How to remove a title deed from the house?
When the ownership of a property is shared between two people, be they spouses, siblings, father and son, it may happen that the interest arises to remove a holder of the housing deed. In addition, if a jointly obtained mortgage weighs on the property, you will need to carry out some procedures to ensure that a single person retains ownership of the property and is in charge of settling the debt with the bank. In this article, from Sky Marketing we will analyze several alternatives. Depending on what you decide to choose, the expenses will vary, and there may be other implications.
Among the different possibilities that exist is to carry out a sale of half from one owner to the other, a donation or a condominium extinction. The first case involves the payment of a price, in the second case it is a gift and, in the last, the awarding party receives compensation. Here you can find out how much the deeds of a house or the deeds of a land cost in Spain.
The procedures before the bank to remove a holder of the housing deed: mortgage novation
First of all, to change the obligation to pay installments to a single owner, you have to go to the bank and ask if it would be willing to remove one of the mortgage loan holders. This change is made by a figure known as a mortgage novation. Under this figure, any clause of the contract can be modified by means of an agreement with the entity.
It is necessary to distinguish between a modifying novation and an extinctive novation , as the difference is subtle and you may need expert advice. Clarification is important because it can have legal consequences.
- In the case of the modifying novation, a change is made in the obligation, but the conditions of the original obligation are maintained.
- In the case of extinctive novation , the obligation is changed, making a substitution and therefore a new obligation is acquired. Extinctive novation implies a waiver of the rights of the original obligation. The risk of accepting an extinct novation is established, and that is that we may be renouncing rights that we will not be able to claim later. On the other hand, in an extinction novation, the guarantors or guarantors are released, since the previous guarantees are also extinguished.
The mortgage novation is not a free procedure and should be studied carefully. The bank is not obliged to agree to the change in ownership of the loan, since by eliminating one of the holders, it will lose the initial payment guarantees. In these cases, depending on the financial profile of the remaining owner, you can ask for new guarantees.
Notarial procedures to remove a holder of the housing deed
It seems logical to think of a donation, but this option can be very expensive. In addition to the notarial expenses and the procedures for changing the deed due to change of ownership of the home before the Property Registry, donations give rise to the obligation to pay Inheritance and Gift Tax (ISD), which may vary between the 7% and 34% of the appraised value of the property.
You will also have to pay the corresponding capital gain in the exercise of personal income tax.
In this case, some procedures are the same as in the donation, as with the notarial expenses and the change of deed in the Property Registry. Additionally, you must pay the Tax on Patrimonial Transmissions, of 7% on the final amount of the purchase-sale. (Read our article on the documentation needed to buy a flat).
On the other hand, you will also have to pay the municipal capital gains tax that will vary according to the municipality and the cadastral value of the land where the property is located.
Due to extinction of condominium
This figure is also known as “cessation of the pro-undivided” or “separation of the condominium”. This operation is a cheap alternative for subrogation between mortgage debtors, where it is agreed that one of the holders gives up its fraction to the other in exchange for an economic consideration. This compensation can refer to a portion of the value of the property, discounting half of the capital that remains pending on the mortgage loan. The dissolution of the condominium is requested through a notarial deed of sale, in which this transmission is established.
The condominium extinction application is commonly used in inheritance distributions, in the event that the same property has to be shared between several siblings.
The main advantage of this figure is that it is not taxed as a transfer, since the transfer is not made to just anyone but to another joint owner. In the extinction of the condominium, the payment of between 0.5% and 1% applies -depending on the autonomous community-, on the real value of the adjudicated assets. Thus, the maximum to be paid would be 1% for Documented Legal Acts (AJD) . The only additional expense to include would be the notary fees. Of course, the price of the formalization of this procedure may vary depending on the value of the condominium. Hiring a manager is recommended, which will be one more investment. Naturally these payments will be made by the future sole owner of the property.
It is good to point out that the holder who receives the compensation has to pay personal income tax. This is in the event that the value awarded is not equal to the value of the property when the acquisition or assignment occurs, that is, there is an increase in equity.
What is the risk of doing a condo extinction?
In the event that the bank does not accept the change of ownership of the loan , the owner who transferred his part of the house to the other through the termination of the condominium will continue to be bound by the mortgage contract.
This situation carries an economic risk : in the event of non-payment of the mortgage by the owner in charge, the bank may claim the amounts owed. This is because whoever yielded their ownership still appears as joint guarantor of the mortgage payment.
Although the mortgaged home itself constitutes collateral to cover the debt, it may happen that in the event of foreclosure and subsequent auction, the property does not cover the entire amount owed. Remember that the obligation includes the capital, interest, default interest and the costs of the procedure for the bank. In these circumstances it would be legal that, even having transferred ownership, you have to respond to this debt with your personal assets. This is with any other asset that you have or that you may acquire in the future. On the other hand, you will continue to be formally registered as a mortgage debtor, which will mean that you are limited in your ability to access new loans and credits.
For all these issues it is advisable that when drafting a condominium termination contract to remove a holder of the housing deed, expert advice is sought. At Deplace we are willing to provide you with that advice that offers you guarantees and fewer problems in the future. In the event that you have transferred the ownership of a home and you continue to appear in the mortgage contract, it is best that you receive the advice of a lawyer. If you find yourself in the situation of facing a separation and having a shared home and mortgage obligation, it is important that you seek advice from the best professionals. Contact our offices and we will assist you without obligation!