Antonio Flores’ Blog

A Court in Alicante has ordered Banco Popular to pay €2.1 million Euros to British investors, plus interest since payment of the deposits, following a failed property investment. According to the ruling issued a 10 days ago the investors, all of them from the United Kingdom, bought off-plan properties in the development known as Fortuna Golf, promoted and built by Promociones Eurohouse 2010 S.L., currently in the process of being wound up.

Buyers paid a deposit of around 30% of the purchase price but, when completion was due, units were only half built and works had been indefinitely halted.

Accordingly, buyers decided to claim from guaranteeing bank Banco Popular, who had issued a collective bank guarantee but given individual guarantee certificates to only some investors.

In their defense, the bank argued that the collective guarantee had been limited by quantum and therefore, any claims exceeding this limit could not be –legally- met.

Lawbird Legal Services S.L. argued that the invocation of qualifying conditions or limitations was against consumer protection regulations, namely Act 57/1.968, and that deposits should be guaranteed in any event and regardless of private conventions reached between developer and bank.

For instance, the ruling confirms that it is beyond logic and abusive to subject the validity of the collective guarantee to the issuing of an individual guarantee certificate as, by not meeting this obligation, the bank would be able to easily deny liability.

The Court also stresses that “it was clear that the intention of the Banco Popular and Promociones Eurohouse S.L. was to underwrite customers’ deposits in the event of default and this is exact what happened”.

Lawbird-based lawyer Luis Gonzalez Ordoñez had personally visited the site on occasion of the filming of a TV programme, Comando Actualidad, aired on state-owned television channel TVE-1.

The case has been extensively covered by national press.

The ruling can been appealed.

Antonio Flores Litigation Act 57/1968, Banco popular, bank guarantees, Bank guarantees Banco Popular, Fortuna Golf, Fortuna Hills, Promociones Eurohouse 2010 S.L.

What Mr. Keith Rule and Castro Abogados have achieved is one great result for the 47-strong Finca Parcs (Hellín) group of claimants who, having paid upfront deposits on a failed off-plan development, found to their horror that through the incompetence of their legal representation, no bank guarantees were available.

An undeniable great exposure has meant that numerous claimants who are on the same boat are starting to enquire what is it with this case that is different from many others, in process or already finalized with equal result. Our firm has received a handful of such enquiries, and presumably, many other are already receiving similar emails.

In writing this, I am aware that I do risk being dismissed as some miserly person void of happiness and filled with envy at the successes of others, but far from it: I do wish to congratulate the Castro family and Keith’s group for this success that, by “juridical contagion”, should help everyone involved in this conundrum.

But still, factuality deserves respect and so, once again, let us allow the truth get in the way of a good story:

• The CAM bank and Cleyton Ges S.L. had given out the 1968/57 bank guarantees to a very large number of customers at Finca Parcs, some of which in fact happened to be represented by us. When the developer kicked the bucket, those with bank guarantees were duly refunded by the CAM whereas those who did not, were told to sod off. No surprise there considering that the predatory CAM bank was governed by a gang of pirates who saw no issues with lending themselves astronomical amounts to invest in the Caribbean, a robbery now subject to criminal investigation.
• To contend that this is a landmark ruling is to be dismissive of the work of many other lawyers who have already obtained success in identical cases. The reality is that there are plenty of rulings that contradict Mr. Rule’s claim that this is legal precedent, no matter how hard, perhaps at the insistence of the media, they were conveniently omitted. Strangely enough, the original article published in El Pais does not say it’s a groundbreaking case, and it does not for the simple reason that it was a serious journalist who did his homework and got the facts right (he did call us and we pointed him to  the most reliable source of information: online law libraries!). Conversely, we could admit that, where no bank guarantees of any description or special accounts were available, a ruling ordering a bank to pay would be deemed worthy of being classified as legal precedent. In the ruling of this post, both bank guarantees and a special account were actually available.Keith’s Rule: Don’t let the truth get in the way of a good story!
• To say that Mr. Rule had “…taken on bank bosses after discovering a 45-year-old property law making them jointly responsible with promoters for returning guaranteed deposits on failed developments” is just risible; Mr. Rule has not discovered the 57/1968, just as Roberto Sanchez Saavedra did not discover the Spanish Civil Code (it was already there when his great-grandfather was born). The reality is that the “dug out” 1968 Act was helping many when Franco still went wild-boar hunting, and thousands have already benefited since then…including many of the Finca Parcs victims.

