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Therefore, the Due Diligence operates as a mechanism to exercise the Seller´s liability in the event of discrepancies between what was stated in the Due Diligence, as a result of the investigation of the real estate property, and the post-closing reality of the property. C. The Due Diligence process consists of several inspections performed by the buyer, including, but not limited to, analysing: the technical structure, the legal status, i.e. title, encumbrances, claims against the property, etc. or the tax situation of the property. Due to Spain´s abundant real estate regulation, it is crucial to analyse if the property complies with the local regulations and holds the necessary licenses, otherwise the owner would be liable, and the Administration may start a claim/sanction process. Also, it is important to bear in mind that in case the real estate properties are built in condominiums, these are regulated under the Horizontal Property Law. Under this regime, the owners of the properties also own, jointly with other co-owners, the common areas of the condominium (fitness zone, pool, green spaces, etc). Therefore, real estate owners are affected by the bylaws of the owners’ association to which the condominium is affected. The Due Diligence should also focus on observing these bylaws and understanding the property´s situation regarding the condominium. D. If the Seller is a legal person, the Due Diligence has further specialties and
analysing the corporate situation of the Seller is key to obtain the whole picture of the operation.
II. FINANCING TOOLS OF THE TRANSACTION Typically, in Spain, investors finance transactions with mortgage loans but is also possible to finance transactions by means of vendor loans also called owner financing. It can be a good option for buyers who don’t qualify for a traditional mortgage. The advantages of using owner financing for buyers who are not able to secure a mortgage are a faster and cheaper closing with flexible downpayments, and the disadvantages are higher interests and sometimes due-on sale clauses if the seller has a mortgage on the property. Spain has a very competitive mortgage market and as a result, there’s plenty to choose from when it comes to loans. However, non-residents buying Spanish property with a mortgage have more limited access to loan types and conditions. Resident buyers are often offered up to 80% LTV (loan-to-value) but for non-residents, LTV is much lower, some banks only finance 50% of the purchase. What should be considered when thinking about the financing of a purchase project in Spain? It depends on the way the deal is structured. Often the owner holds the ownership of the property until they are paid in full, which happens when the buyer either makes the final payment or refinances with a mortgage from another lender. When taking out a Spanish mortgage the buyer must be aware that the transaction involves several costs. These are levied in addition to the taxes and fees charged as standard on a purchase. It used to be the
ILN Real Estate Group – Buying and Selling Real Estate Series
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