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Spanish Off-Plan Property - Bank Guarantees - LEY 57/68

This blog is for all those Off-Plan property purchasers in Spain who have not received Bank Guarantees for their deposit funds as required by Spanish Law, in particular LEY 57/68 Article 1.1 and 1.2 and are now at risk of losing their money. In addition many purchasers who did receive Bank Guarantees are now finding that the Spanish Banks are refusing to honour them without legal action being taken by the purchaser.

Friday, December 28, 2012 @ 11:09 PM


This is an excellent decision. It is very similar to the Finca Parcs case in which CAM knowingly accepted off-plan deposit funds and failed to issue or verify the existence of the corresponding Guarantees.

Banco Mare Nostrum provided very similar arguments to CAM in the Finca Parcs case:

Banco Mare Nostrum argued: “The bank cannot force the developer (their client) to open a Special Account nor can it prevent the developer from receiving income for off-plan purchases into the normal current account. It cannot control the purpose for which those funds are used. It does not have an obligation to advise homebuyers on the provisions of LEY 57/1968. It considers that the director of a Bank is not required to meet the obligations set out in LEY 57/1968”

But the Magistrate thought otherwise:

“The appeal first requires us to determine the content, target and scope of the obligations of LEY 57/1968”

“It is clear, therefore, that this Law establishes two obligations on the sellers of homes under construction. These obligations are first, to open a special account in a financial institution where you only enter the prepayments received from buyers and which can only be used to meet the costs arising from the construction of housing. Secondly, it must provide the buyer with a bond in the form of a guarantee given by a financial institution or an insurance certificate from a registered insurance company to enable the buyer to claim a refund should the housing not be delivered within the contractually stipulated time. Banco Mare Nostrum considers that these obligations are only the responsibility of the developer/promoter”.

The Magistrate continues:

“Now, if you perform a careful reading of the Law you can easily see that it also establishes an obligation for financial institutions, since it has a prerequisite for the seller (promoter) to open the special account referred to in Article 1 for which there must be an endorsement or insurance certificate guaranteeing repayment of the amounts received from buyers and it is the financial institution that must comply with this obligation because the precept has mentioned that ‘For the opening of these accounts or deposits the bank or savings bank under its responsibility must require the guarantee referred to in the previous condition’”

“Consequently, the bank is ultimately responsible for the establishment of the guarantee or insurance, so it should require its constitution as a prerequisite to opening the Special Account by Law. Failure to open the special account and the lack of guarantee or insurance affects the legal liability of the financial institution. Here appears the first breach of duty of care by Caixa Penedés (Banco Mare Nostrum), which argues that the director of its office is not required to know LEY 57/68 or the obligations established therein, because, as you can see, Article 1 lays down obligations which are directed at financial institutions”.

“In this case the seller (promoter) also took a mortgage with Caixa Penedés (Banco Mare Nostrum) to finance the property development in which a house was sold to the plaintiffs. The Bank Branch Director knew that during the construction phase some homes were sold and had seen one of the private contracts of sale. He also knew that the buyers were the plaintiffs in this case. He knew that the payment made by the buyers in his branch to the developers account in his branch was precisely to make the first payment of the house purchase. It is evident, therefore, that in this case ignorance of the law is not excusable, nor can the defendant bank justify escaping its legally established liability on the simple basis that it was the developer that failed to open the Special Account”.

“The Bank attempted to avoid a legally established obligation which is an attitude that borders on fraud of the Law. The Bank displayed a total inaction in this case, without which the harmful outcome for the plaintiffs would not have occurred because if the Bank had acted in accordance with the Law the buyers could have at least been able to recover the money advanced through the legally established guarantees. The alleged ignorance of the Law on behalf of the Bank is inexcusable”.

“One must take into account that Article 7 of LEY 57/68 grants rights to the buyers which are inalienable”.

The Sentence revokes the judgment of the First Instance Court No. 5 of Lleida and instead condemns the Bank to refund to the buyers the deposit amount of 61,471.50€ plus statutory interest less any amount that can be recovered by the buyers through the bankruptcy proceedings of the developer Habitatges Roure-Arnó.

The Bank is also condemned to pay the costs of the First Instance Trial.

This is an excellent Judgment that has many similarities to the Finca Parcs case.

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Mike Kerr said:
Saturday, December 29, 2012 @ 8:11 AM

This is a great Judgement - a judge who has read Ley 57 and is prepared to admit that it must be applied.

I hope this now becomes case law and will be applied by default to other cases where the banks have failed in their duty and try to argue otherwise.

The next hurdle is to get the banks to understand that when they issue guarantees, they are to be honoured when developers do not deliver legal properties to buyers within the contracted timeframe. My purchase was due in 2005, and so far, despite a letter from the town hall stating that the property is illegal and no licence has been issued, Banco Popular refuse to honour the guarantee.

Fraudulent behaviour by Spanish banks is supposedly regulated by Banco de Espana, as Spain's equivalent to our FSA, but as in this reported case, they refuse to accept their responsibility to regulate.

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