Buying property out of bank repossessions in Spain offers financial opportunities, with prices often 20% to 40% below market value. However, this financial advantage comes with significant legal risks as banks typically sell without guarantees and without full knowledge of the property's condition.
In recent years, more and more Belgians are finding their way to Spanish real estate from bank repossessions. Although the purchase price is attractive, it often lacks the transparency you might expect in a regular sale. In this article, we analyse the critical legal pitfalls you need to be aware of before signing.
Missing legal documentation and warranties
With bank repossessions in Spain, you usually buy the property in the condition it is in ("cuerpo cierto"), with the bank accepting no liability for legal or physical defects.
Spanish banks treat real estate as financial assets on a balance sheet, not residential properties. As a result, they rarely have detailed knowledge of the legal status. Because the previous owner has often been evicted, there is rarely any cooperation or transfer of official documents.
The consequences of missing documentation are far-reaching:
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Cadastral errors: It is common for the land registry (Catastro) does not match the reality in the property register (Registro de la Propiedad).
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Missing title: Sometimes the notarised purchase deed of the previous owner is untraceable.
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Urban planning breaches: Recent renovations have often been carried out illegally. In extreme cases, there may even be a demolition order rest on (part of) the property.
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Uninhabitability: The property may have been officially declared uninhabitable, preventing you from applying for a rental licence or utilities.
Expert Insight: "A bank sells 'as is'. If after the purchase it turns out that the pool was built illegally, the bank will disclaim any responsibility. You will pay for the legalisation or demolition yourself."
Debts associated with the property (Cargas)
In Spain, certain debts stick to the property and not the person. As a buyer of a bank-owned property, you are liable for outstanding debts of the previous owner, such as unpaid taxes and community fees.
Owners who can no longer pay their mortgage often leave other bills unpaid. Banks often clear the mortgage burden, but are not always transparent or aware of other preferential debts. Creditors will turn directly to you as the new owner after the transfer.
Be alert to the following hidden costs:
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IBI (Property Tax): Overdue municipal taxes.
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Co-owners' Association (Comunidad): Unpaid contributions for the maintenance of the complex.
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Local taxes: Such as the waste levy (Basura).
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Fines: Outstanding urban planning fines.
The trap of "Ten-year-old new construction"
An unoccupied property from bank repossession may qualify as 'new construction' for tax purposes, making you pay 10% VAT instead of the lower transfer tax, while essential construction guarantees have already expired.
Many properties now being sold as bank foreclosures date back to the real estate crisis of 2008-2009. Property developers went bankrupt and properties remained vacant for years.
This creates a double disadvantage for the buyer:
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Fiscal pressure: As the property has never been officially occupied before, it is considered first occupation. As a result, you will pay IVA (VAT) and stamp duties (AJD), which in many regions is more expensive than the transfer tax (ITP) on existing construction.
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Expired warranties: The ten-year statutory liability of the contractor and architect (the Seguro Decenal) has often already expired for pre-2015 properties. Hidden building defects are then entirely your responsibility.
Disconnected utilities and reconnection
With bank repossessions, water and electricity are almost always disconnected. Reactivation requires not only paying overdue bills, but often renewing technical installations and inspection reports.
When an owner stops paying, the utilities break the contracts and remove the meters. As a new owner, you cannot simply "take over" the contracts.
You face a complex process:
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Overdue payments: Utility companies often require outstanding debts at the address to be repaid first.
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Technical inspection: For electricity, you need a new, valid inspection certificate (Boletín Eléctrico) required. In older properties, the installation often no longer complies with current standards, which means you have to replace the entire cabling must be renewed before getting a meter.
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Connection charges: You will again pay the full cost of connecting to the network.
Conclusion: Should you avoid bank seizures?
No, avoiding bank repossession is not necessary, but a purchase without specialised legal guidance is irresponsible. The low purchase price must be weighed against the cost of due diligence and possible regularisation.
A bank-owned property can be an excellent investment, provided you know the full cost picture before you offer. A thorough legal research (due diligence) is the only way to expose hidden defects and debts. This will enable you to make an informed decision or negotiate the price further.
Read more about the unusual course of action in a sale from bank repossession.
Frequently asked questions about Bank repossession in Spain
Is it safe to buy a house out of bank repossession in Spain? Yes, it is possible to buy safely, but only if you have full checks carried out beforehand. Banks offer no guarantees on the condition of the property or its legality. Without legal checks, you run the risk of hidden debts and illegal constructions.
What additional costs are involved in a bank repossession house? In addition to the usual buyer's fee (approx. 12-14%), you should take into account the clearing of debts from the previous owner (IBI, community fees), costs for reconnecting utilities, and any renovation costs to make the property compliant with current legislation.
Do I pay VAT or transfer tax on bank repossessions? This depends on the status of the property. If it is a "first occupancy" (never occupied before, often in bankrupt projects), then you will usually pay 10% IVA (VAT) plus stamp duty. If the property has been previously occupied, then you pay the regional transfer tax (ITP), which varies between 7% and 10%.
About the author: Glenn Janssens is a lawyer specialising in Spanish real estate transactions and tax regulations. Since 2017, he has been helping Belgian and Dutch individuals and entrepreneurs to safely purchase and structure real estate in Spain. He guides files from A to Z: from due diligence, ownership and tax control to estate planning and optimisation for residents and non-residents. Thanks to his years of experience, hundreds of handled files and focus on transparent communication, Glenn makes complex Spanish legislation understandable and practically applicable for every property buyer.
