The article below is prompted by a case that recently came to our firm’s attention and which, frankly, reflects a situation we never thought could happen.
Generally speaking, property sales where the actual situation differs from what is recorded in the Land Registry—or that result from illegal urban development—are relatively common in the former case and very common in the latter. But to see this happen with an urban lot in a residential development? Frankly, we’ve never seen anything like it.
Once again, we want to emphasize the importance of seeking legal advice from an attorney specializing in real estate law whenever you’re planning to make a real estate transaction—especially when there’s anything “unusual” that you don’t fully understand.
PURCHASE OF AN URBAN RESIDENCE WITH AN ACTUAL SIZE LARGER THAN THAT INDICATED IN THE PROPERTY REGISTRY
Although discrepancies between the Land Registry and the legal status of rural properties are not uncommon—especially prior to the new regulations requiring the Land Registry to be brought into line with the Cadastre—it is more unusual to purchase a home whose actual size exceeds the registered size. This increase in size may be due, for example, to the existence of an additional room larger than 20 m², which is not reflected in the Property Registry.
The importance of identifying discrepancies before making a purchase
This circumstance should have alerted the buyer to the unusual nature of the situation and the need to investigate the cause of this discrepancy before signing any documents.
Unfortunately, the sellers—a real estate developer that had acquired this urban property at auction—assured the buyer that there was no problem and that the city government could not demolish the addition. The buyer, trusting this assurance, purchased the property without considering that, while illegal constructions on rural properties are typically larger than what is authorized, a similar situation on an urban property—such as a house or bungalow in a residential development—is very different.
Since the new construction declaration determines the layout of the development and each of its components or units, and since this document is filed with the Land Registry, it was clear that those additional square meters must belong to another part of the development—whether private or common—which could lead to problems.
The buyers, relying on the words of the selling developer, purchased the property through a notarized deed and began making improvements, until they were informed by the Homeowners' Association that there were problems with the property.
THE DIFFERENCE IN METERS CORRESPONDS TO ANOTHER REGISTERED PROPERTY
After being informed by the homeowners' association that part of their home belonged to another registered property within the same community—and that community fees were owed on that property—the buyers began to investigate to understand what was happening.
The reality behind the discrepancy in the records
What they discovered was that this room, measuring about 20 square meters, which was not listed in the Property Registry, actually corresponded—according to the new construction deed—to a different registered property than the one they had purchased. Furthermore, this property was described as a commercial space.
Although the developer had divided the property and its various components, he created this commercial space adjacent to one of the residential units as a separate property. However, for unknown reasons, he attached it to the dwelling, expanding it, without making the corresponding amendment to the New Construction Declaration, which would not have been possible due to the serious difficulties and complexities involved.
In the end, the developer sold a large portion of the housing development, while the rest was auctioned off by the bank that had provided the mortgages and foreclosed on the unpaid loans.
THE PROPERTY IS REGISTERED AS A SINGLE PARCEL, BUT IT ACTUALLY CONSISTS OF TWO
When the buyers went to the notary’s office to purchase the home, they bought one specific property listed in the registry, but not the other property listed in the registry, which was a commercial space. Despite this, they were given possession of both the home and the commercial space.
Issues arising from the sale of two registered properties
We discovered that the seller—a developer that had acquired the properties at a judicial auction—sold something it was not authorized to sell: the square footage corresponding to the commercial space. The buyers, unaware of the situation, acquired not only the specific registered property but also additional square footage that did not belong to them. This has left them in a very difficult position, having purchased something that a third party was not authorized to sell.
They are currently being required to pay the common area fees for that commercial space, which have been outstanding for many years. However, they refuse to pay, claiming that they are not the owners.
The developer made the same claim before the sale, stating that it had acquired those additional square meters but that they were not the registered owners of the property. Therefore, even though they were in possession of the property, they were not the legal or title owners, and they were not obligated to pay fees that did not apply to them.
This information is key to resolving the problems this situation has caused for the buyers. The sale took place with full knowledge that, in fact, two registered properties were being sold instead of one, and that, furthermore, part of the property being sold did not rightfully belong to them, as they were not the legal owners.
THE SECOND PROPERTY BELONGS TO ANOTHER OWNER
As we have already mentioned, the property is currently registered in the name of the developer, who, due to the failure to make mortgage payments, caused many of the homes in that development to be auctioned off.
As a result of these debts, the aforementioned business premises are subject to numerous liens currently in effect, for which certification has been requested prior to the auction—not only for this registered property but also for several others.
This is why the problem for the buyers is compounded: not only have they purchased something that does not belong to them—they have purchased it from someone who is not the seller—but the property is also listed in the Land Registry with several liens, and the purchase took place well after those liens were recorded, as we have mentioned.
THE SECOND PROPERTY IS SUBJECT TO A LIEN DUE TO DEBTS OWED BY ITS REGISTERED OWNER
As we have mentioned, the legal status of the registered property—which is a commercial premises—is problematic, as it is subject to several liens, as we have noted, since it was auctioned off in the past, with the result that the buyer or the holder of the lien may take action against the purchasing customers, as they possess something they acquired from someone who is not the owner, and did so very recently.
Given this situation, we believe the buyer’s course of action can be pursued through various claims, but always by suing the developer, who was fully aware of the legal status of what it was selling, and therefore cannot claim good faith as sellers—quite the contrary—and have also committed the serious offense of selling something that did not belong to them.
We understand that the developer acquired the property from the court, and therefore can claim that it was already in that condition at the time of acquisition, but in our view, what makes their conduct legally reprehensible is their subsequent knowledge of the situation and the fact that, despite this, they sold the property without disclosing the actual circumstances, thereby causing serious harm to the buyers.
SOLUTION TO THE PROBLEM
In our opinion, the purchasing party has a clear case for criminal action against the developer for knowingly selling something that did not belong to it, and thus committing one of the crimes of fraud under Article 251 of the Penal Code; furthermore, and given that this is characteristic of fraud cases, the buyer has a dual claim regarding compensation for damages, since they may either seek the consequent nullification of the entire transaction or, through a civil liability action, limit the claim to the return of the reduced value of their home, given that a significant portion of the square footage sold to them was obtained without the developer having the legal capacity to do so.
This second option would involve relinquishing ownership of this commercial space, which has been converted into a room by partitioning it off, so that the commercial space is completely separated from the residence you would be purchasing; the total area would then correspond to the square footage of that registered property as recorded in the Property Registry.
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