The Realities of Buying Property in Spain | Dafacto

The personal website of Matt Henderson.

The Realities of Buying Property in Spain

02 May 2004

At the beginning of March, 2004, my wife and I were contacted by a real estate agent here in Spain, notifying us of a studio apartment that had just come on the market. They told us that the property would have excellent rental potential, and that the owner was motivated to make a quick sale as he urgently needed money to purchase a new home himself. We arranged to visit the apartment on the same afternoon, and signed a document stating that if we decided to purchase the property, the purchase would be made via the estate agent (i.e. we wouldn't try to go behind their back, and purchase the apartment directly from the owner.)

The apartment was quite nice, the asking price was attractive, and so we made an immediate offer to purchase the property. We were told (and we independently confirmed) that there were multiple offers made on the property, and that the owner's (let's call him Mr. I.P. Freely) position was that the first buyer to deliver the required deposit would get the apartment.

We rounded up the money for the deposit, and delivered it to the estate agency office, where we met "The Boss," who we'll call Mrs. Hoo Flung Doo.

And this is when the problems started.

We signed a contract to purchase the property through Mrs. Doo, and which authorized Mrs. Doo to present our deposit to the owner, Mr. Freely. We informed Mrs. Doo that we were leaving within the next four days to go on vacation for two weeks, and she said, "No problem, we can organise the details of the purchase when you return."

As an aside, she also proposed to arrange financing for us, as she had many "inside" contacts with the banks and could likely arrange "100% financing, with 2% interest." We told her we'd check with our bank the following day, and would only accept financing from her if the conditions were better than those from our bank. The next day we had the offer from our bank -- 60% financing with 3.75% interest, and we presented this data to Mrs. Doo.

And then we left for our vacation four days later.

We returned to Spain on March 18th, and receive a phone call the same day from Mrs. Doo, telling us that the purchase would take place the following day, March 19th! Flabbergasted, we told Mrs. Doo that was impossible -- we had not yet arranged our own financing, she had not yet presented us with an offer of financing, and there were lots of administrative checks still to be made before actually conducting the purchase.

Mrs. Doo informed us that she had signed a contract with the property owner to conduct the purchase on the 19th, and that there was a clause stating that he could keep the deposit and cancel the sale if the purchase did not take place on that date. She claimed that our purchase contract with her gave her authorization to agree such details with Mrs. Doo. (something it certainly did NOT do.)

At this point, we should have immediately taken on legal support. Hindsight is, of course, 20/20.

Mrs. Doo called us later that same afternoon, stating that Mr. Freely verbally agreed to give us more time to prepare for the purchase, but that from this point onward, he had the right to cancel the purchase at any time, due to the fact that the validity date in his contract with Mrs. Doo had passed.

During the next several days, we were under constant pressure from both Mrs. Doo and Mr. Freely to quickly conclude the purchase. Mrs. Doo claimed to have arrange financing, but every time we ask her for the conditions, she would suddenly have another phone call to attend, or some excuse to delay discussing the financing details with us.

Finally, on the 30th of March, all our paperwork was in place, and we were ready to make the purchase. The only outstanding matter was the financing. We called Mrs. Doo to demand that we be informed of the finance condition, and she said that Mr. Freely had just called, and had given us an strange ultimatum -- we had to deliver a large amount of cash to Mr. Doo the same evening, and that the purchase of the property had to take place the next day. If these conditions were not met, Mr. Freely would cancel the sale.

Mr. Freely claimed that the reason he needed the cash, at this moment, was that he was about to lose the property that he, in turn, planned to buy.

So, we went to the estate agency's office that night, and reluctantly gave them about 20% of the purchase price, in cash. To ease our concerns about doing this, Mrs. Doo signed a contract stating that if Mr. Freely didn't show up at the signing on the following day, her agency would be responsible for returning our money to us.

Mrs. Doo then went on to finally explain the conditions of the financing she'd arranged. (She waited until the night before the signing to give us this information!) The conditions were full of odd charges and commissions.

So we returned home that night, and called our bank. Turns out the financing she'd arranged was financially much worse than our own bank was offering. They also informed us that we should never take financing arranged by an estate agent, because it's almost always shady, with lots of commissions being passed in the background.

We were just about to call Mrs. Doo about this when the phone rang. It was Mrs. Doo. Mr. Freely was at her office to pick up our 20% deposit, and a problem had been discovered, and that until it was resolved, she couldn't provide Mr. Freely with our 20% deposit.

It turned out that Mr. Freely wanted to make the "official" sale price much lower than the agreed price, and that we would provide him the difference in "black money," i.e. cash under the table. Turns out, this is apparently a very common thing in Spain -- the "real" amount of a sale is typically higher than the "reported" amount of the sale, and the difference is paid in undeclared "black money" (cash).

I told Mrs. Doo that we had no interest in participating in this type of thing. I also got quite angry with her, given the overall way this entire purchase was handled: She'd signed a contract with Mr. Freely that she was not authorized to sign, she tried to scam us with ridiculous financing, and now this "black money" situation!

At this point, Mrs. Doo passed the phone to Mr. Freely, who stepped out of the office to talk to me privately. He indicated that he was a lawyer, and that he could understand how I, as a foreigner in Spain, could be apprehensive about participating in something in an "illegal" way. However, he assured me that it was a completely normal thing to do, and that, in fact, making a purchase declaration for the "real" purchase price would actually be an execption in Spain.

He then went on to tell me how frustrated he was working with this estate agent. He said Mrs. Doo knew from the beginning his requirement for "black money," and obviously had not passed on this information to us, the buyer. He proposed that we meet together the following day, and try to find a way to circumvent purchasing the property through the agent, and to discuss again the issue of "black money."

