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Spanish Property Developers in Crisis

Many British people have bought properties from Spanish developers who are now suffering as a result of the financial crisis. This blog will provide updates on the current situation and useful information about the problems British buyers are facing in respect to their Spanish properties.

Irwin Mitchell Launches New Spanish Property Blog
14 April 2010 @ 12:48

This blog will provide information on purchases of Spanish property, developers in financial trouble and committing breaches of contract and general Spanish property advice.

We have decided to set up and manage this blog as a result of the growing demand from our clients and from prospective buyers to be kept up to date with the current situation in Spain regarding Spanish developers and some of their practices.

We want to hear from you regarding your experiences with Spanish developers whether good or bad and especially in the following circumstances:

1) Buyers who enter into contracts with a Spanish developer to purchase off plan properties and the developer then does not complete the facilities on the development that were promised;

2) Buyers who purchase properties but the developer fails to complete these;

3) Buyers who complete purchases of properties and then are considering suing or are suing Spanish developers for compensation for failing to complete the properties and development to the standard promised;

4) Buyers whose developer is in or is entering insolvency proceedings before the properties are completed.

Irwin Mitchell is currently acting for buyers in relation to the following developments:

1) CORVERA GOLF & COUNTRY CLUB S.L.
2) RODA GOLF & COUNTRY CLUB S.L.,
3) POLARIS
4) SAN JOSE
5) SAN ANTONIO
6) HUMA MEDITERRANEO

We will endeavour to respond to most points and issues raised and we will aim to facilitate discussion.

This blog aims to be impartial, objective and informative and is open to the general public, including Spanish developers. Apart from Users´ comments, we will also be seeking comments from Spanish developers in responses to Users´ comments.

This blog is not a substitute for specific legal advice. Any User affected by the comments of this blog is advised to speak to a lawyer.
 



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23 Comments


frustrated said:
14 April 2010 @ 11:34

regarding facalaties not being provided as per sales and marketing literature , are you obliged to complete if the facalaties have not been built and is there any case law which has ruled in favour of the consumer ? i am particulaly reffefing to roda golf and corvera golf and country club .
kind regards


Moraira Property said:
14 April 2010 @ 11:40

This is a great idea for a blog. I hope it develops in to a really useful resource for purchasers on these developments.
Good luck with this



Faro said:
14 April 2010 @ 15:24

Sounds more like ambulance chasing to me and trying to get your hands on some of those lucrative litigation fees!

Why not just come on the main forum and join the debate and give good quality answers and advice to those asking questions or having problems?

Do have some ideas or strategies?


IM Abogados said:
14 April 2010 @ 17:32

Thank you for posting a comment on our forum. We are acting for a number of clients who are experiencing difficulties with certain property developers at this time. Therefore we have decided to manage our own forum properly and to attend to people's comments, who may be experiencing similar difficulties, in the most professional manner and answer any queries they or prospective buyers may have .

To answer your question on strategies, if you have a specific question explaining your concerns about a development, we will then be able to offer advice and propose a course of action.

IM Abogados



Redman said:
15 April 2010 @ 23:28

As the banks quite happily take your money knowing they are not issuing bank guarantees, and knowing they too are at fault.

Is IM Abagados looking into the strategy using law 57/68 1.2 against the banks, for not identifying and securing money used to purchase property as is their obligation??




IM Abogados said:
16 April 2010 @ 13:53


Thanks for your comment. In response to your question it is the developer who is obliged to obtain and provide the bank guarantee for purchases of off plan properties, not the banks. The only obligation of the banks regarding section 1.2 Ley 75/68 is to apply the funds to the construction of the properties.



mark hayward said:
06 May 2010 @ 00:08


quote
The only obligation of the banks regarding section 1.2 Ley 75/68 is to apply the funds to the construction of the properties.

are you saying that the bank that is trusted with our money,of which we are all told when we buy off plan is held in a seperate account that will not be used to build is actually handed over to the developer to do just that! if not can you explain a little better? poorly put answers just cause more confussion and stress. i also have some questions but without quality and informative answers what is the point?


interested said:
07 May 2010 @ 00:10

i believe this is a great blog with good information. keep it up IM Abagados. Mark you need to seek quaity legal advice and pay for it. don´t rely on the blogs, they are good for general info but it sounds like you do need proper legal answers.


