Normally, when we want to move house indefinitely, what we do is to sell our current home in order to be able to afford the ‘change’ and obtain the money to buy the second one. However, there is a little ‘trick’ that can help us to get a new home without having to go through this process.
If you haven’t heard it before, take note of the term, as it may be the sign you needed to move into that penthouse you love or turn your life around and move to a more rural area: the home swap between individuals. This agreement between owners can help you avoid having to go through all the red tape and bureaucracy involved in the sale and purchase of a home. Do you need to know how to do it? We explain it to you!
What is home exchange between private individuals?
The term swap refers to the exchange, in this case of housing or real estate between 2 individuals who have that house in their name. The Civil Code includes this possibility in article 1538, which explains that both owners can exchange, if they agree, one property for another without any processing or economic gain unless the value of one property is greater than the other.
There is one condition for the deal to be as fair as possible: both homes must have a similar market value. Otherwise, the owner of the less valuable house will have to pay the difference, transforming the swap contract into a mixed contract between swap and sale.
Although the price of both is more or less similar and there does not have to be financial compensation, this transaction is similar to the sale and purchase of a home. Taxes, therefore, will also be similar. Let’s see what would have to be paid to perform the transaction correctly:
- Transfer Tax. It will have one value or another depending on the autonomous community in which both houses are located.
- Stamp Tax (Impuesto de Actos Jurídicos Documentados), which will be levied on notarial documents.
- Municipal capital gains tax, which will hock the revaluation of the land of the property from its purchase to its sale or transfer. However, it will only have to be paid if there is an increase in the value of the land.
- PERSONAL INCOME TAX. Of course, the capital gain or loss arising from the purchase price of the property and that agreed in the exchange will still have to be declared.
In addition to all these duties, you will also have to pay the necessary fees to a notary’s office (notary fees, registry fees and registration formalities). The entire scenario we have described so far has been based on the hypothesis of a home swap between individuals. In the case of a real estate exchange, the same procedures will be followed, but each individual will be taxed on the proven value of the property to be acquired (unless the declared value is higher). The tax rate corresponding to the real estate nature of the property acquired will be applied.
How is a home exchange done?
The first thing that will have to be done before starting any processing is to calculate the value of the properties between the 2 owners. If both accept the value and agree that their homes may cost about the same, it should be investigated whether the 2 homes are free of administrative or mortgage encumbrances.
It is now time to sign a contract containing all the terms and conditions of the transaction, i.e. the swap. After this first signature, it will be necessary, before a notary, to sign another document, the deed of exchange, to transfer the ownership of the properties and to register it in the Land Registry so that it is fully validated.
Once the ‘paperwork’ phase has been processed, it is time for the owners of the houses to exchange the keys and the documentation of the houses, not without first checking who the owners are and to find out if the last IBI receipt of both houses is up to date. A certificate from the property owners’ association will confirm immediately whether or not there are any outstanding debts with the association.
In the event that, after going through all the steps to follow in a home exchange between individuals, a hidden defect appears in any of the homes, it will be the original owner of the home and not the current owner who will be responsible for it. It is even possible to revoke the swap contract if this defect has made the current owner not want to continue with it or if it is proven that one of the owners did not have the ownership of the property afterwards.
The Civil Code explains in article 1.540 that the exchanger who has suffered any deception or concealment of information may choose between claiming damages or recovering the property he delivered to the other exchanger.
The swap contract
A home exchange contract between private individuals has, like any other, specific characteristics appropriate to its mission:
- It is consensual. The express will of both parties is necessary for the contract to be formalized.
- It is onerous. A contract of this type is considered and known in Civil Patrimonial Law as an onerous contract, which means that the performance of one party entails the consideration of the other party and vice versa. More simply put: economic rights and obligations are assumed by both parties and are reciprocal. Hence, at the same time, it is considered a bilateral and reciprocal contract.
- It is a transfer of ownership. This fact refers to the transfer of ownership of the signatories’ homes.
However, it is necessary to clarify that there is no specific and unique form of swap contract, since each case is different. Therefore, only these elements are required to sign this document:
- The will of both contracting parties, expressly and manifestly.
- Sufficient capacity of both owners.
- The mutual agreement of the homes to be exchanged.
What will be required are a series of obligations to formalize the real estate swaps in a contract, if such is the case:
- Transferring the ownership of the housing units.
- Handing them over (e.g., with the exchange of keys).
- Both owners shall be liable for any hidden defects in the contract. As in this case we are talking about houses, all the defects will be defects that will prevent us from using them as we should. The Civil Code also establishes the duty to repair them on the part of the person transferring ownership.
- Guarantee that the property will be transferred peacefully.
- The original owner of a property in exchange shall be liable for the property in case of eviction (if the right to the property is lost by a court judgment).
- To pay the part that corresponds to the legal notary and registry expenses.
- Pay taxes due.
Is it possible to swap a home with a mortgage?
Although it is a requirement to be checked before signing any exchange paper, it is possible to exchange a property with a mortgage, provided that the owner with the mortgage has the approval of the bank, which must accept the change of the loan holder.
The financial institution will verify that the future new owner has the financial capacity to repay the loan before approving the transaction. It must be taken into account that, in a swap, what changes is the owner of the house, not the mortgage, whose owner will continue to be the bank, which will now also have another holder.
In this case where one or both properties to be exchanged are mortgaged, there are several solutions to choose from depending on the solvency and payment capacity of the new loan holders:
- Make an annulment to change the mortgage holder.
- Take out a new mortgage so that the new owner is listed as the mortgage holder.
- To subrogate or change the mortgage of the financial entity in the event that it does not accept the change of mortgage holder.
It should also be taken into account, in the case of mortgages involved in this type of contract, that the costs of the house swap will be higher. It will be necessary to add to the processing costs those of mortgage novation, cancellation or signing of a new loan (depending on what is finally chosen).
1 advantage and 1 disadvantage
A home exchange between individuals has a fundamental advantage: it allows you to exchange your home without making a huge financial outlay or relying on bank financing to help you carry out the transaction. Nor will it be necessary to delay the transfer until the sale of the property materializes, which usually generates significant savings in all aspects of the transaction, since it is usually in the interest of both parties to reduce costs by adjusting the valuation of the properties.
However, if there is an upside there is also a downside, and that of the swap is the difficulty of finding homes with a similar economic value and whose owners are interested in the properties on a reciprocal basis. The fact that some of them are accompanied by a mortgage is not uncommon, so that the operation can be conditioned if the bank does not give the ok to the change of mortgage holder.
The only drawback to an exchange is the difficulty of making the case for it, as the advantages it offers are very beneficial to both parties and saves many months of headaches and paperwork.
As you can see, the home exchange between individuals can be the solution you were looking for to change your home without a lot of problems and paperwork. In any case, it never hurts to have a firm and a professional, prepared and diverse team working in close collaboration with you so that you can carry out any management without fear and within the law.
At Blegal we pride ourselves on being that team, able to offer both legal and administrative services that help us become your legal partner. If you have any questions you can contact us to, together, start reaching your goals and solve problems both in your business and in your personal life.
Unsplash image by Anja Bauermann
