Contrato de arras: What if the bank denies your mortgage?

What happens when the bank says no, depending on what your arras contract says.

Obtaining financing is, legally, your business. The seller undertakes to sell you the property; you undertake to buy it and pay the price. Where the money comes from is a problem on your side of the contract, and the fact that a third party — the bank — declines to help does not shift that risk onto the seller.

So without a clause, a denial puts you in breach. With arras confirmatorias that means the seller can keep the deposit and additionally demand performance or rescind and claim damages. With arras penitenciales the harm is bounded: you lose what you paid, but no more.

The risk has become more real since Spanish mortgage rules lengthened assessment and valuation timelines. Weeks can pass between signing the arras and getting a firm answer from the bank, and typical arras deadlines run to two or three months.

This is the clause that allocates that risk differently. It makes the effectiveness of the contract conditional on a future, uncertain event: the loan being granted. If the event does not occur, the contract never produces effects and the parties return to their starting position, which includes returning your deposit in full.

It is not the same as a right of withdrawal. You are not paying for the ability to change your mind: you are agreeing that if an element without which the transaction cannot exist is missing, there is no transaction. That is why the refund is complete and there is no penalty for anyone.

Nor is it automatic or implied by law: if you do not write it, it does not exist. This is where arras contracts most often fail, and the seller rarely proposes it unprompted.

A vague contingency generates more litigation than no clause at all, because both parties believe they are right. These are the elements that make it enforceable without argument.

First, the amount: exactly what loan you need, in euros or as a percentage of the price. Without a figure, the seller can argue that a smaller offer satisfied the condition and that you were the one who turned it down.

Second, the deadline: how many days you have to evidence the denial, counted from signature. Thirty to forty-five days is usual, and calendar days avoid arguments about how the count runs.

Third, the evidence: what document counts. The sensible approach is to require written denials from a specific number of lenders — two is the common standard — and to accept both a formal denial and the failure to issue a binding offer within the deadline.

Fourth, the effect: that the contract ceases to have effect and the deposit is returned in full, with a deadline for that return. Without a deadline, repayment can drag on indefinitely.

Fifth, good faith: that the condition is deemed satisfied if the buyer failed to apply in time or caused the denial. This clause protects the seller, which is precisely why it makes them accept the rest without resistance.

The first step is to read carefully which type of arras you signed, because it determines the size of the problem. With arras penitenciales your maximum loss is the deposit. With confirmatorias the exposure is larger and acting early matters more.

The second is to talk to the seller as soon as possible, with the written denial in hand. A seller whose sale is collapsing almost always prefers to return to the market quickly rather than embark on a claim with an uncertain outcome, and negotiated partial refunds are common.

The third is to document that you acted diligently: applications submitted, dates, responses from banks. If this ends up being disputed, the difference between a buyer who could not obtain financing despite trying and one who had second thoughts and went looking for an excuse shows up exactly there.

And a precaution for next time: ask your bank for a realistic indication before signing the arras, not after. It is not a guarantee, but it turns the financing clause into a safety net rather than the only plan.