IM Abogados said:
07 May 2010 @ 11:13

For clarity we confirm that Spanish banks do not act as trustees or escrow agents of the monies received from buyers of purchases of property. As far as the consumer is concerned, the banks merely receive the monies and hand these over to the builder and the bank should issue a bank guarantee in favour of the buyer. In the event that the properties were not completed for whatever reason, then you would be able to claim on the bank guarantee for monies paid.



However banks do not issue bank guarantees lightly. Any bank considering issuing bank guarantees to buyers of property will have a contract with the builder and this is usually in the form of developer finance with a charge over the land where the properties are to be built. Therefore as the build progresses, the bank will release funds, either the bank´s or buyer´s, to the developer otherwise the build could not proceed. The bank usually agrees with the builder at which stage of the build how much will be released and the bank will send their valuers to the site, to ensure that the work completed has in fact been carried out, after which funds would be released. Thus the bank will keep a check on the build as it progresses and release bank guarantees accordingly. Banks issue bank guarantees to the developer in favour of the buyers and the developer gives them to the buyer or to the lawyer representing them. It is their obligation and should form part of the exchange of contracts.




Keith - FINCA PARCS ACTION GROUP said:
14 May 2010 @ 11:33

IM Abogados state:

"it is the developer who is obliged to obtain and provide the bank guarantee for purchases of off plan properties, not the banks. The only obligation of the banks regarding section 1.2 Ley 75/68 is to apply the funds to the construction of the properties"

I do not think it is quite as straight forward as you state. LEY 57/68 Article 1.1 and 1.2 state:

LEY 57 / 1968

Article One - The legal and natural persons who promote the construction of homes, that are not of official protection, designed as a home for domicile or family residence with a permanent character or a seasonal residence, accidental or incidental and which seek to obtain deliveries of purchasers money before starting or during construction, must meet the following conditions:

First - To ensure the return of the payments made plus six percent annual interest, by means of Contract of Insurance granted with an Insurance Entity inscribed and authorized in the Record of the General Sub-department of Insurers or by means of a Bank Guarantee issued by an Entity inscribed in the Record of Banks and Bankers or Savings Banks, if the construction does not commence or complete for any reason by the agreed deadline.

Second - Depositing the sums advanced by purchasers through a Bank or Savings Bank, which must be deposited in Special Account, with separation from any other funds belonging to the promoter, which may only contain funds deposited for the construction of dwellings. For the opening of these accounts or deposits the Banking institution or Savings bank, under its responsibility, will demand the guarantee to which the previous condition refers.

The banks clearly have a responsibility under LEY 57/68 to ensure that off-plan deposit funds are held in a Cuenta Especial, separate from other funds belonging to the promotor. The Cuenta Especial may ONLY contain funds for the construction of dwellings.

The banks are fully aware of what funds they are receiving into a developers account. For example if you were buying at Roda - on your bank transfer document you would state - Mr Smith Plot 155 Roda Golf - or words to that effect, so that the bank and developer are able to identify where the funds have come from and what they are for. With even the minimum due dilligence the Bank would know that the funds are for an off plan purchase and must be held in the Cuenta Especial. The final sentence of LEY 57/68 Article 1.2 then states: "For the opening of these accounts or deposits the Banking institution or Savings bank, under its responsibility, will demand the guarantee to which the previous condition refers"

Therefore, the bank who have received the payment, clearly referenced as a deposit for an off-plan purchase, must then demand the Bank Guarantee is issued. If the Bank fail to demand the issuing of the Bank Guarantee or fail to ensure the Bank Guarantee is issued then they are guilty of Gross Negligence as they will be allowing their client, the developer, to break the law. The Bank will be supporting this illegal activity, because without the Bank it could never of happened.

