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Contract, mortgage, and other procedures

Purchase contract

The contract for the sale of a home can be made either in a private document, or in a public document (authorized by a Notary Public ), but the buyer has the right to demand the public form (the Civil Code says that it must be recorded in a public deed).

It is very convenient to make use of this right because only the purchase agreement that is recorded in a public deed and that is registered in the Property Registry provides the buyer with legal certainty that they will not be attacked – sued – in their property (that is, is insured and invulnerable against claims or demands due to defects or defects in the ownership of the seller or against the existence of other non-registered owners, or due to the existence of debts contracted by the previous owner).

It is a “preventive” legal security system, that is, it anticipates conflict, avoiding litigation.

To be able to register in the Property Registry, a public deed is an essential requirement, because in private documents the legitimacy of the contracting parties is not guaranteed, nor their ability to grant the contract, nor is freedom asserted in any way. and awareness of the declaration of the will to buy and sell, nor the certainty of its date, and that the consent has been formed without adequate advice. All these points are guaranteed with the public deed.

The notary who intervenes in the deed is obliged to provide neutral advice between both parties and always the consumer (weaker party), unlike the intervention of the lawyer, who acts in defense of the interests of the party that has hired him.

In the registration in the Property Registry, the Registrar will eliminate null, abusive agreements and those that have a personal nature (those that only oblige the contracting parties, but are alien to those who in the future contract any right over the property). Consumer protection is automatic.

Some of the most important abusive clauses are the following :

  • Those that in any way authorize the seller to increase the deferred price during the term of the contract, or those that exempt him from liability.
  • Those that impose an increase in the price for ancillary services, financing, postponements, surcharges, or penalties that do not correspond to effective additional benefits that can be freely accepted or rejected by the buyer. In addition, the work reforms must be expressly approved by the buyer.
  • Those that involve an impact of expenses that by law correspond to the seller (for example, the expenses of formalizing the declaration of new construction and horizontal division).

Payment of the consideration

The price of the house must not be paid in full without having previously carried out the documentary verification.

Regarding the form of payment, several possibilities must be distinguished:

  • The advance payment through the deposit or signal. It is common that before signing the contract, mediating an agreement on the price, it is intended to immediately fix the commitment by paying a partial amount of the price as a “deposit or signal”. In these cases, in the event of withdrawing from the contract, the buyer will lose such amount, while if the seller withdraws, he is obliged to return it doubled.
  • Simultaneous payment or after the signing of the contract. It is necessary to differentiate three cases: the payment of the cash price, the deferred price, and the subrogation in the pre-existing charges.
  • Cash payment.
  • Only in the case that the property is free of charges in the Registry (without mortgages, or tax conditions, or embargoes, etc.), must the price agreed upon signing the contract be paid in full, because in the event of such changes it must deduct its amount from the price. It is even advisable that full payment is only advisable when the contract is signed directly in a public deed, since the buyer may enjoy immediate protection through the electronic submission by the Notary to the Property Registrar of communication of having authorized the deed.
  • When a partial payment is made on account of the price in cases of “purchase off-plan”, that is, when the building is not yet built, the Law obliges the developer to guarantee the buyer the return of such amount in case of non-compliance with the contract, including legal interest, through insurance, and without prejudice to the applicable purposes (which can reach up to 25% of the amounts that must be returned).
  • Deferred price.
  • If a part of the price is postponed despite the absence of any charge, then it is the seller who must adopt certain precautions. In particular, it is advisable to guarantee that part of the price whose payment is postponed, either through a resolutive condition (so that if the buyer does not pay within the agreed term, the house is once again owned by the seller) or through a mortgage, that in case of non-payment the farm is auctioned to pay the seller.

Subrogation in pre-existing charges.

  • Especially if the home sold is mortgaged, subrogation on this pre-existing burden can be helpful. In these cases, the seller will see the price reduced by the amount of the part of the mortgage loan that is pending amortization or repayment, while the buyer can finance himself with the same mortgage. In this case, it is advisable to ask for the express consent of the creditor (Bank or Savings Bank) to this change, because otherwise the seller does not disengage from the debt and may find himself with a claim in case the buyer does not pay. However, in the case of a mortgage that is in the judicial execution phase, it is essential to exercise extreme caution on the part of the buyer, being preferable to demand the prior release of the property from such procedures.

Mortgage

One way to finance the purchase of a home is a mortgage loan granted by a financial entity documented in a public deed and registered in the Property Registry.

This lower cost of the mortgage loan derives from the fact that the most important consequence that emerges from the constitution of the mortgage is that in the event of non-compliance with the obligation to repay the loan in the agreed terms, the Bank, Savings Bank, or the A creditor financial institution may, through abbreviated judicial procedures (called summary judicial procedures), or by a notary public, proceed to sell the mortgaged property at public auction to collect what is owed with the price obtained, leaving the surplus available of other creditors and, failing that, for the debtor.