In summary, what has really happened is that Keith Rule and his group hired competent legal representation to help them out, and were lucky that funds were channeled through the developer’s accounts with the CAM, and not pocketed by the rogue developers via overseas accounts (even in this case protection may still be available). And not the least, that many buyers had bank guarantees whereas others didn’t (implying the existence of a blanket bank guarantee), an unfair situation caused by the inaction of property conveyance lawyers, the developer and the CAM bank and, as far as Spanish consistent case law is concerned, totally unacceptable.

But to announce that this is a groundbreaking ruling -when the bank had already given out dozens of individual bank guarantees (a few examples below) to as many customers, and there are plenty of identical rulings on the matter-  is just false.

Proof that Bank Guarantees for Finca Parks do Exist

Downloads

• Bank Guarantees for Finca Parks (PDF)

Antonio Flores Litigation, Property bank guarantees, CAM Bank, Cleyton Ges S.L., Finca Parcs, Keith Rule

Spanish Minister Jose Blanco, “Pepiño” as he is known to his closer aides, has made a right fool of himself, again, by traveling to the United Kingdom with a bag full of unsold substandard properties that are unlikely to find buyers in the next 5 years, unless, of course, prices are slashed by at least half.

What he was not expecting the outrage among representatives of thousands of people who have not had their properties built (and deposits returned), or have had licenses on new properties revoked, demolition orders passed (in a number of cases, well-deserved), supplementary tax requests filed by the regional tax offices and a few other property-buying prevention measures applied by the Socialist authorities.

The only good thing, I suppose, is that thanks to the suffering inflicted on thousands of Brits (and Spaniards, French etc.) who bought a few years ago, we can say that one can safely trod through the Spanish property-legality minefield because all explosive artifacts have been identified and defused.

There still seem to be doubts in respect of the bona fide buyer, or good-faith-third-party buyer that buys a property, and the license of subsequently declared illegal. Well, according to the Spanish Supreme Court, in a recent ruling (December 2010) that quotes similar resolutions, anyone buying a property that has its original license revoked, is not protected by the reliance placed on the records of the land registry.

The reason is, according to the Magistrates, that the protection dispensed by the registry is only applicable to rights acquired in good faith and with good title, even if the previous one is declared void, and it is not therefore applicable to vices or defects appertaining to the object being transferred, so that if a license has to be declared null and void by application of the laws, then the new buyer “subrogates” the position of the prior owner and will be obliged to sustain the consequence the law envisages (and we all think about demolition here). Luckily though, most real estate professionals now know full well what is kosher and is meant to stay like that, or being legal could be potentially declared illegal (rural properties, mostly).

And so, what is the recourse for anyone caught up in the above situation then? The Supreme Court leaves the door open to file an action requesting compensation, from the Spanish State, if it was proved that the owner was a victim of a defective application of administrative decisions (typically, the grant of a license declared illegal later).

And what about the missing bank guarantees on failed developments? This is probably the hottest of topics (or potatoes), alongside the stupid retrospective coastal laws approved by our Socialist Business-Killer Government (soon to be ousted, thank God!). In relation to this topic, I have to admit that, even though I do not agree with some of Keith Rule’s antics, particularly the blind endorsement of a particular law firm, he has demonstrated that there is substance behind his proposal.

Antonio Flores Property bank guarantees

Reading the Times yesterday, I spotted a funny short article written by David Robertson and Deborah Haynes about the British Army’s SA-80 assault rifle. According to the paper, it has been upgraded several times but its long history of problems has led the military to christen it “the civil servant”, because it does not work and cannot be fired.

This quote came to mind when being asked for a second opinion in respect of the case of Urbanizadora Costa Palatinum/Proyectos Antele, another failed project by a developer which I can group with many others that dot the costas and which I dub the “civil swindlers”, because they get paid from you to do something, they do nothing, and there is little prospect of realistically getting any funds back, since they have no equity on their assets and no interest whatsoever in refunding, even though the funds should be in some bank account (with Proyectos Antele, in Venezuela it would appear).

