Problems with developers

Dear Maria,  I placed a large deposit for an off plan apartment in Almoradi in April 2005 with a completion date of September 2006.  The apartment was completed in September 2007 and I went to Spain to complete the purchase in December 2007.  The developer stated he would not complete until the end of January but after 14 months with no prospect of completing I instructed a new lawyer to take the developer to court.   According to my lawyer the company Proalto is still in business, it had taken out mortgages against the properties and some purchasers had been offered to pay an additional sum on top of the purchase price, the excess to be paid back later by the developer, I did not receive any offer and would not have taken it up if I had.  In the eleven months since instructing my new lawyer there seems to be no news of a court date.  I realise that the legal system can take time but is this a normal time period and what advice could you give to move things along.  I would appreciatge any advice you could provide.

Kindest regards,

Anna

Unfortunately, it can happen. It is not the regular pattern but it can happen 11 months in Courts without news. Of course  there are proceedings to speed the process up and claim on these delays. 

Maria,

what are the procedings that you refer to to speed the process up?

Hi Safia

It sounds like the developer is having financial difficulties and is heavily mortgaged.

You might find the mortgage outstanding on your property exceeds the balance you need to pay on completion and therefore the bank will not release your property unless someone coughs up the extra money!

Unfortunately the banks also do not appear to be very commercial and ask for extra money sometimes due to delayed completions they say they want the extra accrued interest and the developer has nada.

Whatever happens I doubt you will ever see a penny back from the developer. But if you decide to pay extra money you could see what else you can have that's not mortgaged such as garages or storage rooms. But who wants extra garages & storage rooms but better than a promise from the developer to pay you back. In most cases the developer will quite happily admit the laibility!!

This type of situation is best resolved by direct discussion with developer and the bank that has a mortgage over the property. Most likely your bank guarantee (if you ever had one!) has expired and you need to bear in mind the developer is probably on the verge of collapse so getting the property registered in your name has to be a priority otheriwse you will have to do battle for years.

Litigation may not help you if it's the bank that's digging in and the developer has no money! It's one thing to litigate against banks or insurance companies but not against developers on the verge of collapse.

Good luck

 Ads: Remind writing in Courts

Faro: Bank Guarantees do not expire till the house is actually handed over to buyers. Banks have liabilities regarding the protection of deposits ( for those cases wherr Bank Guarantees were not provided)

Maria, I understand the need for written reminders but doesn't this add to the administrative load on the courts?

Faro, I hope you would not suggest this is a solution for all.

So long as you perpetuate this abusive system by suggesting that clients let the developer/bank/lawyer off the hook by accepting a compromise that maybe a compromise too far (in terms of expecting a client to take perhaps completion on a substandard product, with all the extra expense that this entails i.e. clients paying for all manner of corrective measures thereafter, developments where the developer lied through its false marketing literature (well documented by Norman), where there is genuine breach of contract, or the scam of  illegal Bank Guarantees that you can't claim against etc) you will never clean up this Spanish malaise.

Isn't it ironic that the client can only legally follow through with compensation against the lawyer's insurance, or the Bank etc when the end of line has been reached i.e. the developer goes into administration? It will never be a good solution to expect the client to ultimately pick up the price for developer/lawyer/bank abuse.

No No NO.................

The system needs cleansing. Make the perpetrators of these abuses ultimately accountable with compensation paid to the victims (via swift seizure of developer's assets). Otherwise where is the dis-incentive to stop this developer abuse? AND whilst you are about it the government should rid the administration system of court delays by providing the necessary human resource to meet their legal obligations to effect justice in a timely manner.

Rant over!

Apologies to Safia if this is not her circumstance but I couldn't help countering this argument that allows developers to remain unaccountable.

Hi Maria

In an ideal or text book world you would be correct. But Spain is a country where the letter of the law has no meaning and certainly offers little protection to foreign buyers in enforcing on their rights. There are many on these forums who have lost everything becuase their bank/insurance guarantee (if issued at all) was not worth the paper it was written on!

In an ideal world the bank/insurance guarantee should protect the buyer right up until title is transferred and in particular should the property not be built or should the developer collapse financially. However I do not believe that to be what happens in practice.

In my opinion buyers and bank/insurance guarantees fall into a couple of general categories:-

1.  Buyers who never received a guarantee either because they did not use a lawyer or else their lawyer failed to obtain the policy!

2. Bank/insurance guarantees that have expiry clauses - expiring say in 24 months!

3. Bank/insurance guarantees that expire once the the architects completion certificate is issued or the first occupation licence is granted!

4. Not sure this category really exits but bank/insurance guarantees providing protection right up until title is transferred?

If 1 to 3 above apply to Safia then she is exposed should the developer go into receivership or liquidation.

Some developers are quite willing to have direct discussions but the problem is the banks will  not release their grip and see the benefit of getting unsold units sold even if it means writing off a little bit of accrued interest. In the meantime there is nothing the developer can do if he has no money, he's probably sitting on 30%-40% of unsold units, he is not paying community fees on unsold units, community has taken him to court for unpaid community fees and probably also because he failed to complete all the inftastructure promised and probably a few owners are also taking him to court for defects. So where will the money come from to settle all these judgments? The unsold units cannot even be sold for the mortgage outstanding?

