Buying of second home activity in Spain has picked up significantly in the last few months.
The current interest in buying in Spain appears to be mainly due to a belief that prices have bottomed out, the Spanish overall economy is improving, and a general feel good factor of potential buyers about their own economies.
With activity levels up one would hope that lessons have been learnt from the well documented boom period when many buyers in Spain found the legal services they had contracted were lacking and that the property they had bought was fraught with legal issues.
How has the Spanish buying process improved
Many things have happened since 2008 in terms of ratifying urban issues making the whole buying process in Spain clearer and more transparent. New urban plans have incorporated many properties that were previously deemed illegal and checks at the Town Halls now are more robust allowing for any buyer to understand the exact situation of the property they are buying.
There are still some hangovers from the days when developers built without the right license, overbuilt in terms of density of build to land, built on land designated for a different purpose or licenses were granted by corrupt officials. Whilst most of these properties have been included in the new urban plans some have outstanding infractions that require the original instigator of the infraction pay a fine to the Town Hall or recompense the Town Hall in some way usually by the granting of land in another area.
All Town Halls have stipulated that whilst there are open files on these properties they will not pursue any future buyers, but will focus on obtaining the fine or land from the developer who built in the first place. In general as long as the buyer knows the issues that are outstanding the risk of them ever affecting the new buyer is small but it should be taken into account that political landscapes change and the properties in these situations will never the less remain a little in no man’s land until such a time as the Town Hall is compensated for the misdemeanor.
It is very unlikely that at any point the Town Halls will look for compensation from a future owner who bought in good faith, but whilst a file is open, the property will not be completely legal and may not be able to obtain a first occupation license.
How can historic urban issues affect a new purchase in Spain
For cash buyers the immediate consideration is a small future risk that the Town Halls change their stance on not pursuing new buyers or the fine is never resolved, but this can be a calculated risk as often sellers of these properties will sell below the market value in order to secure a buyer. Weighing up the value of the property against the small risk and the future potential for capital growth, when the infraction is resolved, is something many buyers may wish to consider.
What other factors should a buyer consider when assessing the risks.
Firstly the Banks in Spain, or at least many of them, will either not mortgage the property or will retain from the mortgage a sum of money at the level of exposure the property has to Town Hall fines until such a time as the fine is paid and the Town Hall have closed the file. If the buyer therefore needs a mortgage they may find that they either cannot get funds or the level of funds they can obtain are smaller than they were expecting.
The second and perhaps as important issue is that some Spanish Lawyers do not seem to have learnt too many lessons from the first time round and are either dismissing the risk as completely insignificant or choosing to not tell the client at all. This is more often the case when the lawyer has been recommended by the selling agent than when the lawyer has been sourced independently which takes us back to the old days when Lawyers dealing with conveyance in Spain made decisions for their clients about what the client should or should not know about the property they were buying.
An independent Lawyer should clearly outline any issues, however small, to the buyer and then help the buyer assess the risk as it affects them personally allowing the buyer to make their own decisions about whether the benefits of the buying the property are outweighed by the risks the property has. Most buyers with a good understanding of the small risks will probably still proceed but will do so in an informed rather than an un-informed manner.
Have legal services improved in Spain
In the last few weeks the mortgage arm of IMS has come across a number of properties that are being bought where the properties themselves have issues which have only been highlighted at formal valuation of the property.
In the main the issues relate to either urban infractions as above, or overbuilds not registered at land registry. Only square meters registered at land registry can be deemed to be 100% legal and only registered square meters can be taken into account on a valuation for mortgage purpose. It is incumbent for the lawyer and or the selling agent to ensure that the meters recorded on the Nota Simple match those on the ground.
It takes very little time when listing a property to check by measuring the property against the registered square meters so that any problems can be identified early on in the process and whilst not an obligation for the lawyer, a good lawyer should also want to check that what their client is buying is in fact fully registered and all parts of the property therefore completely legal.
It is of some concern therefore that as activity rises the professionals who assist nonresident buyers take their obligations and customer service levels seriously and ensure that Spain does not yet again fall foul to bad press in other countries where in the past poor advice has ended up in people losing their savings, their homes or ending up with a property they cannot sell on in the future.
Short term attitudes of taking fees now with little consideration of the future is part of what caused the problems in the past and has had the backlash for all legal service providers of making legal fees for conveyance hard to come by for many years. The legal providers in Spain who may be tempted to take easy and quick money should think long and hard about the service they offering and not be swayed by who sends the client to them, even if to put in place a barrier to purchase, is going to upset the very person who sent them the client in the first place.
Buyers of property in Spain should also take heed and avoid Lawyers recommended by either the seller or the agent however good they believe the personal relationship is with that individual. The fact an agent has given you good service and treated you well does not mean they necessarily understand property law and neither does it change the dynamic of the relationship which at the end of the days is a business not a personal one. Estate agents make money out of selling houses not making friends.
How can I buy safely in Spain
Some of the age old issues still apply in Spain. The process of buying itself is much more transparent and the information available to check the situation of the property has improved but many properties still maintain issues that may not cause major problems but should be taken into consideration when buying.
The key golden rules are
If it is not registered at land registry it does not exist until such a time as it is registered and some square meters may never be able to be registered.
If the property has outstanding infractions these will stay in place with an open file until the matter is fully resolved so assess what your intentions are in terms of selling in the future and what level of risk you are comfortable with.
- The property may not have an open file and such a long period of time may have passed that it is most unlikely a file ever will be opened but this does not mean everything is hunky dory and fully legal in the truest sense of the word so even if there is no open file consider the implications however small.
- Check the property has a first occupation license where it is required
- If the property is Rustica rather than urban it is necessary to understand fully the implications in the case of a compulsory purchase for new infrastructures, what is actually registered on the land, building density both past and current and that for mortgage purposes Rustica properties will rarely meet market value and will be difficult to mortgage.
- Do not think saving a couple of thousand on legal fees is smart, always appoint a Lawyer and ask yourself the question about the quality of the advice if that Lawyer is offering to do the conveyance for a much cheaper price than anyone else.
- Get a quote for legal fees upfront and ensure that this is detailed and includes an estimate of add on or disbursement costs.
- Ensure your lawyer explains the costs of owning a home in Spain the purchase costs are not the only consideration you must make. Yearly taxes can apply which can vary from region to region and ownership structure to ownership structure.
What to expect from your Lawyer in Spain
Many Lawyers in Spain are hardworking, honest and diligent but like any profession some are not, never assume you have legal protection because something has not been mentioned you would have protection by way of public liability, proving actual negligence is very difficult. Remember it is a Spanish trait to only answer the questions that are asked so bear this in mind as if you don’t know the right questions to ask you may not get the best advice possible.
Spanish Lawyers can also bow to pressure to get the transaction completed; this is often by their own client, the sellers Lawyer or other third parties and can cause them to cut corners. If your lawyer thinks the most important thing for you is to secure the purchase and this is the message you are giving them they may not be as thorough as they could be in case the delay loses you the property.
Select your legal services carefully and explain to your legal adviser your attitude to risk and make it clear upfront you want to know everything about the property no matter how small or insignificant your lawyer themselves think it is.
With care and experienced legal advice buying in Spain is very safe but on top of the legal advice you need to select a provider who gives great, not good service, and fully understands what a non resident buyer is going to expect from them at the outset. Do not be overawed, as many are by Lawyers, stand your ground and make it clear you want the right steps in the buying process taken at the right time even if finally this risks losing purchase. Better to lose the property than your money.
To obtain fixed fee, quality legal advice when buying in Spain contact us today