Risks of buying real estate from banks
In these times of severe economic crisis, thousands of properties are sold at auction every month in Spain because their owners can no longer pay their debts. In most cases, the creditor is a bank and if no bidders participated in the auction, the creditor himself receives ultimately the contract.
Although the government related institutions in recent months insist on pointing out that the economic situation of Spain is improving, the reality is that the seizure of property and evictions due to debtors’ failure to pay their own liabilities have no end. The banks are the biggest creditors nationwide. In the judicial auction they usually get the property, without being able to recover the outstanding loans, because of the lack of interest of potential buyers for the seized property. After the bank has become the owner of the property, it passes it to a real estate agency, which is often established only for the purpose of selling this type of property. For the same reasons that the property could not be sold at auction, it often takes months or even years before the agency finds a buyer on the almost at a virtual standstill housing market.
During this period, the attitude of the banks is far from what is expected of a correct owner. For example, in the case of apartments or houses in settlements with community facilities, the banks often do not pay the contributions to the community of owners required for maintenance, swimming pools, gardens, etc., until a buyer is found, thus bringing the condos in financial difficulties, as these depend on the contributions to cover the general expenses for cleaning and maintenance of the common areas. Furthermore, neither the agencies nor the banks take a minimum care about the conditions of the building and so, leaks, pigeon nests or all sorts of other problems that affect the neighbours remain unresolved.
These risks should be considered when investing in Spain. Investors are normally interested in such kind of real estate because they believe that their price might be below the average price. However, it should not be forgotten that the banks have more than enough capacity to hold on as long as necessary until its real estate stock is sold (after all, they were helped for that with a lot of public money). Investors must convince themselves that the banks won’t reduce the price more than other owners who might need the money urgently.
Carlos Prieto Cid
Tarracoiuris Abogados, Spanish Lawyers in Tarragona, Spain
Member of Eurojuris España, international network of Spanish Law Firms
