Banks Liability Under LEY 57/68

In response to Legal Tip 187 - Banks Breached Law 57/68 - posted on 1 December 2009 by Maria de Castro, I would comment as follows:

Below are the relevant Articles of LEY 57/68, firstly in Spanish and then in English.

A very important sentence appears in the Second Article:

"Para la apertura de estas cuentas o depositos la Entidad bancaria o Caja de Ahorros, bajo su responsabilidad, exigira la garantia a que se refiere la condicion anterior."

Which translates in English to:

"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."

So the Bank or Savings Bank, under its responsibiliy must demand the guarantee to which condition 1.1 refers.

This puts a clear liability on the Bank or Savings Bank to ensure that the legally required Bank Guarantees are issued.

Also article 1.2 states that:

"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"

Therefore if Banks or Savings Banks have been accepting sums advanced by purchasers clearly referenced as deposits for off-plan purchases into accounts which are not classed as 'Special Accounts' (Cuenta Especial), as required by LEY 57/68 Article 1.2, then the Bank or Savings Bank is liable to refund those amounts to the buyers if with a minimum level of due dilligence they would have realised that the said funds were deposits for off-plan purchases.

Banks in Spain are regulated by the Banco de Espana and must incorporate strict financial controls to prevent money laundering and fraud. These controls together with their own due dillegence must result in the Bank or Savings Bank having a clear understanding that the funds were for off plan purchases and therefore subject to the legal requirements of LEY 57/68.

Immediately a Bank or Savings Bank becomes aware that a developer/promotor who it is funding, is instructing purchasers to deposit funds for off-plan purchases into accounts which do not comply with LEY 57/68 Article 1.2, then the Bank has a duty to freeze those funds and demand they be transferred into a Special Account and to issue the corresponding Bank Guarantees immediately or to return those funds to the purchaser.

As Maria says under LEY 57/68 the Banks were established as the 'guardians of legality' and must therefore be held responsible if they fail in this very important and legal duty.

LEY 57/68 - Article 1.1 and 1.2

Primera - Garantizar la devolucion de las cantidades entregadas mas el seis por ciento de interes anual, mediante contrato de seguro otorgado con Entidad aseguradora inscrita y autorizada en el Registro de la Subdireccion General de Seguros o por aval solidario prestado por Entidad inscrita en el Registro de Bancos y Banqueros, o Caja de Ahorros, para el caso de que la construccion no se inicie o no llegue a buen fin por cualquier causa en el plazo convenido.

Segunda - Percibir las cantidades anticipadas por los adquirentes a traves de una Entidad bancaria o Caja de Ahorros, en las que habran de depositarse en cuenta especial, con separacion de cualquier otra clase de fondos pertenecientes al promotor y de las que unicamente podra disponer para las atenciones derivadas de la construccion de las viviendas. Para la apertura de estas cuentas o depositos la Entidad bancaria o Caja de Ahorros, bajo su responsabilidad, exigira la garantia a que se refiere la condicion anterior.

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 must now be forced to accept their legal obligations under LEY 57/68.

Kind regards

Keith
 

It is all very well saying that banks must be forced to accept their obligations but they simply cannot do this because they a mostly all SKINT. Remember -

You can't get blood out of a stone.

Perhaps the State should step in with a few billions to help out the banks.

You can't get blood out of a stone!

Homefinder

Hi Homefinder , I handed over 70 thousands pounds for a property in good faith and got  F all  . I don't give a sh,,,  if the Spanish banks are skint .They signed my BG without which I would not have sent my cash .All I ask is that they adhere to their own laws .The law is the law is the law  be it Spanish EU or pink with purple spots .

They have already extracted blood from my stone . 

I am  an innocent purchaser who parted with money in good faith . I have been robbed  is this OK ? or  should I  just walk away. 70 grand / no house tough sh ##  .

Do you have any idea how much UK money has disappeared into a black whole that no one in Spain wants to discuss ?   a huge amount and  as yet no UK politician has stood up and recognised it as significant  !!!!  Millions /Billions  ? " The Spanish banks are skint "? No sh##  Sherlock !!  Blood will be extracted from stones !!!!!!!!!!  Watch this space !!

