Desperate vendors selling below original Escritura value

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This topic contains 15 replies, has 9 voices, and was last updated by Profile photo of Inez Inez 9 years ago.

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  • #53449
    Profile photo of Anonymous
    Anonymous
    Participant

    Hmmm. Am receiving conflicting advice on this subject so am putting the dilemma out to the Forum with the aim of receiving some real life case studies or lawyer’s comments.

    We have a significant number of properties on our books now where the vendors wish to sell for less than the price they paid off-plan in 2004. (N.B. These are all completed properties in Marbella and Benahavis, all with correct licences in place, none are contract re-sales).

    For example, we have a 3 bedroom apartment on Los Arqueros where our vendor paid 360.000 euros (to taylor Woodrow developers) + 11% completion costs + furniture.
    All in all it owes him over 420.000 euros.
    Our vendor cannot afford to pay each month…
    – his Spanish mortgage payments (mortgage is c. 180,000 euros)
    – UK equity release payments (used to fund the original 30% + completion costs and furniture)
    – community fees
    – IBI & basura
    – wealth tax
    – utilities, etc.
    ….so he needs to get out fast.
    Hence we have it at 299.500 euros for a quick sale. Also, please note that there is no element of under-declaration involved, in neither the original transaction nor the current potential sale.

    One lawyer yesterday told me that our vendor cannot do this as it will result in the new owner paying a fine of 100% of the difference in price plus a 20% penalty to Hacienda.

    A second lawyer said that it is up to the owner what he sells for and is nothing to do with Hacienda.
    Who is correct?

    All and any REAL experience welcome. No speculation please.
    Thank you

    Sarah Dodgson, Hermosa Homes (Marbella)

  • #76036
    Profile photo of Anonymous
    Anonymous
    Participant

    Sarah –
    am not 100% sure but this topic seems to be the same one discussed in Mark’s New Section: Spanish Property Dispatches (see top “Announcement” on forum index).
    The link is: http://www.spanishpropertyinsight.com/propertydispatches/ entitled “Tax Catch-22”.

    Seems like the first lawyer is on the right track. Tax officials just impose the fines, accusing that the difference (drop) in price must be because under-declaring/black money is involved and they don’t have to prove anything.

  • #76039
    Profile photo of Paul
    Paul
    Participant

    😕

    This situation is a potential disaster/minefield and needs clarification asap, there must be loads of people in Spain who are, or will have to sell for less than they paid (as on many new build flats in UK too now).

    Buyers truthfully picking up bargains could be heavily clobbered re fines, it seems yet more Spanish Gov’t property ineptitude.

    Everyone likes a bargain but the thought of being fined would put so many people off buying in Spain.

  • #76041
    Profile photo of Inez
    Inez
    Participant

    I have sold several properties at under escritura price and it can be done.

    Firstly the selling lawyer should go to hacienda and inform them of this intention so they have a record of it.

    Then all monies handed over have to be shown and preferably in cheque format

    All purchase contracts lodged with the notary as well.

    We are still warned that hacienda may try to levy the difference in the future but also remember the escritura price is more than the catastral price as well.

    So far we havent had any problems but I will let you know if there are.

    The first time we experienced this was 3 years ago.

  • #76048
    Profile photo of Anonymous
    Anonymous
    Participant

    thank you Inez.

    Any real life case studies yet Drakan?????

  • #76058
    Profile photo of Anonymous
    Anonymous
    Participant

    Hi Sarah.

    Yes both Charlie (the first lawyer) and Inez are right. But I’d like to point out this not a change in the law or something new.

    It simply didn’t happen before because property values increased by two digits p.a. and no one was desperate to sell, unlike now.

    But now as property prices have stalled or even decresed however slightly this happens on a daily basis.

    Basically a person sells on a loss because they are in a rush for whatever reason.