Taking the above scenario of Mr Smith again...... If Mr Smith was instructed to send his off-plan deposit to the developers bank and for some reason the developer instructed him to send the funds to the normal current account held by the developer (CUENTA CORRIENTE) then once those clearly referenced off-plan deposit funds arrive in an an account which does NOT comply with the requirements of LEY 57/68 the Bank with minimum due dilligence must either instruct the developer to transfer the funds to the CUENTA ESPECIAL or they must freeze the funds and return to the purchaser or report the developer to the relevant authorities for acting contrary to the requirements of LEY 57/68.

Let's face reality these Banks and Savings Banks who have received the off-plan deposits have been funding the developers for millions of Euros. With such huge investment in the projects the Banks would be monitoring the accounts and financial performance of the developer on a daily basis. The banks would be fully aware of the funds arriving in the developers accounts and what those funds were for.

However, for years the banks have turned a blind eye and allowed the developers to act illegally by failing to secure off-plan deposits and failing to issue the legally required bank guarantees.

Many Banks have been grossly negligent and acted with a complete lack of due dilligence. They have knowingly allowed the developers to act contrary to the requirements of LEY 57/68. Many Banks have been complicit in the crimes committed by the developers.

Let us remember that without the funding and support of the Banks none of this would have happened. Not many developers could have raised private finance and began building without funds from the Banks.

Furthermore, LEY 57/68 clearly puts an obligation on the Banks. Article 1.2 demands that the developers "Deposit the sums advanced by purchasers through a Bank or Savings Bank". The reason the Banks have been mentioned so many times in LEY 57/68 is to give added security to the LAW. If the LAW only put the responsibility on the developers then it would be a pretty useless law - because we all know that many developers have no regard for ANY laws!!

Article 2 (c) of LEY 57/68 states that the Purchase Contract (Sales Agreement) must include the: "Name of the Banking Institution or Savings Bank and details of the account where the deposit funds will be held as a result of the celebrated contract"

Article 5 of LEY 57/68 states: "It is a prerequisite that any propaganda and publicity material issued by the promoter for the sale of housing containing information on the levying of amounts on account prior to the initiation of construction or during construction must meet the requirements of this Act, and make explicit reference to the guarantor, as well as the Bank or Savings Bank Special Account in which they will deposit the amounts advanced. The above mentioned must be specified in the text of the advertising that takes place"

So at many points LEY 57/68 puts the Banks very much in the spotlight as even any advertising material published by the developer must make explicit reference to the Bank or Savings Bank Special Account in which the off-plan deposits will be held and this must also be detailed in the Purchase Contract.

The Banks are the guardians of LEY 57/68 and they have a responsibility to protect the off-plan deposits.

Kind regards

Keith
FINCA PARCS ACTION GROUP
www.fincaparcsactiongroup.com
fpag@btinternet.com


Skiman said:
09 June 2010 @ 20:37

A couple has recently had there deposits plus 6% interest returned by the bank on Corvera phase 3 - is this not the easiest most cost effective method of cash recovery if buyers circumstances are the same as this couple?


Skiman said:
09 June 2010 @ 20:48

I have read Irwin Mitchell are considering a no win no fee if they take your case against Corvera - could anyone confirm this?


I M Abogados said:
11 June 2010 @ 10:40

Thanks for your comment.

We are not familiar with the exact circumstances of this matter. However you are correct. If there is a valid bank guarantee which is in force and there is breach of contract such as non completion or non commencement of the property according to the timeframes set out in the off plan purchase contract, then we would recommend that the first action taken, after we have sent a letter to the developer cancelling the contract, is to request the bank to reimburse the monies set out in the bank guarantee. We have obtained refunds from banks and building societies following this process.

