Janet and John part 5

Some of the misconceptions solved for buying overseas property

Janet and John had reserved their new property overseas. They had paid the reserve to the solicitor Raphael, and he had secured the property for them. He was now in the process of searching at Land Registry to see what if any were the problems related to their dream purchase. He soon found one. Janet and John were still recovering from the shock of having to put up half the money in cash and I mean real folding money!

It transpired that there was a mortgage on the property for 120K. He rang John and enquired if they knew? No was the reply but surely such a mortgage would be cancelled or settled by the current owner? Such is the habit in the UK that mortgages move with people but are secured on property. However in the UK when a property is sold the new owner buys it with clear title and no debt attached to the property.

In Spain the mortgage can stay with the property in question. The seller can happily transfer the mortgage to the name of the buyer or just walk away leaving the mortgage with the property. That mortgage never follows him but is charged against the property and the new owner becomes responsible to the Bank for the loan and the term.

It has often happened in Spain that foreign buyers have not employed a good solicitor or not even employed a solicitor at all but trusted the agent! Yes the hot sun gets to them all at some point. Unwittingly buying properties for the full price, only to find out later, that there is a mortgage on it or a huge council tax debt!

However it can also work to a buyers advantage. The old owner may have arranged a sizeable mortgage with a reputable lender over a long term and at a low interest rate. Even with variable mortgages, those that react to changing National base rates, by European standards these mortgages are normally inexpensive. Of course there is always the odd one that has been arranged for an un-creditworthy consumer with harsh conditions. Buyers beware!

What to do?

First contact Andy the Property pal. Is this normal? What shall we do? Back came the answer. Yes its quite normal. First ask what the terms and conditions are. What is the rate of interest, who is the lender and what is the term? If they are acceptable and the lender is well known then it could be to your advantage to accept the mortgage as part of the purchase price.

John spoke with the agent and explained the problem. Jose Miguel agreed to call the owner and make the necessary enquiry. John also had other queries relating to services and local taxes. John then asked if there was an electrical certificate. Poor John.. Jose Miguel smiled, My friend this is Spain, the property is over 20 years old you will not be able to get such a thing however desirable. John mentioned that Andy knew a local electrician, an Englishman called Brian would it be OK for Brian to do an inspection for him? Of course whenever you like!

A few weeks later they are back in the UK and waiting for news. Nothing has been heard for a while and John is worried, Janet is becoming anxious. John decides to use the Property Pal network again and that night sends Andy, his Property Pal for Costa Valencia an Email. Andy replies two days later. He has phoned the agent and the solicitor and Brian the Sparks. All is going reasonably well, the legal process is progressing but John should plan to come back to Spain in 3 weeks time for a likely completion.

Janet is very happy with his news and John sits her down to discuss the outstanding problems.

The mortgage is a good one. The lender is Banco Popular a reputable lender and the interest rate is 3.5% with an outstanding term of 10 years. This means that 120K outstanding can be taken off the purchase price and Janet and John can take the responsibility of the mortgage with the property. The advantage is John does not have to register a new mortgage at the Town Hall and avoids paying a mortgage tax. He also saves a lot of time in not having to arrange his finance, albeit the loan is more than he wanted at least it is very cheap by UK standards and manageable.

The electrical report has come back from Brian the Sparks. It is not good news. The system that exists is illegal. The power input is so low that a microwave will set off the trip each time it is used. Brian assumed correctly that Janet would want a dishwasher, tumble dryer, air-conditioner unit, kettle and other electrical appliances installed and the power is just inadequate. John would have to apply to the local power company for an increase in supply. They would arrive to inspect and declare the current installation illegal.

What to do?

Contact Andy the Property Pal. Andy instructs Brian to quote for the upgrading and re-wiring and installation of new circuit breakers. Andy will see if he can call the local power company and start a process for Janet and John. If Brian can do the work first then when they make their inspection, and of course when is the keyword, they will declare it acceptable for a power supply increase.

The next problem for our intrepid pair is how to handle the darker side of the cash purchase.

In Spain there is no Capital Gains Tax on your primary home but in theory there is on your second or weekend home. Traditionally over the years property has changed hands with little concern for the accuracy of the boundaries or deeds. Much of the price has been paid in cash from below the bed. This habit is changing and many lawyers are now under greater scrutiny from National and local bodies who wish to see the real value of a house declared and tax paid thereon. So the habit still exists but lawyers are encouraging and cajoling sellers to declare at least 70% of the value in legal tender.

Thus 30% is paid for in hard folding cash. If the declared value is too low then the Town hall Notary has been known to fine the seller for the assumed balance by going out and valuing the property! It is not unusual for buyers and sellers to exchange cash at the Notarys office in a large bag. Obviously this does not go unnoticed by the local criminal fraternity and there are many instances of persons being robbed on their way to or from the completion meeting. It is normal but absurd as the Public Notary office is fully aware that this practice exists, and the Notary in question will simply withdraw from the room for 5 minutes whilst the parties exchange the cash!

Often there will be two solicitors and two opposing bankers present, as well as the bagman, his counterpart and maybe a translator. It is a real farce which is slowly changing. It is now even acceptable for a Bank to draw a check for the cash element and bring that with them for their client instead of the insecure currency notes. However there are still sellers that insist on cash for their balance outstanding and some who even do another portion outside of the auspices of the Town Hall! Do not get involved in this practice is the advice from the myProertyPal.com website. The system is becoming so farcical that I have heard stories of Banks running out of cash and having to go around the local town and collect it from other Banks!

Janet and John chose Banco Popular and they and the opposing side were able to accept a check for the funny balance and all went well with their date of completion.

So the intrepid pair completed their learning curve of buying their investment property overseas, but was that the end of the story or was there much more to learn about Living in Spain? Of course and we will re-join them later!