Deferred payment to the owner is a legal, flexible alternative that is increasingly used in Spain. We explain how it works, what the law says, what taxes it generates and how to protect yourself if you decide to buy or sell under this modality.

1. What exactly is "buying without a bank"?

Imagine you find the house of your dreams. The price is 200,000 euros. You don't have that cash, and the bank denies you a mortgage because you don't meet the solvency requirements. Up to here, the story ends. But there is an alternative: the owner agrees to finance the operation himself. You pay an initial down payment (for example, 20%) and the rest you pay in monthly installments directly to the seller, during the years you agree, until the price is completed. No banks. No mortgages. No opening fees.

That is the sale with deferred payment, also known as installment sale, seller financing or, in the Anglo-Saxon world, seller financing or owner financing. In Spain, this figure is covered by the principle of freedom of contract in article 1255 of the Civil Code, which allows the parties to freely agree on the conditions of a contract as long as they are not contrary to law, morality or public order. There is no specific law that regulates the sale of real estate with deferred payment as there is for movable goods (Law 28/1998, on Installment Sale of Movable Goods), but that does not mean that it is illegal or that it is in a legal vacuum. On the contrary: the Civil Code and the jurisprudence of the Supreme Court have recognized this modality for decades.

It is important not to confuse it with rent-to-own. In rent-to-own, you rent the home and, at the end of the contract, you can decide whether to buy it or not. In a deferred payment sale, you buy from the beginning: the property is yours (or becomes yours upon paying the last installment, as agreed), and you simply pay the price in installments. Rent-to-own is an atypical contract, not expressly regulated in the Civil Code, and its tax treatment is different. The deferred payment sale, on the other hand, is a pure and simple sale with a special condition: the price is paid in installments.

2. How does it work in practice? The two main models

When we talk about "buying without a bank", we are actually talking about two main models, each with its own characteristics and protections. The key difference is when ownership is transferred and what happens if the buyer stops paying.

2.1. Model A: Sale with retention of title

In this model, the seller remains the legal owner of the property until the buyer pays the last installment. The buyer receives possession (can live in the house, use it, enjoy it), but cannot sell it or mortgage it without the seller's permission, because they are not the registered owner.

The retention of title is an express agreement included in the public deed. The seller reserves ownership of the sold item until full payment of the price. It is a figure widely used in the sale of movable goods (cars, machinery), but it is also perfectly valid for real estate. Legally, retention of title is not a suspensive condition of the contract (it does not postpone the birth of obligations), but an implicit resolutory condition: the contract produces effects from the beginning, but if the buyer does not pay, the seller can terminate it and recover the property.

Advantage for the seller: maximum protection. If the buyer stops paying, the seller recovers the property without needing to foreclose a mortgage or auction the property. The retention of title is registered in the Property Registry, so any third party who consults the property knows that there is an outstanding debt.

Disadvantage for the seller: while the retention is in force, the seller remains the legal owner, which can have tax implications (for example, for property tax or municipal capital gains, although this depends on the specific case).

2.2. Model B: Sale with explicit resolutory condition

Here the buyer acquires ownership from the first moment. The property is registered in their name. But in the same deed, an explicit resolutory condition is agreed: if the buyer defaults on one or several installments, the seller can terminate the contract and recover the property. This figure is expressly contemplated in article 1504 of the Civil Code, which allows the seller to terminate the sale if the buyer does not pay the price within the agreed terms.

Advantage for the buyer: they are the owner from day one. They can register the home in their name, request a subsequent mortgage (if the seller authorizes it or if the resolutory condition is cancelled), or transfer it to a third party (although the new buyer will have to assume the outstanding debt).

Advantage for the seller: they are also protected, because the resolutory condition is registered in the Registry. If the buyer defaults, the seller can exercise the resolutory action and recover the property. In addition, since the buyer is the registered owner, the seller does not have to continue paying property tax or assume community expenses.

Disadvantage for the seller: if the buyer has other creditors, they can seize the property (because it is in the buyer's name). The seller would then have to claim their credit in the bankruptcy or enforcement proceedings, which can be slower and more complicated.

3. What guarantees exist to protect both parties?

Deferred payment generates obvious risks: the seller delivers a valuable asset without having collected the full price, and the buyer assumes a long-term debt with a private individual, without the supervision of a bank. Therefore, the law and notarial practice offer several guarantees that can be agreed in the deed.

Registration is essential. If the retention of title or the resolutory condition are not registered, the Registry does not report the outstanding debt, and a third party who buys the property in good faith could be protected by the registry public faith. Therefore, every deferred payment operation must be formalized in a public deed before a notary and presented at the Property Registry.

