The sale of a property with deferred payment: What guarantees do I have?

In few occasions, at least today, in which the seller of a property gets the total sale price at the time of its formalization; this is because unfortunately the buyer does not have enough liquidity to fully meet the price at the time of sale. However, as is well known and insofar as the business of the sale is a consensual contract (that is, that is formalized by the mere consent of the parties involved) and is perfected in the so-called traditio or delivery of the thing (in this case the real property object of the sale), an act that is materialized in the granting of the public deed and by the delivery of the keys, which constitutes the provision of the property in favour of the buyer, although materially still does not possess it de facto .

That is why the sale of a property with deferred payment can be a solution for such lack of economic capacity of the buyer at the time of formalizing the purchase.

However, the truth is that from the perspective of the seller who sells their home with deferred payment, the buyer already has the property to the extent that it acquires the inherent powers of an owner; while its security in the collection of the postponed price acquires great importance for its financial equilibrium. For this reason, and in order to provide greater guarantees to the seller, our legal system has articulated a series of mechanisms to guarantee effective compliance with the obligations of the buyer; that we remember is not only the payment of the price as consideration for receiving in its patrimony the real estate in the amount, quality and term agreed. In this context, I will explain next the mechanisms of assurance of payment of the price when it is agreed upon in a deferred manner, all of which can be achieved through two essential means:

1. Personal guarantees: The unquestionable queens of the personal guarantees are the surety and the guarantee, inasmuch as they grant the creditor a right of credit against a third party other than the debtor, who assumes the debt either together with the debtor or in substitution thereof, in the case of not doing this one. They are the so-called guarantors or guarantors, and they respond with all their assets, that is, they become new debtors, who in the end are guarantors of the obligation of the principal debtor with respect to the payment of the agreed price for the sale, with all its assets present and future.

2. Real guarantees: This other type of guarantee binds or affects the immovable property in question so that, in case of default by the buyer, the seller can transform the good in money and then see the price due. In this context, and without detriment to other real guarantees such as the reservation of ownership pact (in which the full payment acts as a condition precedent for the good purpose of the sale, so that the seller only provisionally transferred is the ownership of the property in question) highlight two methods of guarantee:

a. The constitution of a mortgage on the property in guarantee of the postponed price.

b. The agreement by virtue of which the parties give to the non-payment of the deferred price the character of expressive condition expresses.

In short, and as it is that in the case of having a personal guarantee the creditor may find that the guarantor or guarantor is also insolvent and lacking assets or they are insufficient to collect the outstanding debt, which would result in complete frustration of your interests; This is why it is clear that the creditor gives greater security with a real guarantee (on a property) rather than a personal guarantee (on a person).

However, we cannot ignore that at the time of granting a mortgage now the banks if they are not reluctant at least they proceed with caution, and, unless they know in detail the buyer, do not extend the arms unconditionally as it used to happen. Precisely for this reason is that today there is a range of population that has the doors closed to obtain a mortgage, when the truth is that despite not having a well-off situation they do have sufficient economic capacity to cope with the purchase of a flat at a deferred price.

Then, if the banks are manifestly reluctant to grant mortgages and the buyers are not willing to pay a property by instalments without acquiring their ownership by paying the last instalment (the aforementioned domain reservation agreement); the seller can choose to be the one who finances the deferred payment, but how can the seller prevent the frustration of their interests in case of default of the deferred price? A legal solution to both the banking veto for the granting of mortgages and the non-viability of the suspensive condition of the domain reservation agreement is the purchase and sale of a property with an expressive resolutive condition included in case of default by the buyer; guarantee that, as will be explained below, I consider the most appropriate.

The express resolutive condition (as a guarantee method for the deferred payment of a property sale) consists in including a clause under which if the buyer does not pay the price within the agreed terms, the sale will be terminated. Consequently, this supposes nothing more and nothing less than the buyer must reimburse the seller the property while the seller will be obliged to fully refund the price received.

