Bank´s liability on custody of off plan funds

The Supreme Court  and the surveillance responsibility of the Bank in off plan developments: burden of proof

Although the Supreme Court has affirmed that the burden of proof of active surveillance is that of the bank as it is he who must prove the measures taken in order to protect the amounts deposited into the developers´ accounts in his branches, the Hight Court is contradictorily admitting the passivity of the bank, or the "alienation" of the same, if the payments (1) were not made under a specific concept- that was never known by or required of the consumer- or (2) if the real estate agency or intermediary/ Lawyer made the deposit on behalf of the buyer.

These requirements have been included in the latest Judgment of November 20, 2019 in which the Supreme exempts the depositary bank from liability, due to the "impossibility of knowing" since (1) they were made by a company that (2) did not indicate any data that would allow the identification of a buyer or a specific dwelling.

This Decission follows a couple of other which deffend the same approach.

This despite being the account of a prominent real estate developer in the area.

To submit the protection of the bank that receives off plan amounts and which, by  Public Order Law, must verify the existence of the legally required  guarantees  "under its responsibility" (art 1.2 of law 57/68), to requirements which were never known by buyers, because they were not included neither in the contract nor in Law 57/68 itself, it is clearly an attempt against the Protective Law itself and its spirit of public order, but it is also an aberration if we see it from the perspective of Contract Law and Consumer Law

It also ignores the duties of the entities against money laundering contained in Law 19/93 of December 28, which establishes that financial entities are obliged to control the amounts they received from both property developers and agencies of intermediation, as well as amounts from abroad, in order to know which subjects were behind each operation.

Where then is that duty of "active surveillance" of the Bank? Is it not enough --- simply --- the opening of an account by a developer in which third-party amounts are received so that the bank had begun to monitor?

The fundamental concept that the Supreme has been repeating in innumerable occasions about the moment in which both the guarantor and the depositary entities begin to be responsible is that of "having the possibility of knowing":

 "As you remember, among others, judgment 675/2016, of November 16, excludes the responsibility of both the bank receiving the advanced amounts and the guarantor when the payments from the buyer to the seller are made not following the contract clauses and without any possibility of control by the banking entity or the guaranteeing entity, but not of those anticipated amounts that it did have the possibility of knowing (sentences 420/2016, of June 24, and 436/2016, June 29). "

Specifically, in relation to the depositaries, the Supreme Court has specified on two occasions (STS 07/18/2017 and 11/23/2017) that this duty of active surveillance and the consequent responsibilities of Article 1.2 of Law 57/68 begin , at the moment in which these "warn the possibility that they are receiving amounts on account for the purchase of houses". Very consistent with the tutive nature of law 57/68.

Is it not clear then that once a developer account is opened, it is responsible for fulfilling its obligation to monitor everything that is entered and how it is entered? Wouldn't it be shielding in the presence of intermediaries or in the lack of specification in the concept a mockery of the whole spirit and interpretation of law 57/68?

It is the Bank who must investigate and find out, and must prove it and if it does not prove it sufficiently, the responsibility is clear.

Recently article pubilshed at http://www.legaltoday.com/practica-juridica/civil/civil/el-supremo-y-la-responsabilidad-in-vigilando-del-banco-en-promociones-sobre-plano-carga-de-la-prueba

Maria,

Thank you for your thread posting.

Has this latest SC ruling that appears highly questionable achieved Supreme Court Doctrine?

Does this now place at risk all those whose conveyancing lawyers managed and transferred deposited monies on behalf of their clients ( which will be in the majority of instances given this is the recommended legal route to purchase property) I.e. those who have not as yet achieved a final ruling, if the appeal courts start to rule against them?

Does this now undermine all supportive majority court rulings that have found in favour of offplan purchasers to date?

How can this questionable ruling stand, when a law is already in place to protect INALIENABLE rights with all due regard to safeguarding purchasers' deposited monies with requirement to provide legal Bank Guarantees?
Offplan purchase has been marketed across the board for years and marketed under the belief that Bank Guarantee law will protect purchasers deposited monies in the event of proven developer breach.

To retrospectively withdraw this protection in law via such a questionable ruling at such a high level (SC) will bring the whole of the justice system in Spain into question.

This needs to be rigourously and robustly challenged enmasse at the highest level otherwise how can any purchaser in Spain ever believe that protective laws will not be retrospectively ruled against?

