Buying repossessed property in Spain: what it is and the pitfalls

The word "embargado" (Spanish for a property seized under an embargo, a court-ordered charge) scares most buyers. We associate an embargo with court wrangling, paperwork, inherited debts and all kinds of problems. And they're partly right: buying a seized home without knowing what you're doing can be a nightmare. But done properly, it can be the best purchase of your life.

An embargo doesn't mean the home is for sale

The first misunderstanding to clear up: an embargo is an entry in the Registro de la Propiedad (the Land Registry), not a sale. It means that a creditor (the bank, the tax authority, a supplier...) has had its right over that property recorded (by order of a judge or, in the case of the tax authority and Social Security, of the authority itself) so that it can recover its money if the owner doesn't pay. The home still belongs to the original owner until the judge orders it to be auctioned.

Types of embargo and what they mean for the buyer

• Mortgage embargo: The bank enforces the mortgage. It's the most common kind and the one behind most auctions in the BOE (Spain's Official State Gazette). If the bank takes the home at auction, it becomes a bank-owned REO (real estate owned) asset.
• Tax embargo (Hacienda): The Agencia Tributaria (the Spanish tax agency) collects tax debts. Its auctions often end with no bidders because the starting prices are very high. That creates post-auction opportunities.
• Social Security embargo: For unpaid contributions. Less frequent, but it produces auctions with less competition.
• Ordinary embargo: Between private individuals or companies. The most complex, because there may be several embargoes from different creditors piled up.

The direct route: buying before the auction

What few people know is that it's perfectly legal to buy a home with embargoes on it, as long as the purchase price covers the debt or the creditor accepts payment from whatever is raised. The owner can sell their seized home with the implicit consent of the bank, which will lift the embargo if it receives payment of the debt at the notary's office.

This is the route that gets the best prices: the owner wants out of the situation, the bank wants to be paid and the buyer gets the property free of charges at a negotiated price.

What you absolutely must check before buying

• An up-to-date Nota Simple (the Land Registry extract): To see ALL the current charges, not just the ones the seller tells you about.
• The exact amount of each embargo: Principal + interest + court costs. Sometimes the debt has grown a lot since it was recorded.
• Preferential charges: Unpaid IBI (the local property tax) for the current year and the previous one ranks ahead of any mortgage, and the property is also liable for the IBI of the years that are not yet time-barred (up to four) if the previous owner doesn't pay it. Insist that it is settled before you sign.
• Occupancy status: Does anyone live there? The owner? A tenant with a contract? Each situation has different legal implications.

The real margin you can get

With seized homes bought before auction, the usual discounts range from 15% to 35% below market value. They're not the brutal discounts of a court auction, but the process is far more controlled, with fewer surprises and more time to carry out due diligence properly.

Next step: See our complete guide to repossessed property, with properties available now. You may also want to read how court auctions work, for when the home reaches that point without being sold first, and look at the active listings in Málaga.