Q. I heard it that when one buys an Italian property, the purchaser may also be acquiring the seller's debt in some manner. Is this true?
A. Yes, in certain circumstances. Here is an actual story relating to this situation.
An Irish client had found a property to purchase in Italy. The seller of the “trulli” property in Apulia had suffered some financial difficulties and, at the time of purchase, the property was under distraint (pignoramento) by the Italian Court for two different outstanding credits. Under Italian law, when an immovable asset such as a piece of real estate is under distraint, any new purchaser takes over ownership of the property as well as the negative burdens against it at the signing of the deed. This means that, should the seller not pay any outstanding debts prior to the purchaser’s legal takeover of the property, the distraint procedure continues against the Italian property even though it is under new ownership. Under Italian law, anyone legally claiming debts against the seller would have rights to the property up to two years after the purchase by the new owner. This is obviously not a situation in which a new Italian real estate owner wants to find oneself.
As this client was highly interested in this particular property, it was necessary to find a legal way for her to purchase it, but without the risk of a creditor laying claim. The solution was to clear the debt and have the creditor renounce the lien against the property prior to our client’s purchase. After negotiating with the seller’s Italian solicitor it was agreed that the creditor would settle the debt if paid a sum which was equivalent to approximately 10 percent of the purchase price of the property. Unfortunately, the seller did not have these funds available and needed to sell the property in order to be able to pay the creditor. This, in effect, created a circular situation where the seller needed to clear his debt prior to selling the property, but needed to sell the property in order to clear the debt. The seller’s Italian lawyer therefore requested that the prospective buyer advance that portion of the sale price to pay the debt. Once received, the procedure to cancel the distraint on the property could be started in the Italian Courts and then, once a positive ruling was granted and the debt was cancelled, the parties could proceed to the signing of the final purchase deed (rogito) in front of the notary public (notaio).
As a distraint is officially filed with the Italian Court, the court needs to review the proceedings and officially clear the property of any liens or burdens. Since the court would rule on the situation based on factors including but not limited to the payment of the debt, there was no guarantee that the decision would be positive and the property then clear and safe for purchase. Should the ruling come back negative, the purchaser would then be without a property and simply be added to the seller’s list of creditors as she tried to reclaim the money advanced for clearing the debt. The risks were weighed against the desire for this particular property and the decision was made to not proceed with the purchase of this particular property. This purchaser did however find another vacation home in the Apulian sun; an Italian trullo property without any issues regarding debtors and creditors.
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