What is the purpose of a large off plan deposit? Why is a small unsecured reservation fee not sufficient?

Answers below in bold green:

Maria,

Thank you for your thread posting.

Has this latest SC ruling that appears highly questionable achieved Supreme Court Doctrine? Yes,it does, in my opinion.

Does this now place at risk all those whose conveyancing lawyers managed and transferred deposited monies on behalf of their clients ( which will be in the majority of instances given this is the recommended legal route to purchase property) I.e. those who have not as yet achieved a final ruling, if the appeal courts start to rule against them? Yes, it does somehow, unless conveyancing lawyer detailed name of purchaser and property unit very clearly.

Does this now undermine all supportive majority court rulings that have found in favour of offplan purchasers to date? Not at that full dimension but it does compromise those cases where deposits were  not enoughly identified by third parties payers. This goes against the principle of active surveillance since the moment where possibility of reception of off plan deposits is noticed by the bank.

How can this questionable ruling stand, when a law is already in place to protect INALIENABLE rights with all due regard to safeguarding purchasers' deposited monies with requirement to provide legal Bank Guarantees?
Offplan purchase has been marketed across the board for years and marketed under the belief that Bank Guarantee law will protect purchasers deposited monies in the event of proven developer breach. Totally agree. It goes against protective nature of the Law , Orden Public( inalianable rights contained there and active surveillance role granted ti depositers banka by both Law and Case Law.

To retrospectively withdraw this protection in law via such a questionable ruling at such a high level (SC) will bring the whole of the justice system in Spain into question. Somehow, in my opinion.

This needs to be rigourously and robustly challenged enmasse at the highest level otherwise how can any purchaser in Spain ever believe that protective laws will not be retrospectively ruled against? We are bringing appeals to European and Constitutional levels. We do believe this narowing of the scope of Bank´s liabilities is very much against the nature, principles and interpretation of Law 57/68.

What is the purpose of a large off plan deposit?  Commitment of buyers is part of the financing system of off plan purchases. Despite finances comes from Banks to developer, those, require contracts to be signed beforehand where stage payments are being made.

 Why is a small unsecured reservation fee not sufficient?

So the buyers deposit is actually an unsecured payment/investment to financially assist the builder/developer to build properties that he does not have the funds to build. If that is the case how can a buyer have a genuine bank guarantee on the funds he/she has given to the builder? Has a so called ‘’Spanish Bank Guarantee’’ always been a false marketing scam that was untested in good financial times and exposed as worthless after 2008 when builders/developers went bust?  

I thought the purpose of the Bank Guarantee was to act as security for return of monies ( with interest) IN THE EVENT OF PROVEN DEVELOPER BREACH? The inference being that according to BG law the Bank or insurance company have funds or insurance mechanisms in place to honour this guarantee. This is the reason that provision of Bank Guarantee is so critical to this scenario and why offplan purchasers were provided with an inalienable right according to law to ensure that the Bank or insurance company complied with this law. Is this correct Maria?

The problem appears in this instance to stem however from the Banks denials suggesting they had no means of knowing that the purchasers deposited monies were related to an offplan development, preferring to suggest that it was up to the purchaser to ensure that at point of deposit a link/ reference to the development and unit should have been made. Purchase Contracts however presumably provide this link by reference to the guarantor Bank, the development and the unit to be purchased. Is this correct Maria?

So are the Banks suggesting that the purchase contracts were illegal in some way, by making reference to them as guarantors? Surely the Banks cannot deny their knowledge of being guarantors in the first place, when they provide monies to the developer for an offplan development, and a protective law (with inalienable rights!) exists which stipulates that developer Banks are responsible for ensuring that all necessary surveillance and protective measures are adhered to from the outset? 

Is this correct Maria?

I think you have to accept that the banks will use every trick and excuse in the book irrespective of any law not to honour any so called ‘’guarantee’’.

If depositor’s funds went straight into the builders/developers bank account, how could the bank be held responsible for what happened to the funds. How can any bank guarantee the solvency of any builder/developer?

I very much doubt any compensation scheme/fund ever existed. The whole thing has been a pantomime. Buyers funded developers with unsecured money without even owning a single brick, they never thought it through.

