The type of deposit agreement and its legal consequences

To understand what happens when a bank rejects financing, it is essential to analyse the type of deposit agreement that has been signed. The Civil Code regulates different types of formal commitments, and each reacts differently to a breach caused by a lack of capital.

Penitential deposits

Regulated in Article 1454 of the Civil Code, these are the most common in real estate transactions. This type of deposit allows either party to withdraw from the contract freely. However, this withdrawal entails a clear penalty: if the buyer withdraws due to a declined mortgage deposit scenario, they will forfeit the entire amount paid as a deposit. Conversely, if the seller withdraws, they must return double the amount.

Confirmatory deposits

Confirmatory deposits act as an advance payment on the total purchase price and confirm the existence of the contract. In this case, if the bank does not approve the mortgage, the seller is not obliged to return the money and can also legally demand contract performance or contract termination with compensation for damages.

Penal deposits

These function as a guarantee for the fulfilment of the obligation. If the required financing is not obtained, the buyer will forfeit the amount paid or be required to pay a pre-agreed penalty, without preventing the other party from also enforcing the completion of the sale.

The condition precedent: the only real protection against a bank refusal

The only secure legal way to avoid losing your money following a bank refusal is to include a specific clause known as a condition precedent due to mortgage refusal.

This clause suspends the validity of the contract until a future, uncertain event occurs: the granting of the mortgage by a financial institution. If the operation is not approved, the contract is automatically terminated without penalty for either party, requiring the seller to refund 100% of the funds received.

Requirements for drafting the financing clause correctly

For this condition to have full legal validity and prevent disputes between the parties, the following points must be clearly stated:

• Minimum amount requested: The financing percentage or exact figure required to complete the purchase must be specified.
• Processing timeframe: A deadline must be set for the buyer to obtain approval from the bank.
• Documentary evidence: The buyer must commit to proving the refusal through formal certificates issued by one or more financial institutions.

Regulatory differences by region

In Spanish common law territory, governed by the Civil Code, silence regarding mortgage procurement benefits the seller, placing the risk of refusal on the buyer. However, certain regional laws provide a different protective framework.

A relevant case is the Civil Code of Catalonia, where Article 621-8 provides that if the mortgage is not granted for reasons not attributable to the buyer, the buyer is entitled to the return of the deposit, provided that financing was explicitly stated in the contract.

Specific situations: VPO in the Comunidad de Madrid

In the case of an Official Protection Housing (VPO) in the Comunidad de Madrid, a mortgage refusal may be linked not only to the applicant's creditworthiness, but also to the property's regulatory restrictions.

Subsidised housing in the Comunidad de Madrid has maximum sales prices set by the administration and requires the buyer to meet specific income and asset ownership criteria. If the bank denies the loan because the valuation adjusted to the official module falls short of the amount anticipated by the buyer, the same general contractual rules apply. Therefore, in transactions involving VPO in the Comunidad de Madrid, incorporating a conditional financing clause is crucial.

How to mitigate risks before signing a deposit agreement

To avoid facing a legal problem over a declined mortgage deposit situation, it is essential to follow a prudent procedure before handing over any money:

1. Request an initial feasibility study: Before starting a final property search, you should obtain a preliminary financial assessment carried out by professionals in the financial sector.
2. Review the property's technical documentation: Ensure there are no encumbrances, tax liabilities or land registry discrepancies that could cause the bank's risk department to reject the transaction after valuation.
3. Specialised professional advice: Having the support of mortgage credit intermediaries allows for structuring the financial application properly and negotiating the inclusion of protective clauses in the purchase offer.

What to do if the mortgage has been declined and there is no protective clause?

If the bank has rejected the loan and the deposit contract does not include a condition precedent, the buyer finds themselves in a complex position. In this situation, the following steps are recommended:

Firstly, the seller should be notified immediately via burofax with acknowledgment of receipt and text certification, attaching the formal refusal letter issued by the bank. This demonstrates the buyer's good faith.

Secondly, an extension to the deposit contract deadline can be negotiated in order to apply for a loan with other financial institutions or restructure the credit conditions by providing additional guarantees. Finally, if an amicable agreement is impossible, a detailed legal analysis of the contract will determine whether there is any other defect or flaw in the document that might allow for the full or partial recovery of the amount paid.