Expats and foreign investors are among the easiest marks for fraud – one of the dangers of international investing that promoters don’t like to talk about.
Fraudulent real estate deals are rife. And while real estate fraud exists everywhere, it’s especially pervasive in Spain, where in the 1990s and early 2000s, developers bought property that government officials illegally rezoned for residential development in exchange for hefty bribes.
No one seemed to care in those boom times, and developers sold homes to expats as fast as they could build them. But today, there are more than 1 million “illegal” properties in Spain owned by around 800,000 expats. And Spanish authorities have vowed to demolish these illegal dwellings, especially those built in “green” spaces reserved for beach access or parks.
Under Spanish law, owners may be forced to pay for the cost of the demolition. In theory, they could even be subject to the criminal sanctions for building on land not officially designated for development (although I don’t know of any homeowners who have been prosecuted).
Marbella, on the south Spanish coast in the province of Andalusia, was a prime target of such schemes. In 2013, a court sentenced Juan Antonio Roca, the former city planning chief, to an 11-year prison term and fined him $300 million for accepting bribes. Two former mayors were also imprisoned, along with more than 50 others. Roca had presided over a scheme in which building permits were handed out to developers in exchange for cash payoffs. Thousands of the homes they approved are now slated for destruction.
In some areas, local councils approved construction projects. When the opposing party took office, approval was withdrawn. In other areas, demolition orders have come from regional government authorities.
That’s what happened in the village of Zurgena. A local town council issued a building permit to developers. But the permit breached planning laws set by a regional authority. Now the homes built there illegally are slowly being demolished.
Good due diligence can uncover problems like bad or no title, liens, or improper zoning. It’s much harder to uncover outright fraud. But that doesn’t mean you shouldn’t try, especially when the stakes are high.
Certainly, that’s the case if you take your life savings and put it into a new home in a foreign country, like so many expats did in Spain. Margaret and Peter Hegarty retired to the rural village of Cantoria after selling their home in the UK. They took the money from that sale plus an early retirement payment for Peter to purchase a new home for $200,000. Local officials demolished their home, along with three others, just last week.
When you purchase real estate in a foreign country, assume that everything you know about real estate in your home country is wrong:
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The property may not be zoned for residential construction, as the seller claims.
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Squatters may have the right to move in when you’re not around and then file a claim for legal ownership.
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Legally enforceable liens against the property may not be officially recorded.
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You may discover that you have a right only to live in the property you thought you owned. Someone else may actually own the building and the land it sits on.
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It is common for shysters to sell you property they don’t even own. Years later, the legitimate owner may file a lawsuit to reclaim the property “stolen” from him.
Before you purchase any property outside your home country, obtain independent advice from a licensed attorney in that country and experienced in real estate law. That attorney should thoroughly investigate the property: whether the seller actually has title to it, if it’s in an area where squatters may legally take possession of it, and that the property is legally qualified for its intended use.
That’s especially true if you’re building a new home. A home in a more established neighborhood may be a safer bet, especially if you’re not that familiar with the area.
Like everything else, when it comes to buying offshore real estate, it’s caveat emptor.
Mark Nestmann
Nestmann.com
