Why buying residential property overseas can be risky for Americans

When Petra Ahmann decided to give up her life in New York and move to Barcelona, ​​she was motivated by the same reason as many other expats. She fell in love with the city.

“I feel like I can live here,” says Ahmann.

A first trip to Barcelona with her best friend five years ago led to many return visits. And in 2017, she decided to put down a deposit to buy an apartment through a real estate developer.

The unit will take about a year to complete, which will give Ahmann, now 33, plenty of time to prepare.

But in January of the following year, she received an email from the developer that surprised her. She was informed to ignore a recent article in the press. “The building was still in progress. Everything was going very well,” recalls Ahmann.

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Upon further investigation, Ahmann discovered the developer allegedly evicted residents illegally to gain access to the property.

Furthermore, construction was halted due to repeated violations of work permits.

“I didn’t realize all that when I bought it,” says Ahmann. “I wouldn’t have bought it if I had known.”

Sadly, the contract that Ahmann signed proved difficult to cancel. Instead of returning her deposit and leaving her out of the deal, the developer offered her an apartment in another building.

Her lawyer advised her to take it, even though the second apartment cost more. That means she will have to increase her deposit.

New properties also have problems. Specifically, the apartment is too small. While it’s legally required to be at least 40 square meters (about 430 square feet), it’s more like 37 (398 square feet).

That was not only inconsistent with Ahmann’s contract, but also against city rules.

Now, the company accuses Ahmann of breaching his contract by failing to close the apartment door.

Meanwhile, she estimates she spent about $145,000, plus $10,000 in legal fees. The total price of the apartment is 380,000 euros, plus tax.

“I’m in a situation with this developer where I don’t know if I’ll ever get my money back and when I’ll get it back,” Ahmann said.

Norvet, the real estate developer, said in an email that Ahmann had breached the purchase agreement and that it was done in accordance with Spanish law.

Many Americans have been drawn to the lure of living in another country. About 9 million U.S. citizens are living abroad, according to the most recent State Department estimates.

When it comes to the top destinations for expats, Spain is high on the list, according to a recent HSBC expats survey. The country ranks fourth, behind Switzerland, Singapore and Canada.

According to company research, the top reasons to move there include quality of life, climate and retirement. Notably, HSBC research shows that 70% of expats in Spain own properties there.

As Ahmann’s experience shows, caution should be exercised when entering into contracts for the purchase of residential real estate.

“Most of the transactions are right and legal,” said Joaquin Cabrera Busquets, a lawyer at Cabrera Il Puigvert in Barcelona. “When things happen, they happen everywhere.”

Cabrera worked with another US citizen in a similar situation, who discovered the property was larger than legally allowed after she signed an agreement to buy it.

In the end, the customer was able to get her money back, plus damages.

Americans need to be even more cautious than usual when buying property abroad, especially since rules can vary significantly from country to country.

“There can be many things that can go wrong, from the roof to the structure to tenant rights,” said Carl-Christian Thier, attorney and founding shareholder at law firm Urban Thier Federer PA. .

For example, it is possible that zoning or zoning restrictions could mean that buyers cannot use the property the way they intended, he said.

If a location has tight tenant protections, it’s possible that someone could buy a currently rented property and then be unable to evict current residents, Thier said.

Owners may also be subject to other obligations, such as being forced to rent out the property if the local government decides there is a shortage of apartments.

“The number of problems and problems that can arise is almost unlimited,” says Thier.

Buyers should therefore work with an attorney who speaks both their own language and the language used at the place of purchase, he said. The U.S. consulate in each country can provide a list of English-speaking attorneys who are available to help.

One source of advice to be wary of: real estate agents or brokers. Many buyers, says Thier, make the mistake of thinking those experts are their advocates, but instead get bad or incompetent advice.

It’s also a good idea to approach other professionals. In some countries, specialists called scribes can check to see if there are debts or liabilities attached to an asset.

According to Cabrera, an architect can help uncover any defects a property has and help solve urban planning problems.

Another invaluable resource: local residents. “Talk to the neighbors,” Cabrera said. That can help alert buyers to the condition of the property or possibly unexpected situations, such as travel rentals.

It’s important to look at comparable sales to gauge whether pricing is fair, said Philip White, president and chief executive officer of Sotheby’s International Realty.

Make sure you can sell the property, if your potential move doesn’t go the way you think it should, says White.

Also, make sure you understand the impact of taxes on your purchases, he advises. Each country has a different tax treaty, and your income may be taxed in the United States and other countries.

With so many potential complications, international property purchases can lead to unexpected lessons.

For Ahmann, who is still living in Barcelona, ​​it certainly happened.

Now, she has just closed the door in an apartment she has lived in since March of last year. The apartment has been sold by the owner. It is located in an old part of the city and has been renovated.

Moreover, the price is even lower than the one she originally bought – 370,000 euros. And the size is much larger – 65 square meters (about 700 square feet).

But while she can put down a 30% deposit on the new apartment, she can put down a lot more if she still doesn’t have the money still tied up in the first property.

And she won’t lose all the money she ended up paying with rent instead of a mortgage.

Now, after hiring a new attorney, Ahmann is trying a new strategy to get her money back from that first transaction. That involves challenging a building that violated the construction of the apartment and alerting the authorities to investigate the situation.

If that doesn’t work, she says she can pursue the claim.

Looking back, Ahmann says she wouldn’t buy from a real estate developer.

The process is a lesson in her new country’s culture, where consumers are sometimes less privileged than in America.

“If you don’t push people to do things, they’re stuck,” says Ahmann. “The only person who can truly advocate for you is you.”

However, Ahmann made the country his new home.

“I hope to stay here forever,” she said.