Unable to obtain mortgage!

We, like many other people, purchased an off plan property which should be completed before September 2009.   (That's the time the builders have to complete by)  At the time we purchased we had enough equity in our property in the UK to fund the payment of the property in spain.   Unfortunately this is no longer the case as property prices have crashed.   Also with the euro rate being so low we also need to borrow another £40,000 on top of the original amount.   This amount is way too much for us and initial conversations with lenders have confirmed this.

Does anybody know if we will be able to pull out of this deal and get a refund of our deposit or will the builders be able to try to force us to complete.   Also could we pull out just now and lose our deposit or again can the builders try to block that.

Any advice would be gratefully accepted as this is a very worrying time

K

Hi K, welcome. We have a superb lawyer on EOS (we are SO lucky to have Maria de Castro) & I've sent her a private message asking her if she'd kindly advise you so bear with us, please.

Hi Sunlover45, oh dear I am so sorry, what a worry this must be. When we bought our property last year I looked at both methods of financing. 1 further mortage on UK property, or 2 Spanish mortage on Spanish property. Have you looked at both methods? Are you going to rent out one of the properties, therby gaining additional income? Is the Spanish property worth the same amount as the purchase price? If not can you renegotiate the purchase price? You could look at a new UK mortage, on a self-certified basis, perhaps over a longer term, where you dont have to prove your income. Good luck, don't give up, you'll get plenty of help from EoS.

Sunlover:

You may find this article interesting in your current situation:

http://www.eyeonspain.com/blogs/costaluz/482/credit-crunch-times-can-play-in-favour-of-consumers-why-not.aspx

Thanks Marie    This is very interesting but  would you be kind enough to clarify at what point we notify the builders that we can no longer obtain a mortgage.   Do we need to wait until they are ready to complete or should we let them know as soon as possible.    Also if we provide the rejections for the mortgage will they just refund the deposit or would we need to take legal action.   I know from reading other people's stories that nothing is that simple.

Thanks again

K

Hi

We are in the same position as sunlover below. The cost of our property has increased by £50,000 and the value of our UK property has decreased by that amount !  It is financially impossible to complete.

Has anyone else received any further information/advice regarding the best options for people in this position ?

Any advice would be gratefully received.

Thanks

Dear Sunlover:

You need to preferably use an independent lawyer for this issue and then issue a legal notice of contract cancellation due to reasons exposed below. If he does not agree the refund ( most likely), you will need to take the developer to Court.

A good lawyer will be able to draft a good lawsuit using not just the contract of the National Institute for Consumers but many other arguments based on obligations and contract Law and Case Law in Spain.

Best,

Maria

Hi Maria

Thank you for your reply. Our property is due 30th June. We have been advised by our agents that signing should take place in September.Should we cancel now and lose 25% of the total cost or wait until september? Will we be penalised if we wait until the last minute to cancel?

We have already paid 72,900 euros on a property costing 164000, which is over 25%,so would we get the extra back? And would they add on the IVA of 7% to keep even more of our money? ie 175,480

We have read that it is illegal for the builders to take 25% of the total cost. Is this true? Even if the contract stated it ?

We are so confused and distressed by the whole situation. The builders are only building part of the site and say they will return in 18 months to complete it, but that is doubtful. Owners on phase 1 are still awaiting on their pool and sports complex. I know that you are fighting cases for buyers on the site.

To make matters worse, i have just seen our properties being sold for 123,000 euros by a local agent ! do you think its worth trying to ask the builder to reduce the price of ours?

Thank you for any advice you could give.

Dear Cazb:

Please have answers below in bold green :

Hi Maria

Thank you for your reply. Our property is due 30th June.Written on the contract? If so, you can cancel ( either through execution of Bank Guarantee or declarative action)  or ask for a price reduction once 30th of June arrives and the house has not been handed over to you.  We have been advised by our agents that signing should take place in September.Should we cancel now and lose 25% of the total cost or wait until september?  Wait till June.Will we be penalised if we wait until the last minute to cancel?  You just will be penalised if they cancelled your contract due to your breach ( convoked to sign the deed before or the 30th of June, not attending the Notary, and developer cancelling contract): penalty in this case cannot be higher than 20% of money paid.

(...)

We are so confused and distressed by the whole situation. The builders are only building part of the site and say they will return in 18 months to complete it, but that is doubtful. Owners on phase 1 are still awaiting on their pool and sports complex. I know that you are fighting cases for buyers on the site. It the site was advertised with those facilities, that is the object of the contract they need to meet. If not, you can cancel you contract due to an important lack of quality in the contract object. You may find this article interesting reading:

http://www.costaluzlawyers.es/index.php?page=publicity---part-of-the-contract&hl=en_GB

To make matters worse, i have just seen our properties being sold for 123,000 euros by a local agent ! do you think its worth trying to ask the builder to reduce the price of ours?

Thank you for any advice you could give. A pleasure.