No, it is completely the opposite in so much as the Banks and developers were in ignorance of a good law that provided purchasers with inalienable rights intended to protect.

The whole purpose of a guarantee according to  this law is that it provides purchasers with an inalienable right to protect against proven breach of contract, whether this be insolvency or otherwise. 
 

And what's more, the marketing of offplan purchase in Spain made great play of the fact that a Bank Guarantee system was in place to act as security.

Quite correct ads, see https://www.spanishpropertyinsight.com/legal/bank-guarantees-in-spain-explained-with-an-example/

But did the buyer and his/her lawyer follow the rules and get the bank guarantee certificate or did they just willy nilly pay it into the developers bank account?

 If I have understood this correctly according to Maria, the Bank had the legal responsibility to provide a secure surveillance mechanism from the outset and in so doing had responsibility to correctly administer monies coming into developer named accounts and verify the existence of legal BGs accordingly. Perhaps Maria can confirm this.

We all know now that they ( the Banks) didn't do this, hence the lengthy litigation route to gain justice in the event of proven breach of contract.

** EDITED - Against forum rules - inciting and unhelpful **

What you seem to be suggesting Kavanagh is that anyone purchasing in Spain ( whether offplan or not) has to comprehend that Spain does not adhere to the rule of law where a good law already in place to protect, cannot be relied upon to be enforced. Is this correct?

If that is the case then it is surely correct that this has to be judged at a higher level?

What is important here if I have understood this correctly is to recognise according to Maria's first and subsequent postings, is that the developer Bank has responsibility under existing law to ensure legal Bank Guarantee(s) must be in place and all purchasers deposited monies are effectively secured via the principle of Banks' active surveillance, and thereby guarantee that in the event of proven developer breach, deposited monies are effectively secured, and will be returned ( and where applicable with legal interest subsequently applied). 

This message was last edited by ads on 29/12/2019

** EDITED - Against forum rules- inciting and unhelpful **

Kavangh please refrain from personalising and using inciteful generalised rhetoric which only alienates and divides.

Its important that we all learn in this scenario but alienating those who are striving for solutions or undermining those already impacted, by hurtful and unnecessary rhetoric, does little to resolve the problem.

This message was last edited by ads on 29/12/2019.

This message was last edited by ads on 29/12/2019.

After printing off this thread for my husband to read, his response is....

"So the SC has decided, now that the UK is leaving the EU that it is OK to put to bed the whole debacle of 'Off Plan Property' deposits by robbing the purchasers of any chance of retrieving their deposits and leaving them with debts, for lawyers  bills, of tens of thousands of Euros."

 What an unholy shambles.

Ads:

All your statements below are totally correct:

If I have understood this correctly according to Maria, the Bank had the legal responsibility to provide a secure surveillance mechanism from the outset and in so doing had responsibility to correctly administer monies coming into developer named accounts and verify the existence of legal BGs accordingly. Perhaps Maria can confirm this.

We all know now that they ( the Banks) didn't do this, hence the lengthy litigation route to gain justice in the event of proven breach of contract.

Whilst ads and Maria are absolutely correct that banks failed in their duty to obey Spanish laws , what about the paid policeman on the job ‘’the Spanish Lawyer’’ who's ulitimate responsiblity is to proctect thier  clinent '' the buyer''  why did he/she not insist on a bank guarantee certificate?  

Kavanagh:

You are right, Kavanagh. Lawyers are also liable if they allowed money into developer´s account with no certificate of guarantee.

Well Maria that is exactly what our expensive Marbella lawyer did and we knew this within weeks of asking them to cancel our contract.

Now it is proved they were negligent in their duty is it time we sued them?

For  the loss of :-

1.our deposit to the developer ( including their fee for allowing the original purchaser to sell us the property)

2. money paid to the seller,

3. the full contracted interest (i.e., 6% from the date we handed him our deposit to the day we get all our money back) , 

4. all our lawyers fees

5. all incidental costs such as power of attorney, translators,phone calls etc.,

And also for  realistic amounts of compensation  for all the  worry, stress , sleepless nights and marital strain, we have endured over the past (almost) twelve years since they first revealed they had not obtained that all important Bank Guarantee which they constantly mentioned  to persuade us that our money was completely safe.

A forceful assault on their bank accounts, or insurers funds, by all purchasers who  they so  blatantly misled might  make them think twice before doing it again.