The hurry of banks to sell their properties as soon as possible is leading to some strange situations. It is common practice nowadays to “sell properties without possession”, which consists of the pre-sell of a seized property by the bank, but with the owners still residing in it, awaiting normally an eviction. These sales are therefore made at a lower price.
This operation seeks the optimization of the allocation through the payment of less taxes and maintenance costs. The buyer knows he has given a deposit for a house with tenants, receiving in exchange a bargain price, but he has to wait for a certain period of time before being able of occupying the property.
Fernando Acuña, managing partner of Taurus Ibérica, declares that this type of sale is known as “sale of a property without possession”, and it takes place in allocated properties with tenants awaiting their eviction, after the auction finishes without a purchaser.
Any person can have access to these sales, but they are normally taken up by investors used to these practices with no fear of entering such an operation.
The process of property sales without possession is as follows:
- The buyer gives a deposit, which varies from bank to bank and which can be around 3000 Euros or 15% of the total value of the house.
- The seller takes the responsibility of allowing the entrance of the buyer to the property after a certain period of time, after the eviction has taken place. There are also temporary contracts, of around six months, where after this period of time it is possible to renovate or cancel the process. If the latter happens, then the buyer would receive the deposit back. This contract would be renovated every six months because it is not possible to know in advance how long the eviction process will take.
Another possibility would be when the bank offers the buyer the possibility of assuming the cost of the execution of the eviction in exchange for a more attractive price. This means that the buyer needs to hire a lawyer and an attorney in order to carry out that process.
This type of sale is a “blind purchase”, as the individual interested in a property cannot find out if the house is in a good condition nor can he know how he will receive it. This is why the price is so interesting, as it is accepted that the new owner will need to refurbish the property. According to Fernando Acuña, there are individuals who do not mind taking such a risk because they know that if the property goes into the market, it will be sold immediately.
Another way of getting rid of properties as quickly as possible would be to sell them before the legal auction takes place. If the financial institution succeeds in selling the property, then it can cancel the pending debt. As an example, if the bank sells a property for 100.000 Euros, but with a mortgage of 150.000 Euros, those 50.000 Euros are cancelled from the debt of the mortgage owner. Financial institutions save on registering costs, on taxes, like the real estate tax, or on maintenance costs of these properties.
Financial institutions also resort to a credit cession with a grace period: the bank sells the mortgage debt and the right of recovery to a third party and before the auction, in exchange for a discount, or forced sale. This consists in transferring the property to a third party with a discount after the auction and the third party can be the real estate subsidiary.