Dear MagicMeg

I am very sorry, but I am not saying that I was wrong, just apologising for putting everything so bluntly.

You obviously have to persue your claim and 70 K is not peanuts. I wish that I could advise you, unfortunately that's not my forte. All the same I wish you luck. . . and sorry again for openiing my big mouth!

Homefinder

Hi

The bank in question here, happens to be the 4rth largest Savings Bank in Spain - so it is unlikely that they are 'skint' ! 

The momentum for action to expose and bring to book, unscrupulous Spanish developers and bankers who brazenly disregard the law, is building as more and more evidence of their dubious business practices emerges by the day. 

It is totally unacceptable that  the kind of dishonest and unethical business practices to which many investors in Finca Parcs and countless other Spanish developments have been subjected, are still tolerated within an EU member state.

The struggle for justice in this and other similar cases will not be easy or straightforward. What is required is for concerted and relentless group action, backed by professional legal expertise, to challenge the developers and banks in the Spanish courts. We must NOT give up until we win! 

In addition, we need to be proactive in taking steps to influence public perceptions through the media, about the risks of doing business in Spain, which from my experience, is a country easily on a par with Nigeria in the corruption stakes! In particular we need to identify the major offenders from amongst the ranks of developers and banks and ensure that they are placed on a 'blacklist' and that this list is widely publicised throughout Europe. This 'offenders register' would be an effective tool for warning potential buyers about who not to do business with in Spain.

This will eventually shame the Spanish government and cause them to take decisive action to bring their archaic regulatory processes into line with the rest of civilised Europe and to impose control over the dishonest developers and banks who have done so much in recent years, to damage the reputation of the Spanish property market. 

Please get in touch if you feel passionate about this issue and if you wish to actively support action to make a difference.

This message was last edited by Frik on 02/12/2009.

This message was last edited by Frik on 02/12/2009.

Hi Frik

Excellent posting.

We will leave no stone unturned in our fight for justice.

Kind regards

Keith
FINCA PARCS ACTION GROUP

Email:  fpag@btinternet.com

I truly admire your fighting spirit and wish you all every success with your legal action.

 It beggars belief that any EU state could allow the citizens of fellow member states to be treat in this way, let alone those of the UK who, for decades, have proved an invaluable source of income via Spains tourist industry.

What is the Spanish government thinking?

 Groups such as  those involved with Suzanne Wyatts'  'Spanish Property Scandal' deserve all the support we can muster.  And yes, more sympathetic media reporting would help, although the current economic climate does not lend itself to public sympathy. Most reports appear  to try and ridicule the victims of the abuses, which is unhelpful  when trying to gather  support for petitions and when group court cases are being organised. However the recent excellent report and interview in Investors Chronicle is one of the most fair and comprehensive pieces I have read.

http://www.investorschronicle.co.uk/InvestmentGuides/Property/article/20091123/b7ffde06-d823-11de-99a4-00144f2af8e8/The-pain-in-Spain.jsp

The corrupt and destructive behaviour of the evil trinity of  Spanish banks,developers and lawyers cannot be allowed to continue to prosper at the expense of  ordinary innocent (not greedy,naive or fabulously rich) UK citizens, many of whom are retirees. Our MPs are aware of what is happening in Spain and the PM ,who could have done more, simply passed our concerns to the FO to deal with. The FO must have buried all our letters since there has been no further communication from them.

What is our government thinking?

Hi Sandra ,I think this is one of the fairer articles I have read on the subject but lands  far from the real  truth and is still underplaying the situation and leaning towards  the "stupid Brit buyer " scenario again   .

Is there not one single journalist out there who can tell it like it really is is and make the GB government see the huge ,huge loss of wealth and revenue that has disappeared from the UK economy for ever  

It is not all about the same old stories being constantly reported ie situations where all is not just perfect as  the purchaser wished for !  there are a huge amount of cases where GB citizens received in return for their hard earned cash " Nada "  "Nunca " Nienti  "Zero " in other word  Nothing at all .They were plain and simply robbed by corruption and then once again by the Spanish legal system  !!!!!!!!  Why will no one be realistic about the scale of this .If the Spanish banks are skint I am damned if I know why ? Someone some where has loads of money and they  need to be brought to boot . MM

Great article, thanks for posting Sandra.

