Developer Mortgage Question?

We have been offered a developer mortgage for the property we are buying - everything approved and we were okay to complete this month -  but we have just heard from our lawyer that the bank plan to withhold 20,000 euros in a fund for 24 months!  This is the first time this has ever been mentioned. 

Can anyone help/enlighten why the bank would propose to do this?  Obviously, we do not want to proceed on this basis.  We were told by the bank that we could only borrow the amount the developer owe them.  As we do not owe the developer as much as they owe the bank this leaves us with a small balance left over (which will help with costs/fees etc) - we think this might be the "problem" but the fact is we did ask to borrow less  originally but were told "this is the amount the developer owes, this is the only amount you can borrow". 

Any ideas/thoughts?

Almost tempted now to back out but worried about losing our deposit - where would we stand now if we dropped out on the basis tht the mortgage offer was changed at the last moment?

Hi DWatson,

This is something I have certainly never heard of before and I cannot see any possible reason for them doing this! There seems to be two issues here; the fact that they want to with hold / invest 20k and the fact that they are forcing you to take more mortgage than you want!   Is the difference in what they are imposing and what you actually want the 20K?  Where does this leave you costs wise?  What happens after the 2 years?  I do not quite understand the situation but if they are planning to invest the 20k in their name as opposed to yours it will be to their benefit, not yours!    You do not say who the lender is but has your lawyer not challenged this with them?       Are you in a position / timescale to make an application with another lender? Obviously you are 'approvable' having already had an offer, its just a question of your meeting a different lenders criteria.

It is the second time I have heard of this practise.

It certainly depends on the wording of the conmtract, specially in the price clauses and how finances were proposed to you when you signed the private purchase.

Of course there is a way to act for contract cancellation against the developer due to this change on financial conditions attached to the contract and that might also work as a pressure legal measue for the Bank/developer to stop abusing on consumer as it seems they are.

Good luck!

It is the second time I have heard of this practise.

It certainly depends on the wording of the conmtract, specially in the price clauses and how finances were proposed to you when you signed the private purchase.

Of course there is a way to act for contract cancellation against the developer due to this change on financial conditions attached to the contract and that might also work as a pressure legal measue for the Bank/developer to stop abusing on consumer as it seems they are.

Good luck!

Yes I have heard of something like this as well and while no legal expert (here I defer to Marias vastly superior knowledge) in my view it is an abuse of your rights. The way that I read your mail is that you do not need the additional 20k to complete but i am a little confused - is it your intent to use surplus monies to cover costs or did you want a mortgage 20k less than the bank is telling you to take - if the developer owes more to the bank than is owed by you then it is the developers responsibility to meet that difference, after all you have paid the developer the money. Get your lawyer to explain fully what is going on and then ask them to represent you correctly, after all it is you that is paying their fee not the developer - too many lawyers in Spain are not assertive with developers (and I exclude those that contribute here) and far too easy to buckle under at the slightest pressure from developer or the developers bank as they are worried about future business introductions.

Dear Sharon, Maria and Smiley - thank you for taking the time to respond to our mortgage query.    Our lawyer has also not heard of this before - perhaps it is a new lending trend in Spain!  Let's hope not.

Just to clarify, we are buying an apartment on CdS and have paid 30% deposit, and our lawyer suggested we try for the developer mortgage due to the  cheaper set up costs so we thought we should  give this a try as our first port of call.  If this did not seem suitable we planned to contact a mortgage broker in Spain for assistance.  We duly emailed the bank and were given details of the mortgage on offer.  We supplied all financial documentation requested and the mortgage was approved.  This is going back as far as last September.  Anyway, the bank said all okay to complete in February and asked us to make an appointment with a notary.