In many cases these developers were not real property developers and merely saw an opportunity to make some easy money and now have completly lost interest and gone back to their former professions. Sure they might be driving around in top of the range cars and they and all their family have units on the development and they have plenty of money but it's all gone from the SL company which is now a shell and waiting for the banks to make their next move whenever that will be?

Maria - are you saying that regardless of whether a buyer received a guarantee or what the guarantee said as regards an expiry date these buyers will have no problems because the law says they should have received a full unlimitied guarantee etc? Have you had success in bringing cases like this?

Safia - it would be good to know a little more on the background of your situation regarding the bank/insurance guarantee. Also is your lawyer only trying to force the developer to complete or claim back your deposit under your bank/insurance guarantee etc?

I simply tell it as it is and that's mainly based on what I hear and see going on and say the road to any victory will be an expensive and lengthy battle and also no guarenteed outcome. Safia's case highlights the risk of buying off-plan having paid her deposit 5 years ago and nothing to show for it but anxiety.  I hope some day you will enjoy a glass of wine on your balcony.

Faro:

Thanks for your contribution. It is really great to have the challenge of the skepticals (which much reason to be skeptical).Pleae keep being so :).

Bank Guarantees do not expire ( regardless the word of the paper--  as an answer to your general categories 2,3 and 4) and yes, we have had many cases won in that sense so far. I am sure many other good lawyers in Spain has also won many cases like these ones.

Hi Ads

I hear you loud and clear but I'm just telling it as it is and the big question is what does Safia really want?

Many buyers have had to complete on units with defects and a development a lot short of what they were promised. Many have had to put right these defects and complete landscaping etc. This is not ideal but at at least they get something and can get on with life and hopefully get some enjoyment from their property in Spain.

Other buyers decide to litigate against all and sundry but does it get them anywhere?

Unless you're confident on being able to cash in your bank/insurance guarantee than I suggest trying to make the best of a bad deal. Many Spanish litigation lawyers in my opinion do not properly consider dispute resolution.

Unless you can lift the veil of incorporation and find out just where all the money went you are wasting money going up against a developer that has nothing. By all means protect your position and do things by the book ie obtain experts report and send burofax etc so if by some fluke the developer comes good you can get your money back.

In a lot of these situations you have promoters, developers, architects, builders all mixed up together and usually family ie all brothers and cousins and each one saying it's the other at fault. It might be worth considering filing a claim against the architect for defects as he is the only one I would imagine with some level of professional indemnity insurance and I think he has some over-riding responsibility as he signed off on the project. Maybe Maria wants to comment?

Spain's reputation has been damaged and in the long run that will cost them dearly. So tell everyone you know not to buy in Spain until it cleans up its act and protects the British buyer. But for those stuck in the middle they have to somehow find light at the end of the tunnel. I doubt we will ever see off-plan transactions like this in the future!

Hi Maria

Litigator and optimist!

Don't tell me you also believe Spain and its whole legal system to be among the best in the world protecting the innocent and handing down swift and honest judgments and then being easily able to enforce on those judgments?

If so foreign buyers have nothing to worry about because the Spanish courts will rule in our favour and give us exactly what we paid for, put right all our defects and compensate us for any delays, inconvenience or stress! Viva Espana!

In that case I will raise a glass in honour of the Spanish legal system and I invite all happy members of this forum to join me for victory will be ours.

A cynic and skeptic!

Faro:

Just patience and perseverance are needed :) Yes, I know... that is quite a job but we will get there. Believe us.

Best wishes,

Maria

Maria,

You say that there are procedures to speed up the process through the courts.  What are these procedures???

Thank you

 Well, regular reminders... nothing extraordinary. A good Procurator of Tribunals being on the files, trying to do the best he/she can proffessionally.

Then, if the failure is excessive , you can issue a claim before the General Council of the Judicial Power and  Dean Judges.

This is the regulation body  of claims about Courts: http://noticias.juridicas.com/base_datos/Admin/a021298-cgpj.html

Maria,

Following up this procedure that you mentioned below, have you had any success on making claims against the courts?

Court delays are seriously impacting the administration of justice and we wondered if anyone has been bold enough to make a claim to make them accountable........

Would developers illegally asset stripping while courts have significantly delayed enforcement orders for seizure of assets be classed as an excessive failure and therefore qualify for a claim, Maria?

 My best advise against all these delays is to ask the Bank for liabilities, out of provision 1.2 of law 57/68

Best wishes,

Maria

I understand what you are saying Maria in practical terms, but equally how will we ever gain reform if those responsible for major court delays that impact so badly on innocent folk are never made accountable?

The new  reform and the new Judicial office seem to be walking towards greatest efficiency. The fact that claims under 250.000 € can now be decided through the monitorio system is a step ahead.

The monitorio system is a shorter judicial procedure for claims.

Best regards,

Maria

Thanks for the update Maria. Does this mean that those in the legal system right now will have their cases transfered to this speedier route?

No, Just those cases enetered into Courts after 4th of  May 2010.

Best,

Maria