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Purchasing property in Spain with encumbrances (hidden)

When purchasing a property in Spain, and in the case that the property acquired has any hidden encumbrances not mentioned in the Public Deeds, and where the encumbrance in question is of such importance that the buying party would not have purchased the property had he or she been aware of it, it is possible to opt either to claim for the contract to be rescinded, or to claim the corresponding compensation.


Propertys with hidden encumbrances Spain. Property Law


The time-limit to take the aforementioned action (to rescind or claim compensation) is of one year as from signature of the Public Deeds in the case of claiming to rescind, and of one year as from being informed of the existence of the encumbrance in the case of claiming for compensation.

Types of encumbrances that we may find when purchasing a property:

Properties over which usufruct (or Beneficial Ownership) exists

First of all we must specify that under the Spanish Property Law, Property Ownership is divided into Bare ownership (the right to dispose of the property), and usufruct or Beneficial Ownership (the right to use the property).

We are often faced with this kind of ‘Property Division’ when purchasing properties, mainly due to inheritance procedures.

In such cases, the presence of all owners, both beneficial and bare is required, or for them to have granted specific Power of Attorney (this Power of Attorney should be verified by your lawyer) in order for the property sale to go through to all effects and purposes.

Properties held in Co-ownership-Tenancy

This is when a property belongs indivisibly to various co-owners.

In these cases it is necessary to obtain the unanimity of all co-owners in order to complete the sale. Therefore, if a property held in Tenancy is sold by only one of the co-owners, the sale is radically null and void due to the absence of unanimity of all of the property owners.

Consequently, the sale of a property held in Tenancy (when it is unknown to the buying party that the nature of the property ownership is Tenancy holding), can lead to the contract being rescinded due to contractual noncompliance in detriment to the buying party.

Mortgaged Properties

The purchase of a property with a mortgage secured-loan, has the primary impact that when sold, it is transferred with the existing mortgage lien.

Such property purchases should be dealt with in the following manner:

The buying party should withhold the amount corresponding to the mortgage on the property in order pay it off directly to the financial creditor (or mortgagee) on signature of the deeds. Withholding the mortgaged amount serves as a fundamental guarantee for the buying party, the aim being to pay-off the amount due and to cancel the loan.

In property purchasing proceedings handled by MSG, as part of our conveyancing services, when dealing with properties with mortgage liens MSG will take care of managing payment to the corresponding financial creditor, and subsequent cancellation of the mortgage debt.

Expert Advice

We always evidently recommend that foreign citizens seek the advice of a law firm with expertise in the field of Property Law and Conveyancing when planning to buy or sell a property in Spain. With a correct Conveyancing service carried out by a specialist law firm, any encumbrances on a property that may not appear in the corresponding Land registry records ,will be detected previous to purchase.

In the case that such encumbrances are discovered subsequent to signature of the Public Deeds, a specialist law firm can take the necessary action to defend your interests (whether you wish to rescind the contract, or claim for compensation). This must always be within the legally stipulated time-limit (one calendar year).

At MSG Legal, as experts in Property Law and Conveyancing, specialists in our area of activity, being the Costa Blanca, we are at your disposal to provide you with advice and legal guidance for any property purchasing venture you may decide to embark on.

Please note the information provided in this article is of general interest only and is not to be construed or intended as substitute for professional legal advice.


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