In general, financial institutions grant mortgage loans for an amount equivalent to the appraised value of the home, but if they want to use a said loan, in turn, as collateral for an issue of mortgage securities (they form the so-called “secondary mortgage market “) are limited by law the maximum amount that they can grant as a loan to 70% of the value of the property, or 80% when the purpose of the loan is to finance the construction, rehabilitation or acquisition of the home.

Limitations of the owner for constituting the mortgage

The property, unless it is sold in the event of non-payment, remains the property of the debtor, who can sell it, rent it, re-mortgage it (as long as the amount of the two mortgages does not exceed the value of the property), and/or enjoy it for yourself. In the event of a sale, the buyer will deduct from the agreed price the part of the loan that has not yet been repaid (amortized).

Regarding the leases, on some occasions, the Banks require that they not be rented below a certain annual rent. This is because in the case of sale at judicial auction, in many cases the legislation recognizes the tenant the right to continue in the lease, so it is logical that a minimum rent is agreed so as not to harm the buyer in the auction.

Post-sale procedures

After signing the public deed, you must immediately request its registration in the Property Registry. This registration is voluntary (the Law does not impose it mandatory), but it is highly recommended to obtain it to achieve the adequate degree of legal security and the guarantees that we explained before.

Together with our request, we must present an authentic copy of the deed of sale in the Registry. This presentation can be made directly to the competent Registry due to the situation of the property, or by telefax from the Registry in whose locality the deed has been granted in urgent cases, or by telematic communication sent from the Notary’s Office in which the writing has been authorized.

This avoids any risk of fraud or double sale during the five days that the Notary has to issue the copy of the deed.

Taxes on the sale of the home

To obtain the registration, in addition to passing the favorable qualification of the Registrar in his judgment of the legality of the document, the payment of the Patrimonial Transfer Tax that is levied on the sale must be made. To determine the amount of this tax, it is necessary to distinguish between buying from a developer (new home) and buying from a private individual (second hand).

In the case of purchase from a promoter.

  • The transfer, as a normal business operation, is subject to Value Added Tax (VAT), which the buyer must pay directly to the seller, who must subsequently pay it to the Public Treasury. The general rate is 7%. If you buy a garage space together with the house, you will also pay VAT at the same rate. If you buy it separately, you will pay the general VAT rate of 16%. You must also pay the Tax on Documented Legal Acts at the rate of 0.5% (however there are different rates in some Autonomous Communities – Basque Country and Navarra -). The settlement of this tax can be done by the interested party, either through the Notary or a collegiate manager. In the Canary Islands, there is no VAT, and the tax that is paid is the IGIC, 4.5%, and 0.5% of a documented legal act.

In the case of purchase from an individual.

  • That is, when it comes to used or second-hand homes, you must pay the Property Transfer Tax at the rate of 6% on the real value of the acquisition (7% in Catalonia and Madrid), which in principle is the declared value in the deed, without prejudice to the possible verifications of the Public Treasury. In case of differences between the declared value and the real value, complementary settlements are made, and eventually, if the difference exceeds certain percentages, penalties are imposed that can become serious. The liquidation of this tax may be carried out by the same channels indicated above.

Hidden vices or defects

There is a responsibility for hidden defects (called “cleaning obligation”) on the part of the seller, as well as the builder and architect established by the Civil Code for ten years, regulated by the Building Law.

In addition to the contractual one, the people who intervene in the building process vis-à-vis the affected owners have the following responsibilities :

  • for material damage caused to the building by flaws or defects in the foundations, beams, floors, or load-bearing walls, for ten years;
  • for material damage caused by vices or defects in those elements or facilities that affect the adequate habitability of the home, for three years;
  • for the vices or defects that affect the elements of completion or finishing of the works, for one year.

If the cause of the damage cannot be identified, the promoter will be liable jointly and severally with the other agents who have intervened. We can present the claim within two years from the date the damage occurred.

In addition, the Law to guarantee the effectiveness of the payment of the compensation that corresponds in each case imposes the obligation to contract a material damage insurance or surety insurance in charge of the contractor in the first case and the promoter in the second and third cases, with an insured capital of 100 percent, 30 percent and 5 percent of the final cost of the material execution of the work, respectively, the insured being the promoter himself and the successive buyers of the homes or premises.

Compliance with these obligations to contract the surety insurance is guaranteed by the Notary Public and the Property Registrar who authorize the public deed of new work or register it because before proceeding with said authorization or registration they will check that the obligation has been fulfilled.