Banks liabilities on illegal properties in Spain

There are currently hundreds of illegal homes in Spain, which face an uncertain future and have mortgages placed on them by banks as guarantees of loans advanced to the developer.

In many cases, the same financial entity that granted the loan to the developer and knew of the illegal status of the land on which the property was built, granted the mortgage subrogation to the buyers.

In many cases, these home owners now have to make a substantial number years of mortgage loan repayments for a property that they cannot sell, rent or offer as collateral and which has a legal value of zero.

Who is responsible for these situations?

There is a recent judgment of the Supreme Court dated September 2016 which declares as null and void those property purchase contracts in which the illegality of the house was concealed by the seller to the buyer.

This Judgment directly opens the possibility of recovering the amounts that were paid before the signing of the Deeds at the Notary (completion), using the actions of Law 57/1968.

It may also be possible indirectly, when declaring the contracts null and void, through the use of the legal principle of linked contracts, to declare the mortgage loans the buyers acquired from the developer when they signed the purchase deed of sale in front of the Notary as null and void.

These actions to declare these linked contracts as null and void HAVE NO TIME BARRING, as stated by the Supreme Court in 2016.

Therefore, if:

  • You purchased an illegal property in Spain, due to lack of planning/building licence
  • You were not aware of the illegal status at the time of signing the Notary deeds

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