As 30 or so purchasers are being dragged around civil courts pointlessly (for this developer now says he has none of the monies), and considering that nothing has been built on a plot they already owned prior to exchanging contracts, as part of my legal inquest into the death of the development, I would like to ask the developers one straight question: where is the dosh matey?
To not make this post too long, I will quote some examples why Spanish top judges are in disagreement of the activities carried out by developers who do just that (i.e. take money, not build, spend money elsewhere and blame the market) and who are upgraded, from the term “civil swindlers”, to a more adequate “criminal misapropriators”.

Antonio Flores Litigation, Property, Scams bank guarantees, Bank Guarantees in Spain, litigation against spanish developers, Ocean View Properties, Ricardo Miranda, spanish developers

It’s not been quite like the search for Bin Laden, but we have been scouring all case law databases for the last couple of years trying to find any ruling that would point to the direction of the banks’ liability to refund property buyers, in the event of developers falling foul of their obligations to refund deposits, where the latter had accounts opened with the former and were using them to trade in property, irrespective of whether bank guarantees were available or special accounts opened at all, these being the 2 main obligations developer’s had, in accordance to the 57/1968 Act on Off-Plan Property Down Payments (Ley 57/1968, de 27 de julio, reguladora de las percepciones de cantidades anticipadas en la construcción y venta de viviendas).

One very web-active colleague that was initially admitting to having the evasive case law but was reluctant to disclose it (we still don’t know if they really have any of it), is instead now hinting that there was something to that effect, always in a vague but nonetheless “mercantile” manner, so as to no doubt monopolize the information and release it with a big bang when the time was right (all very strange, really). A website with a pretended interest in helping thousands who have lost thousands to rogue developers also claimed this case law existed but my insistent requests to have a copy of such ruling were left unresponded.

And then, just by chance, we have come across a ruling, written up by the Judge in charge of Court of First Instance number 54 in Madrid, that finds a bank responsible of being irresponsible and forces it to repay a buyer who bought into a development that was never completed. We have asked for a copy of the ruling from our Madrid colleague who, as we expected, has kindly and promptly acceded to forward us one, after the long-weekend, that is. Once we have received it, we will discuss it, as it has the potential to set a precedent that can make banks responsible in any event, where they consented developers to use their accounts to trade in property, without securing the deposits that were being paid into those accounts by customers. In the ruling, the Judge determined that the bank manager, who knew the buyer personally, had lent him the deposit that was to be invested with the developer, who was also his client. The Judge found the developer’s bank (and buyer’s lender) morally responsible because it knew that the loan was to be used to buy a property, and consented that the loan was paid directly into the developer’s account, which, known to the bank, did not comply with the 57/1968 Act. Indeed, all very incestuous!

It is soon to draw conclusions but I can say that:

• The ruling has not been appealed, presumably to avoid the inevitable publicity it would attract if it went to a higher judicial instance, in this case, the Provincial Audience (quoting my colleague).
• The case is specific, in that the bank assisting the developer was also the lender for the buyer, perfectly knew that the funds were going to be used as a deposit for offplan property, and allowed these funds to be lodged in one of their accounts.
• According to our Madrid colleague, barring error or omission, there is no known case law on the matter (note that a ruling of a Court of First Instance is not deemed as case law).

Another consequence of this rulling is that a developer may force banks to advance funds to complete unfinished developments as, if unprotected buyers can find solace in this doctrine, so should the developer (although that’s another story altogether).

This ruling can be the beginning of the end of the nightmares many bona fide buyers have and are going through. My advice is, in any event, to apply caution and prudence, until we can get hold of it (ruling) and have it read, dissected, interpreted and, ultimately, draw reasoned and balanced conclusions on how to proceed.

It should be stressed that this is a very specific case, with a very particular set of circumstances that render it unique, and cannot be considered of general application against all banks and developers (at least with what we have so far). Each case we come across needs to be analised thoroughly and clients advised that losing it will almost invariably attract subtantial legal costs (and certainly where a claim is deemed to be “reckless”).

Documents

• Judge Rulling Sentencing Bank to Refund Moneys not Secured With Bank Guarantee (pdf – 1.44Mb.)

Antonio Flores Litigation, Property bank guarantees, Bank Guarantees in Spain, ley 57/1968, litigation against spanish developers, spanish developers, special accounts

I may be stretching the concept of misappropriation a bit too far, more so when criminal laws are always to be interpreted restrictively, but the absence of a bank guarantee has landed the property developer of our case study in jail after being given a two year prison sentence, a term that could have been avoided if he had done what he was supposed to do, guarantee the funds paid on account of the purchase price.

