SPANISH MORTGAGE LAW AND RULES FOR LOANS BETWEEN INDIVIDUALS: Lending money to friends, family members etc. how to document a debt and protect your money.

CONSULTATION: Dear sir, I lent my neighbour 15,000 Euros I get along with him very well, however I would like to have something in writing to ensure that I will get my money back if something should happen to him or if he needs to sell the property. What can I do, what do you recommend?

Dear reader, thank you for your email.

Loans between friends and family are quite common, however when both parties are in agreement, we advice you to sign a document to secure your money.

1.- First step: document your agreement in a proper Loan Contract. It is important in order to clearly establish the obligations of each party, and also to be used if needed, as evidence of the agreement and payment of the money.

Like any other contract, it is essential to state in a proper way the terms of the loan, full names and contact details of the parties, amount of the loan, time (duration of the loan), how and when it will be repaid, interest to be charged ( if any), etc.

2.- Also, we recommend to secure and guarantee this loan by means of a Mortgage against your neighbour’s property. You can do this in a similar way banks do when they grant mortgages. Therefore, we can go to the notary and sign a Mortgage-Loan Deed (Escritura Pública de Préstamo Hipotecario), once that is registered on the Land Registry, your money will be guaranteed with the property, and you will be protected in a case of death, sale of the property, etc.

Also, it is important to know that although a loan between individuals is subject to Transfer Tax (Transmisiones patrimoniales onerosas/ TPO ) it is exempt, and for the mortgage, in this case no stamp duty (Documented Legal Acts AJD) will be paid, as already stated by the General Tax Administration (Dirección General Tributos) in its consultation V1246-05, of the 27/06/ 2005.

Therefore, if you guarantee this kind of loans with a mortgage, you will not need to pay taxes, just notary fees and land registry fees.

It is really important to make sure that the wording of the agreement and the deed protects your interests, we can assist you in this area of law.

The information provided in this article is not intended to be legal advice, but merely conveys general information related to legal issues.

White & Baos
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