In my opinion the corruption was general but Banks played a key role on this all.

Exactly Maria.

The banks were key to most of the corruption.  Very few of these developers / promoters would have been able to carry out their illegal activities without the support and funding of the Banks.  The banks funded the developers and projects and then turned a blind eye to the illegal activities of their client - the developer / promoter.

The banks knew that if they allowed the developer to accept millions of Euros in off plan deposits into the wrong type of accounts for which the bank did not issue the legally required Bank Guarantees, then in effect the purchasers were collectively funding part of the development and the banks risk exposure was greatly reduced.

Very few developers would have been able to self finance a complete project without the support of at least one major bank.

The developers also needed the support of the funding bank to be able to open bank accounts to receive the buyers deposits for off plan purchases.  Let's be realistic not many purchasers would have paid their off plan deposits in cash to the developer, so the developer had to work with the bank.  The banks, who as you said yesterday, are the 'guardians of LEY 57/68', again just ignored the fact that most of the off plan deposits were being paid into Cuenta Corrientes and not Cuenta Especials as required by LEY 57/68.  The banks, in many cases, also failed to 'demand the Bank Guarantee' as required by LEY 57/68 Article 1.1 and 1.2.

A bank who is funding a developer and investing millions of Euros into the project, would of course be required under money laundering regulations and their own internal auditing procedures to monitor the developers accounts on a daily basis.  With minimum due diligence, immediately the bank became aware that funds clearly referenced as deposits for off-plan purchases were being received into Cuenta Corrientes, which do not comply with LEY 57/68, the bank must have a legal obligation to freeze those funds and demand that the developer (thier client) immediately opens a Cuenta Especial for the receipt of those funds and then issues the legally required Bank Guarantees.  If the developer refuses to act in accordance with LEY 57/68, the bank must return the deposit payment to the purchaser.

If the bank does nothing and allows this illegal situation to continue then the bank is complicit in the illegal activities being committed by the developer.

If after 4 or 5 years a bank uses the excuse that they 'were not aware' that millions of Euros of funds for off plan deposits were being accepted into the wrong type of accounts and that Bank Guarantees were not being issued then they are guilty of Gross Negligence.

Kind regards

Keith
FINCA PARCS ACTION GROUP

Email:  fpag@btinternet.com

Our Supreme Court states that Banks have, in general, a special duty of care derived from the content of the work they need to develop.

Law 57/68 put a deeper weight of liability over Banks, making them guardians of that Law.

In other countries, such as Morocco, that guardian functions are developed by Notaries. Money is kept by them and just handed to builders against the corresponding certificates of building stages being concluded.

There is something here that I don't quite understand.

Keith110 talks about the banks' duties and obligations. He also states that most developers don't have the assets to carry out the project themselves, actually better there to read ALL.

Therefore someone had to provide financing and that was the bank itself. Now we are seeing that many construction projects have gone "belly up" and, with most projects, the bank is the largest single creditor. In fact in many cases the banks have foreclosed on the developer or done a debt for equity swap.

Whether the project is legal or illegal, wheter those who contracted off-plan had bank guarantees or not, the fact still remains that the project has to be legalised (if this is the case) and completed. As long as it remains unfinished everyone is exposed to rsk of enormous loss, most of all the bank.

So what happens in the end? Somehow or other the bank has to resolve the situation and, whether the off-plan buyers have a guarantee or not, their contracts are still valid i.e. they are valid creditors of the bancrupted promotor, along with the bank, and the unfinished project is still a valuable asset. The only final solution is to coplete the project.

Perhaps I am wrong here? Perhaps the bank has different status than the off-plan buyers but I don't thnk so.

Obviously two wrongs don't make a right and the banks should have paid a lot more attention to their legal obligations.

Homefinder

Homfinder valid points but for most with BGs the first step is to have the court agree that the contract is cancelled  as the builder can not or has not completed the property .At that point the contract is invalid .

As for the status of  Banks v off plan purchasers the banks have a much higher classification of their credit in the administration process  than off plan purchasers .I think this angers a lot of people as they feel the banks are partly to blame for the situation  in the first place .