4. The applicable regulations in Spain: what the law says

There is no specific law for the sale of real estate with deferred payment, but the legal framework is clear and consists of several rules:

Civil Code. Article 1255 enshrines freedom of contract. Article 1124 regulates the power to terminate reciprocal obligations in case of non-compliance. Article 1504 specifically regulates the termination of the sale of real estate for non-payment of the deferred price: "When the contract establishes retention of title until full payment of the price, or when the resolutory condition for non-payment has been expressly agreed, the seller may terminate the sale".

Mortgage Law. Article 11 of the Mortgage Law allows the price payment to be deferred and guarantees such as the resolutory condition or retention of title to be agreed, which can be registered in the Registry.

Notarial Regulation. Article 177 of the Notarial Regulation regulates deeds of sale with deferred payment, requiring that the terms and form of payment be determined.

Tax regulations. The deferred payment sale generates tax obligations from the moment of signing, not when each installment is collected. This is crucial and we explain it in the next section.

Law on Installment Sale of Movable Goods (Law 28/1998). Although it specifically regulates movable goods, some of its provisions apply by analogy to the sale of real estate with deferred payment, especially regarding buyer protection.

5. Taxes: who pays what and when

This is one of the aspects that generates the most doubts. The key is that the transfer is perfected at the time of signing the deed, even if payment is deferred. That means taxes accrue then, not when each installment is collected.

5.1. Transfer Tax (ITP) or VAT

The buyer pays it. If the home is second-hand and the seller is a private individual, ITP is paid (between 6% and 10% depending on the autonomous community). If the seller is a company or professional and the home is new, VAT (10%) plus AJD is paid. The tax is settled at the time of signing the deed, even if the price is paid in installments. The deadline is 30 business days from signing.

Important exception: if a suspensive condition is agreed (that is, the transfer does not occur until full payment), the tax accrual can occur at the time of fulfillment of the condition. But this is unusual and requires very precise drafting of the deed.

5.2. Personal Income Tax (capital gain of the seller)

The seller pays it. The capital gain (difference between acquisition and transfer value) is taxed in the Personal Income Tax. The general rule is that it is allocated in the year of signing, even if collection is later. However, there is a special regime for installment operations: if more than one year elapses between the delivery of the property and the due date of the last installment, the seller can choose to allocate the gain proportionally as they collect each installment. It is an option, not an obligation. If not expressly chosen, it is all allocated in the year of sale.

5.3. Municipal capital gains tax (IIVTNU)

The seller pays it. It is a municipal tax that taxes the increase in value of urban land. It accrues at the time of transfer, that is, at the signing of the deed, and must be settled within 30 business days. The fact that the price is collected in installments does not alter the accrual.

5.4. Buyer's personal income tax for interest paid

If the seller charges interest for the deferral (for example, 3% per year), that interest is income from movable capital for the seller and must be declared in their personal income tax. The buyer cannot deduct it as if it were a mortgage, because there is no financial institution involved.

6. Tips if you are the SELLER: how to protect yourself

If you are thinking of selling your house accepting deferred payment, you are doing something brave and, done well, very profitable. But you cannot trust the buyer's word. You need to shield the operation.

1. Require a public deed before a notary. A private document does not protect you. The public deed is the only way to register the retention of title or the resolutory condition in the Registry. Without registration, if the buyer sells the house to a third party in good faith, you could lose everything.

2. Include a retention of title or an explicit resolutory condition. They are your two great shields. Retention of title is more protective because you keep ownership. The resolutory condition is more common when the buyer needs to register the house in their name (for example, to request a mortgage later).

3. Agree on a penalty clause. If the buyer defaults, in addition to terminating the contract, you can demand automatic compensation (for example, 10% of the price). This deters non-payment and compensates you for the inconvenience.

4. Verify the buyer's solvency. Ask for payslips, income tax returns, bank statements. Don't be embarrassed: you are financing an operation worth hundreds of thousands of euros. If the buyer does not want to provide information, it is a warning sign.

5. Consult a specialized lawyer. The drafting of the deed is critical. An error in a clause can cost you the house. Invest in legal advice before signing.

6. Consider a mortgage in your favor. If the buyer is solvent but you want maximum security, you can grant them a mortgage on the property (you would be the mortgage creditor). It is more complex, but it is the strongest guarantee that exists.

7. Do not hand over the keys until the deed is signed and registered. Possession is a key element. If you hand over the keys early and then there is a problem, recovering the house can be much more difficult.

