Many of our clients have been asking us about the availability of properties that have been repossessed by the banks in Spain.

Apparently, there have been lots of ´lists´ of repossessions doing the rounds of estate agents, particularly in the Costa del Sol, with details of seemingly incredible deals, such as villas valued at 2 million euros, now available for 500,000 euros.

The truth is that yes, there are properties being re-possessed in Spain by the banks, but the volume is nowhere near the amount suggested in these ´lists´. My understanding is that, certainly within the larger banks, any repo details are sent via email around the branches, and are normally picked up by bank staff or relatives of bank staff. Very often, the repossessed stock that is offered to agents or intermediaries is really not that great at all.

So, back to these lists. You may well find that the discounted figures on these lists refer to ´credits´ against the property, equating to the outstanding debt on the property that the bank simply want to sell on to a 3rd party in the hope of removing it from their balance sheet. In theory, as an investment vehicle, buying a ´credit´ may make some sense. You effectively purchase the debt (in the above example 500,000 euros), and you enjoy first option to purchase the actual property, but only once the property has gone to auction (which can take in the region of 2 years), and then only if there isn´t a higher, rival bid that you don´t match. Also, if the original mortgagee comes to an agreement to re-purchase the debt, you would be asked to back down. The interesting investment angle is that if you have no interest in purchasing the property itself and are out-bid at auction, you are refunded the price of the ´credit´ PLUS interest that the bank would have charged against the mortgage default, typically running from anything between 10% and 25% per annum. In the case that you end up ´stuck´ with the property, you end up with a 2 million euro villa with a discount of 75%.

Not a bad investment, but you will need lots of cash and the patience of a saint to effectively ´play´ this system. And bear in mind that most vendors will bend over backwards to somehow re-pay the banks if they are sitting on that amount of equity in their properties!

Also, watch out for re-possessions that have passed through several hands on their way down the chain. You may end up paying anything up to 50% of the final price in sales commissions and fees. Of course, you will need a good team of people working on your behalf, normally real estate agent, Spanish lawyer and mortgage broker, but some bankers are looking for a get-rich-quick scheme and will charge their agents a whopping commission even to hand over the properties.

I think it´s only fair to expect to pay a finder´s fee for this service. The true bargains and quality repossessions don´t tend to fall into agents´ laps, and so there is a lot of work involved in sourcing this stock and marketing it internationally.