I told Mr. Freely that I wouldn't take any decisions on the spot, and agreed to call him in the morning.

That night, when my wife arrived home, we discussed what had happened, and decided together that we wouldn't involve ourselves in doing anything unethical or illegal. We wouldn't involve ourselves in black money, and we wouldn't try to buy the house behind the back of the estate agent, even though they had demonstrated themselves to be both incompetent and unethical.

The next morning, we called Mr. Freely and informed him of our decision. He then stated that he was cancelling the sale, within his rights, given the fact that his sale date with Mrs. Doo had expired, and that he was keeping our original deposit.

Shortly thereafter, Mrs. Doo rang, asking whether we'd come to an agreement with Mr. Freely. We told her about our decision, and she then informed us that her agency was in a position to offer us a number of "fake receipts," should we be willing to reconsider our positio n about making part of the sale in "black money." (So, obviously, she'd already spoken with Mr. Freely.) We told her, again, that the answer was no.

At this point, the sale should have been cancelled, and the only remaining issue was to try to recover our 20% deposit and the original deposit from Mrs. Doo. (In her phone call, she again stated that she considered herself authorized to agree a date with Mr. Freely without informing us, and that she would not return our original deposit. However, she would offer us a corresponding credit, should we ever wish to purchase a property from them in the future.)

So, finally, we sought legal counsel.

Our new lawyer's first concern was the recovery of our 20% deposit -- a sizeable amount of money. They insisted that my wife and I were to visit Mrs. Doo the following day, to receive the 20% deposit. They also suspected that Mrs. Doo would try to have us sign a receipt that freed her from any liability of the original deposit.

Well, that, in fact, is precisely what Mrs. Doo did. When we visited her the next day to return the 20% deposit, she had drafted a receipt that stated there was no other money to claim back related to the purchase. Our lawyer and Mrs. Doo argued on the phone for about an hour, and Mrs. Doo simply refused to modify the receipt document. The phone was passed to me, and I stepped outside the office. The lawyer recommended that I sign the document, as she considered it a bigger risk to leave Mrs. Doo's office without the return of the 20% cash deposit. They felt it would be better to get that money back, and then later devise a strategy for retrieving the original deposit. And so that's what we did, on a Friday afternoon.

On the following Monday, our lawyers drafted and filed a civil complaint against Mrs. Doo. Also on the following Monday, we began to receive phone calls from Mr. Freely -- which kicked off the second phase of this saga.

Mr. Freely began by insisting that we were crazy for not puchasing the property behind the back of the agency, and for not providing him with black money. He insisted that the agency "would never find out" about the sale, and the we would save taxes by giving him black money. We stood our ground. He reminded us that we would lose our original deposit. We stood our ground. He also told us that Mrs. Doo had scammed us regarding the financing, and he faxed a copy of the property appraisal, reflecting a much higher value than what Mrs. Doo had reported to us. (How he got this information, we have no idea.)

Over the course of about a week, Mr. Freely began to soften his conditions. Finally, after about seven days, Mr. Freely agreed to sell the property for an amount nearly equivalent to the previously agreed amount, and agreed that the purchase would take place through the estate agent. He said he was desperate to sell the house, and that he would reluctantly agree to these conditions.

We were very happy. We felt that in the end, things had worked out, and that we wouldn't have to participate in illegalities, or in the cheating of others.

Over the next days, we arranged details with Mr. Freely. He proposed that we could all save money if we overtook his mortgage, instead of arranging for a new one. We went together with him to his bank to discuss the conditions of his current mortgage. And he agreed to deliver to our lawyer's office all of the papers that demonstrated he was the rightful owner of the property.

Well, a few days passed, and Mr. Freely never showed up at our lawyer's office. Each day, he claimed on the phone that he couldn't find their office. Finally, on the third day, our lawyer called him, and he said that he had just sold the apartment, to another buyer.

We were just in shock. We couldn't believe that after all our troubles, the situation ended like this.

This story takes us up to yesterday, the 29th of April. Yesterday we phoned Mrs. Doo, to discuss once again the issue of retrieving our original deposit. We called her to enquire who, in their organisation, had the responsibility to take the decision to return our money. We wanted to propose a sit-down meeting to reasonably and rationally discuss what had happened. We were sure that in the face of reason, the agency would understand that they owed us that money.

Boy, were we wrong. Mrs. Doo began by stating that she was "fully informed about what we had been doing during the past weeks." She had spoken to Mr. Freely, who claimed that over the past weeks, we had repeately called him trying to convince him to sell the property behind the back of the agency! And then Mrs. Doo began to claim that it was us who had canceled the purchase in the first place. (Claiming something we both know to be blatantly false is when we began to suspect that perhaps she was recording the phone call or something.) Finally, Mrs. Doo said that regardless of the situation, we wouldn't see our money unless a judge awarded it to us.

My wife, who was talking to Mrs. Doo on the phone, nearly fell into tears hearing all this.

And that's where we are today. We will likely go to court to fight to receive our deposit back -- just on the principle of it, even at the risk of losing, and even given that our legal fees will probably consume all the money we may win back. We have decided simply not to allow these lying, immoral, unethical people to get away with this, without a fight.

In retrospect, this situation is to a large extent our own fault. We could have informed ourselves better about the process of purchasing second-hand property in Spain. We now have a book that discusses the proper procedure and warns of many of the pitfalls we experienced. And we made lots of mistakes. (We should have had Mr. Freely immediately sign a new purchase agreement when he agreed to our conditions -- which would have simultaneously bound him to the sale, and would have formally informed Mrs. Doo of the agreement.) Also, we should have gotten legal representation and support from the very beginning.

So that's the lesson to be learned in this story, for both ourselves, and anybody reading this who may one day find themselves in the position of purchasing second-hand property in Spain.

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