Also regarding Consumers protection, you may enjoy our  yesterday´s blog post:

http://www.eyeonspain.com/blogs/costaluz/1601/legal-tip-more-legal-safety-for-consumers.aspx

to cazb and sunlover

firstly let me wish you well whatever you decide,

contrary to opinion UK mortgages have become extremely tight in their lending criteria best maximum ltv is around 85% ltv for your main home unless you wish to pay extortionate rates, ignore the fact that the base rate is 0.50% uk lenders are now making more money (when expressed as a %) than at anytime before.

there are good dweals for 60ltv at reasonable rates that said anything over 75%isd liekly to mean that your uk rate would be higher than a spansih rate (albeit these can be high in year 1) i beleive there may be scope for your developer who undoubtedly has a loan from the bank hence their offering of "developers mortgages" could if they so wished request a higher ltv (loan to value) for you as the bank this way would get soem of their finance back as opposed to an empty property and no money back.

If you need any facts and figures calculations pm-no cost.

Hi Maria

Thankyou for your reply.

On checking our contract, it states in the "Inicio de las obras. finalizacion" section, that they must commence building within 120 days of planning permission being granted( july 2008), and shall be completed within 27 months. The property will then be put at the disposal of the purchaser within one month after receiving the administrative authorisation for its occupation.

In the terms and conditions of the sale, it states that the final payment must be made by 30th June 2009.

Does this mean that the property is not overdue until at least October 2010? If so, then the bank guarantee that everyone has is of no use anyway.

Is it correct that you would have to go to court and lose the case against the builder, in order to only lose 20% of your deposits paid? and presumably you would also then have to pay extra legal fees and costs.

Would it be better to try and negotiate a lower price or secure a better excgange rate?

Thankyou again for all your help and advice.

cazb

there is a likelyhood that the property

a) will be valued at less than the purchase price-in my opinion giving you the opportunity to discuss paying less for it

b) exchange rate is unlikely t make a major difference unless you have a alrge usm of money to send over.

Hi cabz,

even though the deadlines for the completion should be clearly estated in the contract, many developers include abusive clauses to blur the deadlines for delivery, so that in the end there is a clause stating an initial deadline counted from the license and then other clauses allowing extensions. I am afraid that in order to know the exact deadlines and your chances it would be necessary to have a look at your contract. 

Yours sincerely,

Hi

Please could someone clarify and confirm who has to issue the 'Legal Notice of Contract Cancellation'?

Our solicitor has told us that she cannot issue it until the builders have confirmed in writing that they will allow us to cancel.

Can they refuse to allow us to cancel ?

If they do allow us to cancel, does the notice still have to be issued, or is there another legal document to cover this, which prevents either party from pursuing the matter further ?

We asked her to cancel the contract 2 weeks ago, and still nothing has happened  - except that she has spoken to the builders and they have refused to refund us any of the 72,900 euros we have paid (44% of purchase price).

Any advice would be a great help.

This message was last edited by cazb on 17/06/2009.

Hi,

the cancellation of a contract can take place

a.- in a friendly way, through agreement of both parties.

b.- at the request of one of the parties to the contract under qualified circumstances ("unillateral cancellation").  Among these we can count the impossibility not due to negligence, the harship and the breach of essential contract obligations. 

Considering the above the reply to your questions is:

Please could someone clarify and confirm who has to issue the 'Legal Notice of Contract Cancellation? You or your solicitor, if you want to cancel.

Can they refuse to allow us to cancel? Yes, in such case your only option is to sue the developer at court and your chances will depend on the proof of the "qualified circumstances" I mentioned above. 

If they do allow us to cancel, does the notice still have to be issued, or is there another legal document to cover this, which prevents either party from pursuing the matter further ?

If the cancellation is agreed by both parties then an agreement is signed by both parties (we would be in case a as explained above) and the matter is settled at once, no strict cancellation notice is necessary then. However Developers take more seriously the cancellation issue when they have it in writing. Preliminary talk is a less aggresive approach, but it also might be effective.

We asked her to cancel the contract 2 weeks ago, and still nothing has happened  - except that she has spoken to the builders and they have refused to refund us any of the 72,900 euros we have paid (44% of purchase price).

Your solicitor is surely trying to try a friendly cancellation as exposed  above in case a, instead of unillateral cancellation as referred to above, case b. As far as I can tell, it is her the one who has to evaluate which options there are of getting a friendly agreement and under which conditions. I would also suggest you do not take strictly time issues or that you underestimate your solicitor's capacities. Please note that in the event the option a is not available, then your only option would be option b as explained above, which will imply a court proceeding to achieve the refund of the moneys paid. Court proceedings usually take years and involve additional expenses, therefore the decision should be taken carefully.

I would like to add that the plaintiff in a case carries the burden of proof, which means that you as plaintiff will have to give proofs of the "qualified circumstances" which justify the unillateral cancellation of the contract. And if you lost the case, you would probably have to pay the other party's court expenses. For a case where 30.000 € were at stake, such costs could be round 4.000 €.

Consequently, it would be wise that you checked with your present solicitor your chances to get the refund at court, or at least that you want her to send the cancellation notice, assuming all the risks. If you are not satisfied with her reply (this happens frequently, two solicitors do not currently see the case in the same way) then you can look for advise with another solicitor.

Good luck