7. Tips if you are the BUYER: how not to ruin yourself

If you are the buyer, buying without a bank can be your only opportunity to access a home. But it is also a very serious commitment. These are the points you should watch:

1. Verify that the seller is the legitimate owner. Request a simple note from the Property Registry to check that the house is in their name and that it has no charges (mortgages, seizures, easements) that could ruin you later.

2. Check that the seller has cancelled their own mortgage. If the seller still owes money to the bank, the house has a mortgage. In a purchase without a bank, you do not assume that mortgage. The seller must cancel it before selling to you. If they cannot, the operation is unfeasible.

3. Require that the retention of title or the resolutory condition be registered. Paradoxically, this also protects you. If the clause is registered, the Registry reports that there is an outstanding debt, and no one can seize the house for the seller's debts (because it is no longer theirs) or for your previous debts (because the house is encumbered with that condition).

4. Review the default clauses. What happens if you are late by a month? Do they give you a grace period? Can they terminate the contract for a single non-payment? Negotiate a grace period and a cure clause (the ability to pay the arrears plus interest to avoid termination).

5. Do not accept abusive interest. The seller can charge you interest for the deferral (it is normal). But they must be reasonable. An interest rate of 10% per year or higher can be considered abusive. Compare with market rates.

6. Assume the house expenses from day one. In a normal sale, the buyer pays property tax, community fees and utilities from signing. In buying without a bank, the same. Make sure the deed makes this clear.

7. Have a plan B. What happens if you lose your job and cannot pay? Do you have a guarantor? Can you sell the house? If the house is subject to retention of title, you cannot sell it without the seller's permission. If it is subject to a resolutory condition, you can sell it, but the buyer will have to assume the debt.

8. Why would an owner accept this?

It is the logical question. If the owner can sell to someone else for cash, why complicate things? There are several reasons:

They are not in a hurry to collect. Perhaps they inherited the house, no longer use it, and prefer to collect 200,000 euros over 10 years with interest than 180,000 at once.

They cannot find a cash buyer. In areas where the market is stagnant, accepting deferred payment expands the number of potential buyers. It is better to sell in installments than not to sell.

They want to avoid bank fees and procedures. Selling with a mortgage involves appraisal costs, opening fees, insurance. With deferred payment, the seller saves all that.

They want recurring income. For some owners (retirees, for example), collecting 1,500 euros a month for 10 years is more attractive than receiving a lump sum and having to manage it.

They want to help a family member or acquaintance. Sometimes buying without a bank occurs between people who know each other. The seller prefers to finance someone they trust rather than deal with a bank.

They want to maintain ownership for tax or asset reasons. In the case of retention of title, the seller remains the legal owner until the end. That can be useful for tax or inheritance planning.

9. The real risks (and how to mitigate them)

Not everything is advantages. Buying without a bank has risks that you should know before embarking.

For the seller:

• Buyer default. It is the main risk. It is mitigated with retention of title, resolutory condition, penalty clause and a good selection of the buyer.
• Deterioration of the property. The buyer may not take care of the house. It is mitigated with a periodic inspection agreed in the contract.
• Problems with third parties. If the buyer has debts, their creditors can seize the house (if it is in their name). It is mitigated by maintaining retention of title.
• Tax complexity. The seller has to declare the capital gain and, if they charge interest, pay tax on it. It is mitigated with a good tax advisor.

For the buyer:

• Loss of what has been paid. If the house is under retention of title and the buyer defaults, the seller can keep the paid installments (although this depends on the penalty clause). It is mitigated by negotiating a clause that returns part of what was paid.
• Inability to sell or mortgage. With retention of title, the buyer cannot freely dispose of the property. It is mitigated if a resolutory condition is agreed instead of retention.
• Abusive clauses. The seller can include leonine conditions (high interest, termination for a single non-payment). It is mitigated by reviewing the deed with a lawyer.
• Lack of consumer protection. Buying without a bank is not subject to the Mortgage Credit Law, which protects mortgage holders. The buyer has no right to claim floor clauses or dation in payment.

10. Conclusion: a powerful tool, but it requires rigor

Buying without a bank is not a fad or an internet invention. It is a legal figure with centuries of history, protected by the freedom of contract of the Civil Code, which allows buyers and sellers to bypass the bank and close an operation that would otherwise be impossible. For the buyer, it is a door to access housing when the mortgage does not reach. For the seller, it is a way to sell faster, obtain recurring income and maintain control of the operation.

But it is not for improvising. It requires a public deed, registry registration, solid guarantees, legal advice and a good dose of common sense. If you are a seller, protect your assets with retention of title or resolutory condition. If you are a buyer, verify the registry situation of the home and negotiate fair clauses. And in both cases, consult a specialized lawyer before signing. An operation worth hundreds of thousands of euros deserves a few hours of professional advice.