If you read many of the community forums a lot of purchasers with out BGs would much prefer their properties to be completed rather than end up with nothing however this is not happening as the banks will not finance the developers .The whole thing is one big mess and and has the potential to sit in limbo for many years to come unless the Spanish politicians are prepared to raise their heads above  the parapet and acknowledge and look at the whole picture and all the different problems .If they don't  I don't see any way  forward  .

In that scenario: buyers getting nothing back because of banks executing mortgages on developments and getting all properties for them is where I see another wonderful possibbility of requesting banks which did not secure the issuing of Bank Guarantees under 1.2 of Law 57/68, o answer that liability and compensate consumers for damages.

There, there... the opposite would be completely unfair and  a shame to our legal system.

Best,

Maria

Keith,

according to the website it says the legal action has been a failure ?

Why was that ?

Does this mean this is pointless pursuing banks now under LEY 57/68 ?

Where does it state that legal action has been a failure?

John

Do you mean on our FINCA PARCS ACTION GROUP website?

www.fincaparcsactiongroup.com

It is not our legal action that was a failure.

The Finca Parcs project was abandoned by the developer Cleyton GES SL in May 2009.  Cleyton GES SL knew that together with CAM Bank they had created an illegal situation by failing to issue the legally required Bank Guarantees to at least 30% of the purchasers who had paid reservation deposits.

Therefore, in September 2009, the developer - Cleyton GES SL - set up the FINCA PARCS REFUNDS PROCESS.  Each purchaser who had not been issued with a Bank Guarantee was promised a full refund with the addition of 6% interest from the date of reservation.  All we had to do was to email a copy of our Sales Agreement (Contrato de Compraventa) and Bank Transfer documents to FINCA PARCS REFUNDS.

However, on 5 March 2010, after 6 months of excuses, delays and broken promises the FINCA PARCS REFUNDS PROCESS closed and did not provide a refund for ANY purchaser.

I had already began forming the FINCA PARCS ACTION GROUP during the summer of 2009 as I did not have too much faith in the developer actually being true to their word and issuing the refunds.

So our legal action has not failed - it was the developers refunds process that failed.  The letter on the front page of www.fincaparcsactiongroup.com was the last communication sent to purchasers by the developer.

FINCA PARCS ACTION GROUP now consists of 62 FINCA PARCS purchasers with a total of 72 plots between us.  The total deposits paid and not covered by the legally required Bank Guarantees is just over 2 million Euros.

We feel that a group action has more power than individual legal action.  Our group contains around 80% of all purchasers without Bank Guarantees on the FINCA PARCS development.  It has taken me a huge amount of time over the past 3 years to gather the evidence against the developer and bank and to co-ordinate all the group paperwork etc.

But we are moving forward and I can assure you we will leave no stone unturned in our fight for justice!!

Kind regards

Keith
FINCA PARCS ACTION GROUP

www.fincaparcsactiongroup.com

fpag@btinternet.com

The moral of this story yet again is never trust the word of the developer......... another delaying tactic.

Please bring this example to the attention of MEPs as proof of abusive practices in Spain.

This message was last edited by ads on 21/05/2010.

Hi Ads

Exactly.  That is why I was forming the action group even before the developer set up the Refunds Process.

We were keeping our options open and preparing in the background.  So by the time the developers refunds process failed I had already done the hard work of gathering the evidence, forming the group, getting legal representation and moving on with the legal process.

If, by a very small chance (a miracle), the developers refunds process had been legitimate then we were already in a strong position to negotiate via our legal team who were already in place and fully briefed on the whole situation.

Ads - I think now speaking from experience I can add a little bit to your statement:

The moral of this story yet again is never trust the word of the developer..........OR THE BANK!!!

Kind regards

Keith
FINCA PARCS ACTION GROUP

www.fincaparcsactiongroup.com

fpag@btinternet.com

Agreed...... all the best in your endeavours and please keep everyone posted of events.

Everyone in a similar situation should send emails to their MEP's to highlight these abusive practices relating to Bank Guarantees and the effects of maladministration (ongoing delays) within the Spanish justice system. Most MEP's appear to be focusing on other Spanish Property Scandal abuses so these instances need to be  highlighted and the message reinforced.