in Utrecht

Our daily seminar we held in both Dutch and English and we explained the different phases of the buying process with the various legal documents there are to sign (reservation contract, private purchase contract and the title deeds). Besides of this we gave some background information on the official investigation of the lawyer, by which the future owner can make sure he´ll buy his property with all possible guarantees and free of any risks. (The extended Dutch text of our seminar you can find on the home).

Looking back we can say that this fair exceeded our expectations and has been really successful for us. Not only in the perspective of attracting new clients but also as a learning experience of presenting our company on the Dutch market. Despite of the good weather this Second Home edition in Utrecht attracted around 5.000 visitors.

Author: Francisco Delgado Montilla, C&D Solicitors (lawyers)
Torrox-Costa (Málaga/Costa del Sol/Andalucia)

C&D AT SECOND HOME FAIR IN UTRECHT

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C&D Solicitors likes to inform you about the fact that we will be present at the Second Home Fair in Utrecht (the Netherlands) from the 28th until the 30th of March.

As the only Spanish law firm on this fair we´ll provide Dutch visitors with legal and fiscal information concerning the Spanish purchase process. We also have been invited to -together with our Dutch commercial assistant- give a daily seminar, which will start at 14:45 hrs. (seminar 1). After this seminar exists the possibility to ask us specific questions in the fair´s wine bar that will have a special theme on Spanish wines.

If you happen to be able to visit the fair, you can download free tickets through this link and we look forward to welcome you in our stand!

Author: Francisco Delgado Montilla, C&D Solicitors (lawyers)
Torrox-Costa (Malaga/Costa del Sol/Andalucia)

RELEVANT RULING FOR HOMEBUYERS OF NON-COMPLETED PROPERTIES WITHOUT BANK GUARANTEES

Ruling for non-completed Spanish properties without bank guarantees

Ruling for non-completed Spanish properties without bank guarantees

In the last few years, it has become quite common the significant number of homebuyers who have purchased off-plan properties and paid large sums of money on account for their future homes, however, the developer has never completed nor handed them over. Consequently, the advanced money has been lost in many cases, because the developer may have gone bankrupt and lost all assets to refund these amounts to them.

Spanish Government passed in 1968 the Law 57/1968 dated 27th of July on the receipt of sums paid in advance prior to the construction and sale of homes. This was aimed at stopping several cases of homebuyers who lost their money paid for properties which never were built.

Spanish Law 57/1968 is still in force and solicitors, who are specialised in this issue, know the regulations for homebuyers’ protection in respect of sums paid in advance to developers for off-plan or under construction properties prior to their completion. However, the most relevant point at this moment is the judgment argumentation set out for the court proceedings where 46 homebuyers without bank guarantees securing advanced payments, made a legal claim jointly and severally to the bank and the developer demanding the total amounts paid, because the construction works were never completed. The judgment was pronounced by a court of first instance of Albacete on the 08/06/2012 and was confirmed by the Provincial Court on the 11th of February of this year.

The aforementioned judgment ordered the bank to refund all amounts of money paid by the homebuyers, considering that it was jointly and severally liable together with the developer, pursuant to the interpretation of Articles 1 and 2 of the abovementioned Law of 1968, Article 4 of the Spanish Ministerial Order of 1968 and the First Additional Provision of the Law 38/1999 on building regulations.

Although the bank was not a party on the sale agreement and did not either issue bank guarantees for homebuyers’ payments on account, the main line of argument of this judgment to consider the bank to be jointly and severally liable is that this bank knew about these payments in the developer’s account and was aware that these amounts were paid for the purchase of homes in a property development. As a result of that, the bank did not comply with the obligations provided by Law 57/1968 and committed a banking malpractice, pursuant to the interpretation of Article 1.2 of this Law, as the developer should have been required to open a special account where depositing its funds apart from any other amounts aimed at the construction of the properties. In addition, the bank should have not permitted these deposits in ordinary accounts, and particularly when this bank was the only financial entity financing the development and profited from this real estate business.

This judgment entails a court action to recover the money for those homebuyers without bank guarantee securing the amounts paid on account to developers, because, if appropriate, they could bring an action for joint and several liability against the bank where the developer’s loan was granted, where the payments were deposited and where the developer operated. Thus, homebuyers will have better chances to recover the sums paid, considering that there are already many judgments where developers has been condemned to pay, but court orders cannot be enforced because of their insolvency, while banks are always solvent.

 

 

Author: Gustavo Calero Monereo, C&D Solicitors (lawyers)
Torrox-Costa (Malaga/Costa del Sol/Andalucia)

 

LEGAL COUNSELING: “IF YOU BUY CHEAPLY, YOU PAY DEARLY”

Legal investigation by professional

Legal investigation by professional

Some months ago, a foreign prospect client, who we have come to know as “Mr. X”, came in our offices. He requested some information regarding sale procedures, legal work and our professional fees.

After the first free appointment, in all honesty he commented to us that he had contacted a professional offering a 40% cheaper fee than ours. However, he would be interested in contracting our services provided that we could offer him a discount.

At that moment, we considered which option to adopt; naturally, we wanted to win this client, but we also knew that the rural property, which he wanted to buy, required a quite complex searching process.

At the end, Mr. X was offered a “courtesy” discount in our fees, which was not close to the low price offered by the former professional. Finally, Mr. X decided to contract the other professional’s cheaper services.

Regarding the current market and low circulation of clients, some solicitors offer great discounts to stand out from competitors and then win a client. Then, considering the aforesaid, why our legal firm did not offer a higher discount to win Mr. X as a client?

The answer is obvious; because such low fees proposed by Mr. X could not pay for the time of commitment for the searching process to buy the above mentioned property in a rural land and then providing full legal certainty to the client.

Within our professional environment of legal services, you may and shall be flexible and capable for adapting to win a client, considering the current situation of financial difficulties and increase of competitors in our sector. However, you should NEVER compete with lower fees, because if the fees for your services are reduced so much, then the quality of your services becomes also poorer.

Furthermore, if we are realistic, no professional may work with the same intensity neither commit the same time when their fees are so low, because production costs and ideal profits would require much more cases which may not be properly and professionally handled, and as a result, a poorer quality counseling service may be provided.

Later on, we knew that Mr. X hired an agent’s services for the legal counseling instead of a solicitor’s. We do not know how his case finished or whether he received a good counseling service. Similarly, if I do not feel physically well or fell pain, I would contact a doctor for a diagnosis and the prescription of a solution, instead of contacting a person who is not a doctor and claims to know a lot about medicine. As a qualified general practitioner, the doctor is better trained and has a legal responsibility. As a result, the patient-client receives more security and reliability, although he or she may pay more for these services.

In all honesty, an agent will never provide the same legal service as a solicitor will, because a solicitor has been exclusively trained by and for law. Solicitors’ training is eminently juridical; this full time commitment and the responsibility of the practice of law—because of the rules and the professional ethics code and good practice; shall always result in a higher quality legal counseling and greater commitment to the client. But I do not go against agents, as I personally know some of them and I am aware of their worth. However, they are not solicitors.

In short, although we were really looking forward to winning Mr. X as a client, we could not afford to reduce our fees so much in order to avoid a poorer quality service. The fact of highlighting our professionalism and tailor-made customer service in our law firm implies a commitment of time and this commitment implies some costs that the client should pay.

 

 

Author: Gustavo Calero Monereo, C&D Solicitors (lawyers)
Torrox-Costa (Malaga/Costa del Sol/Andalucia)

 

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