Then you may ask yourselves: does the buyer have the upper hand? Everything returns to its initial state just like that, with all indemnity? The answer is no, not entirely, because it can also be included that, in case of non-payment, the buyer must also pay an amount to the seller to compensate for the inconvenience, as a penalty clause or compensation for damages. At least they would reduce the inconvenience suffered to a certain extent, in addition to the right to reacquire ownership of the property. For this, however, it is required that the seller previously asks the buyer or notary to evict the property as to verify the new registration in favour of the seller or his successor is necessary to be recorded the judicial or notarial notice made to the buyer by the seller to be resolved the sale and accompany the seller's title. Nevertheless, the jurisprudence of the Supreme Court has qualified said automatism and distort the aforementioned condition, in the sense that if the buyer shows the dissatisfaction of the resolution before the request, the seller will be forced to go to court, which is at least a considerable slowdown; although the judicial approval favourable to the seller, will have retroactive effects from the date of the request made.

Apart of the above assumption, the aforementioned automatism will allow the seller, upon input of the requirement referred to the buyer, to go to the Property Registry to inscribe again the property in his name. Simply be responsible for providing proof as has been recorded the amount paid by the buyer to date, which has the effect of releasing the obligation to return and without prejudice to, after and when contractually agreed, demand compensation for the damages caused. It may happen in this context that the buyer has contracted debts to third parties in the period of time that has elapsed from the conclusion of the sale until the resolution for compliance with the express resolution condition provided in the deed itself. In this case, the seller must record the price paid by the buyer (direct effect derived from the fulfilment of the resolutive condition), but not at the disposal of the latter but at the disposal of the creditors, which has full liberating effects.

Consequently, it is advisable to be cautious. The mere postponement of the payment is not subject to resolutive condition, hence the importance of its express provision and its inclusion in the deed to be subsequently registered in the Property Registry; what will ultimately mean a charge on the property acquired by the aforementioned purchase and that it has erga omnes effect , that is, in front of everyone. And this is so in that from the moment of registration of the resolutive condition, the seller is protected against possible transmissions of the property made by the buyer, as well as the constitution of any levy or right on it.

However, there are occasions when it is not possible to register this condition together with the deed of sale, and not because of legal impossibility but factual. This often happens when the bank has granted a mortgage to the buyer but it does not reach the amount required to satisfy the price of the property, all of which results in that, again, it is the seller who gives in to a deferred payment of the remaining until reaching the agreed price. In this case, however, the bank is not likely to accept the inclusion of a resolutive condition in the case of non-payment of the deferred price between buyer and seller, precisely because it has not granted a higher mortgage on understanding that the buyer has no economic capacity enough to deal with it. In this case, however, and as the seller does not wish to lower the agreed price, and by virtue of the ius counterhendi or right to negotiate or agree, a private debt recognition agreement between buyer and seller can always be made, in which a detailed and guaranteed payment plan is foreseen even with a bill of exchange, if necessary. Said alternative, although it does not grant the same guarantees, allows the seller to sell the home and, in case of default by the buyer, may not recover the property, but ask for the amount due judicially by a relatively more flexible procedure than the rest, being the debt documented with a bill of exchange, if so done.

Finally, coming back to the express resolutive condition in guarantee of the payment of the postponed price in the legal transaction of the sale of a property, it is also worth mentioning the taxation that it entails. In this sense, and very briefly, this figure has a specific treatment at the tax level as long as it is considered that the condition itself constitutes a taxable event per se, regardless of the taxation of the sale itself. In this regard, keep in mind that the tax on the sale itself will depend on whether it is subject to Capital Transfer Tax and Documented Legal Acts (ITPAJD) in its form of Onerous Transfer of Property or to the Value Added Tax [For more information, click here]. On the other hand, for purposes of taxation due to the resolutive condition, it is also subject to the ITPAJD in its Onerous Asset Transfers modality and generally the applicable tax rate is 1%-1,5%  dependind autonomous comunnity..

In short, and in reference to the merits of the case, although prima facie it may seem that in times of economic difficulties making a purchase with deferred payment although it can be a very smart option, if guarantees are not foreseen as an express resolutive condition registered in the Property Registry, the consequences of the eventual default of the buyer can be very burdensome and end up being a nonsensical sovereign legal transaction. For this reason, it is essential to be properly advised by a legal advisor, or if we go directly to a real estate agency, make sure that it is backed by a competent, attentive and accessible legal service; especially when it comes to probably making the biggest investment of your life.

Do you have more questions? Need our lawyers to draw a contract of deposit or advise you throughout the process of buying a home? Contact us for visiting our office or use any of the online legal services we offer on our website.

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