Buying residential property overseas can be fraught with complications. Here’s what to watch out for

Personal Finance

Park Guell, Barcelona, Spain.

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

“I felt like I could live here,” Ahmann said.

An initial trip to Barcelona with her best friend five years ago led to multiple return visits. And in 2017, she took the plunge, putting down a deposit on an apartment through a property developer.

The unit would take about a year to be finished, which would give Ahmann plenty of time to prepare.

But the following January, she received an email from the developer that surprised her. She was informed to disregard a recent article in the press. “The building is still underway. Everything is going great,” Ahmann recalled it saying.

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Upon further investigation, Ahmann discovered the developer was allegedly illegally evicting residents in order to get access to the property.

What’s more, construction was halted due to multiple violations of work permits.

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

Sadly, the contract Ahmann signed proved difficult to rescind. Rather than return her deposit and let her out of the deal, the developer offered her a unit in a different building.

Her lawyer advised her to take it, even though the second apartment came with a higher price tag. That meant she would have to increase her deposit.

The new property had problems as well. Namely, the apartment was too small. Though it was legally required to be at least 40 square meters (about 430 square feet), it was more like 37 (398 square feet).

Not only did that not match Ahmann’s contract, it also was in violation of city rules.

Now, the company alleges Ahmann is breaching the contract for failure to close on the apartment.

Meanwhile, she estimates she has put in about $145,000, plus $10,000 in legal fees. The apartment’s total price was 380,000 euros, plus taxes.

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

The property developer, Norvet, did not return CNBC’s request for comment.

Beware the risks

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

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

Top reasons for moving there including quality of life, climate and retirement, according to the firm’s research. Notably, HSBC’s research found that 70% of expats in Spain own property there.

As Ahmann’s experience shows, it pays to be cautious when entering into a property agreement to buy residential real estate.

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

A whole variety of things can go wrong, from the roof to the structure to tenant rights.

Carl-Christian Thier

attorney at Urban Thier Federer P.A.

Cabrera worked with another U.S. citizen in a similar situation, who found out the property was larger than legally allowed after she had already signed an agreement to buy it.

Ultimately, the client was able to recover the money she put down, plus punitive damages.

Americans need to exercise even more caution than usual when purchasing property overseas, especially because rules can vary drastically from country to country.

“A whole variety of things can go wrong, from the roof to the structure to tenant rights,” said Carl-Christian Thier, an attorney and founding shareholder at law firm Urban Thier Federer P.A.

For example, it’s possible that liens or zoning restrictions could mean that a buyer can’t use the property the way they intended to, he said.

If a location has strong tenant protections in place, it’s possible that someone could buy a property that’s currently rented and then find it impossible to evict existing residents, Thier said.

Owners could also be held to other obligations, such as being forced to rent a property out if the local government decides there’s a shortage of apartments.

“The number of issues and problems that can come up are almost unlimited,” Thier said.

Get professional help

Consequently, buyers should work with a lawyer who speaks both their own language and the language that is spoken where the purchase is happening, he said. American consulates in each country can provide lists of attorneys who speak English and are available to help.

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

It’s also a good idea to loop in other professionals. In some countries, professionals called notars can check to see if there are liabilities or liens attached to a property.

An architect can help spot any deficiencies the property has and help with urban planning issues, according to Cabrera.

Sagrada Familia church in Barcelona, Spain.

Orbon Alija

Another invaluable source: local residents. “Talk to neighbors,” Cabrera said. That can help alert buyers to red flags with the property or perhaps undesirable situations, such as tourist rentals.

It’s also important to take a look at comparable sales to gauge whether the price is fair, said Philip White, president and CEO of Sotheby’s International Realty.

Make sure you are able to sell the property, if your prospective move doesn’t turn out the way you thought, White said.

Also be sure you understand the tax implications of your purchase, he advised. Each country has a different tax treaty, and your income could be taxed in the U.S. and the other country as well.

Lessons learned

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

For Ahmann, who is still living in Barcelona, that has definitely been the case.

Now, she just recently closed on an apartment that she has been living in since March of last year. The apartment was sold by the owner. It is located in an older part of the city, and has already been renovated.

What’s more, the price was lower than the unit she originally bought — 370,000 euros. And the size is much bigger – 65 square meters (about 700 square feet).

But while she was able to put down a 30% deposit on the new apartment, she could have put down even more had she not still had money still tied up in the first property.

And she would not have lost all the money she ended up paying in rent instead of a mortgage.

Now, having hired new lawyers, Ahmann is trying a new strategy to get her money back from that first deal. That involves challenging a building violation in the apartment’s construction and alerting the government to investigate the situation.

If that doesn’t work, she said she may pursue an insurance claim.

Looking back, Ahmann said she wouldn’t have bought from a property developer.

The process has been a lesson in her new country’s culture, where consumers sometimes take less of a priority than in the U.S.

“If you’re not pushing people to do things, they’re at a standstill,” Ahmann said. “The only person who can really advocate for you is you.”

Nonetheless, Ahmann has adopted the country as her new home.

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

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