You mention phase 3. We understand this phase has not been completed yet and therefore it is logical that the bank guarantee, at the time the claim was submitted to the bank (apparently more than nine months ago), was valid and in force. In respect of the bank guarantees for the other phases we have come across, all of the bank guarantees we have seen have unfortunately expired and therefore claiming against the bank would not be an option.



I M Abogados said:
11 June 2010 @ 10:45

Thanks for your comment re no win no fee. We confirm we do not take contractual disputes on in Spain on a non win no fee basis.


Bill said:
05 July 2010 @ 12:26

My dealings with Spanish developers have always been good, if not painfully slow.


Keith - FINCA PARCS ACTION GROUP said:
11 July 2010 @ 20:51

I M Abogados state:

"In respect of the bank guarantees for the other phases we have come across, all of the bank guarantees we have seen have unfortunately expired and therefore claiming against the bank would not be an option".

What do you mean by 'the bank guarantees have expired'? Are you saying that for all the plots on those other phases the Certificates of Habitation/Licences of First Occupation have been issued thereby automatically cancelling the validity of the Bank Guarantees?

Please confirm this point.

Kind regards

Keith


IM Abogados said:
12 July 2010 @ 17:41

Thanks Keith for your post.

We are saying that many of the BG's we have come across for a particular development, actually have clauses stating that after a certain date has passed, the BG's become invalid. If the BG's are not renewed prior to this date then they do become invalid. If there is no clause on the BG stating how long it lasts or when it expires and if the habitation licence is not issued, then a claim could be made against the bank and the developer, but it also depends on the status of the properties (building works).



Keith - FINCA PARCS ACTION GROUP said:
13 July 2010 @ 12:18

So these clauses referring to an 'expiry date' are actually illegal and should be ignored by the courts. They have no bearing on the execution of the Bank Guarantee as Article 4 of LEY 57/68 states:

Articulo cuarto – Expedida la cedula de habitabilidad por la Delegacion Provincial del Ministerio de la Vivienda y acreditada por el promotor la entrega de la vivienda al comprador se canceleran las garantias otorgadas por la Entidad aseguradora o avalista.

Article Four – Once the Certificate of Occupancy is issued by the Provincial Delegation of the Ministry of Housing and given by the promoter of the housing to the buyer the rights guaranteed by the insurer or guarantor will be cancelled.

So the Bank Guarantee ONLY EXPIRES when the Certificate of Occupancy/Licence of First Occupation is issued.

This is another example of the Banks and Developers acting contrary to the requirements of LEY 57/68.

All part of the negligence, lack of due diligence and complete lack of regard for Spanish Law.

Kind regards

Keith


LABHRAINN said:
06 August 2011 @ 18:43

Moraira in recent times has become quite popular with property and villa buyers. One main reason behind this is the fact that the place is sheltered from winds because of being surrounded by mountains. This accounts for many of the villas being available for sale on the hill side area. Some of these villas offer excellent view of the Mediterranean Sea. Villas situated in Moraira also gives an opportunity of appreciating the Mediterranean lifestyle and Spanish climate.


LABHRAINN said:
06 August 2011 @ 18:44

Moraira in recent times has become quite popular with property and villa buyers. One main reason behind this is the fact that the place is sheltered from winds because of being surrounded by mountains. This accounts for many of the villas being available for sale on the hill side area. Some of these villas offer excellent view of the Mediterranean Sea. Villas situated in Moraira also gives an opportunity of appreciating the Mediterranean lifestyle and Spanish climate.


LABHRAINN said:
02 September 2011 @ 07:39


Moraira's comfortable climate that is mild during the winters and not too hot during summers is considered by WHO (world Health Organization) to be one of the healthiest throughout the world. The place offers sunshine almost all year. And that is not the only reason that attracts people from all over the world to come abode this paradise on earth.


property developers perth said:
07 September 2011 @ 14:10

In this information ...we got the knowledge for property in spain.


Koh samui Property said:
20 July 2013 @ 11:33

You know what last year I purchase property in Koh Samui, from that time to till now I give that property on rent. It's really a best purpose of investment.


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