What happens if there is debt on a property or community fees unpaid?

Sorry if this has been asked before, I have used the Search facility and canot find anything.

If when purchasing a property the searches reveal that there is debt secured on the property or the owner has defaulted on their community fees etc. does the sale still go ahead but with the debt(s) removed from the property and the debts assigned to the owner making them personaly liable?

Or does the current owner have to clear the debts before the property can be sold?

Thanks

Kelju

Below is from Spanish Property Insight.

on buying a resale in a Community of Owners in Spain outstanding debts go against the property itself not against the former owner. On buying a resale you are liable for all the debts of the previous owner in the current year in which you are buying as well as the previous year; in other words, dating back two years. Your lawyer should request a certificate from the Community of Owners stating the property is up-to-date with the community payments and will include it in the Notary’s deed at completion. This certificate will act as your safeguard against any community claim on bad debts from the previous homeowner.

The new owner will also be held liable for unpaid utility services and local taxes. This is because these debts go against the property itself, not against the previous owner. So whoever owns the property will be held liable. Your lawyer will likewise also ensure prior to buying a resale there are none outstanding.

Other local taxes levied by the town hall where the property is located may be left outstanding by the previous owner (i.e. IBI tax and Garbage collection). These will not be lodged either at the Land Registry.

So it looks like you can buy one but you will be buying all the debts as well. Obviously, if there is a mortgage on the property, this will be shown on the land registry deeds but the above won't be.

Caveat emptor

Hi mariedav,

Yes I read this article as well, what I am trying to understand is if the lawyer identifies that debts are outstanding, are these assigned to the seller, or does the seller have to clear the debt before the sale can proceed?

If it is the latter, what if the seller cannot afford to pay?

Kelju

Before purchasing the property  you can get your solicitor to take the debt amount of the price, that way you would pay less IVA.

Good point newworld, I like that, the simplest solutions are the best.

kelju

Yes I read this article as well, what I am trying to understand is if the lawyer identifies that debts are outstanding, are these assigned to the seller, or does the seller have to clear the debt before the sale can proceed?

If it is the latter, what if the seller cannot afford to pay?

If your solicitor is any good they should be able to let you know exactly what debts are what, if they are not to horrendous perhaps try and knock the price of the house down to well cover these debts, plus a bit more for good luck, and you pay them...That is if you want the house that much.

The seller sells the house with the debts, the buyer buys the house and buys the debts as well.

Your good solicitor should say "Don't buy the house until these debts are cleared" but doing many deals in Spain you have to accept that they don't work in the real world.

The law on community fee debt changed last year. The buyer is now liable for the year the property is bought in plus the previous 3 years.

The system is simple, although time-consuming.  The agent and / or lawyer checks what debts are outstanding before the sale goes through, indeed this is checked at the point of reserving a property and then checked again just before the Notary, in case debts have arisen in between.  A certificate is obtained from the community administrator to show if there are debts to the community or not.  Water, elec and Suma bills are checked to see if anything is owed there and a calculation is made to cover the period between the last bill and the date of the sale.  A Nota Simple is obtained which shows if there are any outstanding mortgages or embargoes on the property.

Then at the Notary the buyer pays the seller the price of the property MINUS all the debts - these are called retentions.  The buyer´s lawyer or agent then uses the retentions to pay off each debt and this ensures that the buyer starts off with a debt-free property.  If there is a mortgage, the bank attends the Notary too, and the buyer gives the bank a cheque for the outstanding mortgage.

For example:

buying price 100,000€

retentions - water, elec and suma - 500€

community - 500€

mortgage - 40,000€

The buyer brings a cheque for the bank of 40,000€, gives their lawyer or agent 1,000€ to pay the bills, and gives the seller a cheque for 59,000€ - total paid 100,000€.

There are of course other costs, but this illustrates how debts should be taken care of.  Be particularly careful with bank repossessions, as they often refuse to pay off the water and elec bills, so the best way forward here is to take out a new contract with these providers, so the historical debt is not passed to the buyer.

Hope that helps!

Thanks claire T for the comrehensive and clear explanation.

Kelju

A question, I have read everywhere that when you buy a property if it has debt on it the new owner takes on that debt which was confirmed again on this thread. We sold a property in 2012 proceeded as required everything was paid up to date and the sale went through and we moved back to the UK, In 2015 we bought a property again in Spain as a holiday home so are again registered here, we have just been contacted by our Gestor that the council have been in touch to say we owe outstanding IBI for the three previous years before the sale of the property, this IBI was paid by us at the time we had registered our house with the Council and we had to pay an increased payment for those years, we were given receipts for it and would have produced them at the time of sale, we were told by our Gestor at the time to keep hold of the receipts as sometimes things do not get registered at the town hall, well we kept everything for four years and last Xmas had a clear out of old documents which included anything to do with the old villa. 

Well we now have this situation with the council asking us for this money when I read over and over debt is against the property not the person in Spain but this is quite clearly saying it is not, it would be a real kick in the teeth to have to pay this again especially when we reduced our villa massively to just sell it. Confused here

Is it the same gestor you used when you sold the property? If so, they should have records going back to then. If not, they can obtain a copy of the escritura relating to the sale, which should include details of any debts that were outstanding (or not in your case) at the time of sale. If you paid the bills through your bank account, the bank should also be able to provide statements proving this. Finally, I think (but you would need to confirm this) that there is a 5 year statue of limitations on outstanding bills, so bills prior to 2012 could not be claimed now anyway. Maybe this doesn't apply to councils & govt., I'm not sure. 

Just another thought - are you sure it's IBI, and not plus valia on the sale that they're claiming?

I think everybody should be aware of this little trick. I was buying a property in Gran Canaria. The lawyer duly asked for and got a response from the property owners (block of flats). to the effect that the current owners 'owed nothing', except of course the current months debts which had not yet gone through the Direct Debit system. The owners than cancelled the DD immediately and I was left with the situation of not being able to vote at an AGM unless the debt was paid - so I paid it (150 +/- Euro) and then the last owners denied ever owing it so no recourse there! This has apparently happened to may forign owners within our block!!!