Spanish Property Speculation and the Downside for Local Residents
10 Feb 2013
A recent court case in Valencia in Spain has highlighted the problems of being a resident rather than an International property investor when the Supreme Court has ordered two people to pay a builder for two unfinished homes which they bought at 2006 prices, in Catarroja (Valencia), to speculate with but which they did not pay for because of the Spanish property sector crash.
The two men bought the two homes while they were still being built from a builder with a view to selling them as quickly as possible. What they wanted to do was to resell the homes before the building work had been completed and therefore only pay the minimum costs. However, after the property market crash and the drying up of credit, they did not to pay the builder the price they had agreed upon. The Supreme Court ruling states that "the deeds of sale for the two properties include the right to transfer the properties to third parties, and it has been shown that as soon as the sale went through they put up posters advertising the properties".
The men found were unable to resell the homes, and the builder started to ask them to pay the 463,325 euros owing. They were twice sent a duly attested summons to attend the execution of the deed of sale and the mortgage assumption but did not appear. The convicted men declared that they had not "intended to breach the contract, that it had been impossible to foresee that the bank would not agree to their assuming the mortgage, and that the current economic climate made it unlikely, or as a matter of fact, impossible to take out a mortgage".
The Supreme Court concluded that the two men had bought the homes for the purpose of speculation, and had intended to resell them before the building work was completed in order to avoid having to pay the expenses of the execution of the deed of sale and other associated expenses. However their plan backfired because house sales plunged. The Court reached the conclusion that the two men had wanted to make a profit by speculating on their property in Spain while at the same time trying to make the seller responsible for any potential losses, which is counter to the principle of good faith.
The two convicted men have been ordered to pay for the homes, bought at 2006 prices, plus penalty interest and court costs.
Nick Stuart Managing Director of Spanish Hot Properties said “if these people do not have the money their lives in Spain are now completely ruined. However if these buyers had been based in another country it is very unlikely the developer would have pursued them in another country. They could have obtained a judgment but actually getting it paid when the person resides in another country is a completely different matter”.
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