We asked our lawyer to do a final cross check of the bank fees against the fees the lawyers were charging as some of them seemed to be the same or very similar.  Some of the fees were the same so some good news, the lawyer came back with a lower amount we need to pay to complete but then dropped the bombshell that the bank want to keep back 20,000 euros in a fund for 24 months.  After 24months have passed apparently we can then use the money for mortgage payments and this seems quite specific - only for mortgage payments.  Of course we were shocked so immediately emailed the lawyer back to say this is the first time this has been mentioned and why?  He came back to us and said he thinks they wish to withhold the money in "case we go into arrears"!  This makes us so cross, how can they assume we will go into arrears.  They do not have a crystal ball that looks into the future (if only we all did) and if they think this then surely they should not lend us the money in the first place.

If there were no funds left over - would they do the same?  Probably not. 

Smiley, we did not ask for an extra 20,000 euros to cover costs - the bank told us how much the developer mortgage was and that was the amount we could borrow.  I suppose we just assumed they knew there would be funds left over (actually 23,000 euros) which we, therefore, thought well okay this will to help pay towards set up costs and furnishings etc.  But we don't want to have to borrow the money if we cannot use it for 24 months and pay interest to the bank in the meantime.  We would rather borrow less if this is the case but they have not even mentioned borrowing less.

Maria - the developer never suggested we take out the developer mortgage so I am not sure what you mean about private purchase and financial conditions attached to the contract  - it was our lawyer who suggested this option.

Or lawyer is going to contact the bank again tomorrow to find out what is going on and to tell them this has now delayed completion.

Maria - do you think we would have a case for contract cancellation?

Any advice greatly appreciated.

No doubt Maria will confirm but I doubt you have a case for contract cancellation as the developer is not in breech - he has delivered the goods (presumably on time) in accordance with the contract. What the developer should however do without question is advise the bank that without reservation you do not want the additional funds. The bank cannot insist that you borrow more than is your requirement. Advise the bank concerned that you will take this up with the Bank of Spain if necessary. I dont think I have ever heard anything so ridiculous in all my life. 

If  the developer conditioned the completion on the property to these new payment terms, you have got a case for either asking the completion to be performed according to what it was established in the contract between you and the developer OR cancel the contract.

Dear Maria - just been trawling through all the emails and have just realised/remembered that back in September 08, it was our lawyer who forwarded us the details of the existing mortgage on the property - which were passed to him by the deveoper. 

The amount given in the email is 23,000 euros more than we need to complete and there is no mention of any withholding of excess funds.  

We feel they want us to borrow exactly the same as the existing mortgage but do not want us to have the excess funds (for 2 years anyway) - could we use this a leverage to cancel the contract?? If so, would we get all our deposit back? 

Again, you cannot be obligued now to diffrent terms to what it was agreed when you signed the private purchase contract. You can even go an dlook for financiation anywhere else. If you pay the price agreed in the private contract.. they need to hand the house to you.

If you are looking to cancel the contract on the basis of this change of terms, you need to have the new terms exposed to you by the developer, in written, in order to prove the change on the contract object.

 Hi , Im new to this page, actually i was adviced to have a look at EOS by one of my clients.... 

Im also a mortgage broker, and I have heard this type of deals before, and let me guess, was it the CAM bank? i have heard that they need to get funds and they are using the mortgage approval in order to get deposit as a clause for getting the finance.

I dont think is legal , i think they are just taking advantage of their position, If I were you, (and still have not signed the purchase) I would lokk somewhereelse.. 

Regards

Santi Vidal

All I can say is "Buyer Beware" of have heard to many horror stories of buyers being led down the garden path - this situation is the first I have heard of and I would encourage you to seek funding elsewhere if possible.  I really do believe that someone is trying to pull the wool over your eyes.....

Good Luck!

.

Hi - actually it is not CAM.  I had better not say publically who though, but they are a Spanish bank.   

We are not at all happy as you can imagine - very disappointing.  Hopefully this thread will forewarn other buyers that may be considering taking out a developer mortgage.  

Thank goodness we have Maria on this site - she is now taking a look at the case for us.