    The purchaser will be held responsible for the difference in value declared and a lovely “complementaria” may be received some months later by which the Tax Authorities state that they think the vendor underdeclared so as to evade taxes (CGT) and so did the purchaser on 7% Transfer Tax (ITPAJD). They will make a study of the values of the propertiesin the neighbourhood and tell you the market value of the property is really 3x and you only declared 2x. You owe us x and a fine (%) on said x.

    Imagine I am really a Tax Inspector, If I see this I am bound to think these people are deceiving me and so I will fine them. I will request the difference in value AND I’ll fine them (percentage of the defrauded amount).

    So how can I avoid this? Good question. You have to do what Inez said -and pray, alot-.

    You have to warn Hacienda of your intention and have them writing some official sealed reply (sello del registro de entrada at least) which you can use at a later date as ground to object to the complementaria. All dep and PPC contracts will be lodged with the Public Notary. However, all this doesn’t render you inmune, it simply tries to prove you acted in good faith and that there is nothing to hide.

    Ask a Public Notary of your choice don’t be afraid, they will be delighted to advise you free of charge on this legal matter (or any other).

    We are going to see this happening now very frequently with the ARM adjustments back in the UK in December which will hurt all those who have taken a second mortage in Spain with a remortgage back in the UK or Ireland.

    Houses are not ATM machines. Only a fool confuses “price” with “value”.

  • #76060
    Profile photo of katy
    katy
    Spectator

    Maybe some of you recall that I have posted about this topic before. It happened to us as long ago as 1995. We bought a bank foreclosure and the full price was declared on the escritura. It was such a good buy that we bought another. First one no problem but the second one we received a bill from Hacienda for another c. 2000 pounds. Our Lawyer said we could appeal but the money had to be deposited anyway, plus we would have had lawyers fees and was advised that it is very rare to win this type of case against hacienda.

    However, we paid such a low price we thought that this was just an annoyance and matter of principle. Even if we had been forwarned we would have still proceeded. I agree it is unfair though.

  • #76062
    Profile photo of Anonymous
    Anonymous
    Participant

    Thank you for your reply Drakan.

    If you were my purchaser’s lawyer (and not my vendor’s lawyer) would you advise that they proceed at 299500?? The way I’m feeling is that we should recommend that client and vendor go to completion but that a percentage of the sale proceeds (maybe 5 or 10%?) should/could be held in escrow by the Notary for a period mutually agreed by vendor/purchaser (18 months?) against any potential fine until Hacienda have closed their business for that tax year.
    Would this be a valid suggestion to make to both lawyers?

    Incidentally, this is the solution we are using for non-mortgage clients who wish to go ahead with purchases currently under investigation relating to Marbella Town Hall (except for a few developments which we are not touching such as Banana Beach). However, we are requesting 10-20% retention for a minimum of 2 years.

    Your comments welcome.

    Sarah

  • #76068
    Profile photo of Anonymous
    Anonymous
    Participant

    Drakan, what are the ARM adjustments you mention in your post?
    Thanks.

  • #76069
    Profile photo of Anonymous
    Anonymous
    Participant

    Adjustable Rate Mortgage
    A mortgage in which the interest and payment rates vary periodically.

  • #76074
    Profile photo of Anonymous
    Anonymous
    Participant

    In today’s edition of the New York Times:

  • #76093
    Profile photo of Anonymous
    Anonymous
    Participant

    Unfortunately there is no 100% guaranteed solution Sarah. What can be obtained from the Tax Office is a “valoración vinculante” by which they acknowledge the value of a property and they cannot fine you if you purchase at this price or above it. This value may be a multipleofthe cadastral value,which will be below the current market value. The tax office is binded by this value they themselves give you.

    Clearly it is the lawyer’s responsibility to warn the purchaser about this risk, not the agents job. However, for REA’s their reputation is always important and no one wants unhappy clients coming to forums such as this one bickering because they feel deceited. That’s why it would be a good idea to write short paragraph a a disclaimer and make the client sign it acknowledging this risk. I’m sure the lawyer will do the same on his side.

