Financing the acquisition of real estate in Spain

Financing the acquisition of a real estate in Spain requires the buyer’s entry into the land registry. This entry does not have a constitutive effect.

Peculiarities may arise if the buyer acquires one unit of a greater whole, thereby entering into an owners’ association. The buyer of an apartment or a terraced house will find themselves the sole owner of the property itself, but will also acquire shared ownership of any communal goods (such as staircases, elevators, pools, and the like). These must be entered separately into the land registry in order to become shared property.

Clarifications for the acquisition of a real estate in Spain

  • Have the pool, the elevator etc. been separately entered into the land registry
  • The buyer’s share of the communal property must be fixed, as it will dictate how much the buyer will be liable for in communally incurred costs
  • The buyer’s liability begins with the transfer of ownership. It is thus imperative to ascertain whether the previous owner has honoured all former liabilities

Financing of real estate acquisitions by mortgages

The entry of a mortgage into the land registry is an exception to the rule that such entries do not have constitutive effect. The certificate of entry thus represents a legal title.

The bank that takes charge of appraising the property and commissioning the notary usually handles the transactional execution. This generates fees for the appraisal, the notarisation, and the entry into the land registry, as well as incurring a stamp duty (which is also a requirement of entering the mortgage into the registry). One peculiarity applies in cases of financing through a foreign bank: in this case, there will generally be additional fees for the lawyer. As in the case of the direct acquisition of the property, it is common for banks to try to shift as many burdens as possible onto the borrower.

Financing of real estate acquisitions by mortgage backed loans

Banks have developed a specific type of loan to finance property developers called the Mortgage loan for freely financed property development. This loan is meant for the development of properties, but can also serve to finance their acquisition. The developer and the bank will agree on a repartition of the mortgage across the various units of the project. It is advantageous for the developer to notarise the corresponding repartitions as soon as possible, creating legally separate properties that can be individually entered into the land registry. This allows for an early transfer to interested buyers, who can decide whether to maintain the mortgage or repay the loan and dissolve the mortgage ahead of time.

There has been a change in Spanish law meant to overcome the real estate crisis in Spain by strengthening the independence of appraisers from their commissioning banks, creating the possibility of partial discharge of residual debt in case of a judicial sale, and granting a stay of execution in cases of hardship. In this context, it is also worth mentioning a case decided by the Spanish Supreme Court (Tribunal Supremo) on March 19th 2013, which broke new ground regarding clauses of minimum interest (cláusulas de suelo) and set new standards of transparency.

We are at your disposal should you wish to know more about the acquisition of a real estate in Spain.

Please note that this article is not intended to provide legal advice.

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