    The Tax Office isn’t going to always fine you for this but there is a risk and they can do it. As long as the purchaser knows there is a risk and he acknowledges it then they cannot complain later on. Many people are going to buy properties from desperate vendors at bargain values in these years so this issue will become common.

  • #76094
    Profile photo of katy
    katy
    Spectator

    I cannot understand why vendors would be upset about a trivial bit of extra tax when they are getting such a bargain. We just shrugged it off as unfair but its no good making a mountain out of a molehill.

  • #76121
    Profile photo of mike
    mike
    Participant

    @jsmith wrote:

    In today’s edition of the New York Times:

    http://www.nytimes.com/2007/11/08/business/08borrow.html?hp

    I liked the photo. It showed the guy with his LCD television and what looked like a very impressive music centre. Then they refer to people using their home like an ATM. I think they’ve stitched the guy up.

    I got to here and I had had enough

    Many a premature obituary, of course, has been written for the American consumer — only to see spending continue apace. Just last week, the Commerce Department announced the economy grew a healthy 3.9 percent during the summer, largely on the back of growing consumer spending.

  • #76473
    Profile photo of Anonymous
    Anonymous
    Participant

    Real life example posted on the 1st December 2007 Manilva life website:

    http://www.manilvalife.com/forum/viewtopic.php?f=6&t=6650

    Hello all,

    I would like to pass this on to you all so you are aware of what can happen once you have bought and settled into your property. I sincerely hope this does not happen to anyone else, but here goes.

    My family and I bought a property back in August 2006, at a cost of 252,000 Euros. It had been advertised for 300,000 but the owner dropped the price as we could afford no more and the buyers were not exactly queueing up. We made the whole purchase fully legally, with a lawyer and paying the relevant fees and charges (reluctantly, as they added up to around an extra 10%).

    Firstly, a few weeks ago we received a tax bill (plusvalia) for over 3000 Euros. Apparently it was unpaid by the previous owners and has to be paid. My lawyer is looking into this and expects the previous owners to pay but as yet they have not and it has our name on it. We were still sweating over that when…

    This week, we have been hit by a second tax bill. It appears that the tax office think the property is worth more than we paid, so want more of a chunk in tax, (an extra 5,000 Euros). I think they believe we paid more “under the table”, though this did not happen, we merely got a bit of a bargain due to the dip in the housing market. My lawyer is not hopeful that we will be able to get away with this and it will probably have to be paid. By the way, no instalments – paid in full. It will take me around 6 months’ work to earn this (after paying income tax) as I have a low-paid job. I also have a wife and 2 kids to support.

    This seems so unfair, but it appears we can only pay. If not, the tax authorities can take the house and sell it to pay the bill.

    Just another illustration that for all its good points, this country is run very differently to the UK.

    Gaz

    PS. If anyone wants to reply that this is somehow OK, or fair or that yes, we are living somewhere so much better than ‘home’ and these little problems are a price worth paying, please put yourself in my shoes for a moment and don’t bother. Things like this have taken the shine off our move here and made us seriously consider moving away. We are almost scared to look in the letterbox each day, for fear of more surprises.

  • #76480
    Profile photo of Inez
    Inez
    Participant

    For this reason you need to inform the tax office PRIOR to buying. It is getting more acceptable now – today I have a completion, the old owner bought from me earlier this year at 365k (good price) and then sold today at 310k (excellent price!)

    He has offset the loss against a big tax bill in Ireland so if worked fro him and the new owners are resident! They still could be hit, but its very unlikely and the notaries I have noticed are becoming more used to it now!

    How awful for these guys, but I suspect its more to do with the lawyer not doing his job property, plus valia is ALWAYS paid by the sellers (it should even be in the reservation contract) and should be paid at notary by the purchasing lawyer!

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