The Supreme Court has ratified an earlier ruling by the Appeal Courts in Madrid where the developer was sentenced because the deposit he received was not destined to cancelling the mortgage loan on the property, as promised. The 2010 ruling, in peseta denomination (which means that the claim was lodged prior to 2002!), describes the facts leading to the 2-year prison term ruling:

1. Property developer sells off-plan villa for 24 million pesetas.
2. Payment plan establishes that 8 million pesetas are to be paid upfront and 16 million pesetas on completion, paid in cash or alternatively by taking over the mortgage facility offered by the developer’s lender.
3. Nearing completion, the developer fails to finish the works, and, consequently, buyers are advised to complete at the earliest as unfolding events cast serious doubts on the developer’s financial solvency.
4. Buyers find out that the developer’s mortgage is of 19 million pesetas and not the figure of 16 million pesetas. Still, the latter is unable to refund the 3 million pesetas the buyer has overpaid, or redeem the mortgage down to 16 million, as he is underfunded.
5. Developer is not only unable to reduce the mortgage to 16 million pesetas but he cannot finish the works.

As a consequence of the above, the buyers sued in Court, as they felt swindled by the developer (clearly!). He was sentenced in 2002 for aggravated misappropriation (by reason of it being related to property). Seven years later, the Supreme Court understands that there is no reason to uphold the appeal and maintains the original ruling. Additionally, the developer was forced to pay damages, these being the sums lost to the developer plus interest.

However, if the developer had guaranteed the down-payments by offering an irrevocable bank guarantee or insurance policy, the buyers would have not had a chance to pursue the matter criminally because a refund would have been immediately available (especially as the license of occupancy was not issued at the time of closing). Nevertheless, by breaking statutory civil laws, he found himself in the hands of a prosecuting lawyer, a criminal prosecutor and uncompromising judges.

This ruling opens the door to heavier scrutiny on the use of deposits paid to developers, to the point that if they are used for purposes unrelated to, strictly speaking, the construction of property, criminal cases can be easily brought.

We have been informed that the developer of Los Monteros Hill Club incurred in such practice, causing at least one buyer to lose hundreds of thousands of euros, as the full purchase price was handed over but was not used to cancel the outstanding loans on the properties.

Antonio Flores Litigation, Mortgages, Property bank guarantees, Bank Guarantees in Spain, litigation against spanish developers, Los Monteros Hill Club, spanish developers

Originally conceived by Tirso de Molina in the 17th century and made internationally famous by Lord Byron, Don Juan Tenorio is today considered a master or charm and the archetype of the heartless and remorseless Spanish seducer.

Developers at Don Juan Phases II and III, Arrohabitatge S.A., have, conversely, managed to master no charm but all the wrong arts of client relationship management and enraged, only in our office, 20 or so of our clients, 3 lawyers, 4 paralegals and 1 secretary, all the while showing no heart nor remorse.

The latest episode, or I would say three, can be succinctly explained:

1. British client visits the offices of Arrohabitatge and the developer convinces him to sign a letter, in Spanish, where he undertakes to close on their sale before the 1st of September 2009. As the second purchaser on the contract (wife of the signatory) is not present, the developer introduces the name of a lawyer of our firm and confirms his representation on behalf of her, of course without him even knowing his name is being used. No mention is made to licenses and to the fact that these clients already cancelled their contract and attempted to enforce their bank guarantee to recover their deposit.
2. Roberto, a Spanish lawyer originally from Argentina representing approximately ten clients at Don Juan, sends a strong letter to the developer in respect of a legal issue. Ana, a female Doberman employed by the developer, picks the phone up and asks Roberto if he is at all familiar with the laws of Spain and questions his qualifications while reminding him that “we’re not in Argentine you know, so change the tone and content of your faxes”.
3. Javier, another lawyer working with us attends completion of a sale at the Notary Office. The development director turns up and finds the branch manager of Caixa Galicia, the savings bank in charge of guaranteeing the buyers’ down payments and who incidentally had accepted the execution of a few of them. She confronts him and censures his decision to pay back deposits, and without prior notice starts screaming at him.

The above is an example of what we have gone through in the last four years although this is, by far, not over. It has now been discovered that there is a criminal court case going on against a Town Hall official for allegedly granting a construction license in exchange for a favour, and yet the license of habitation has now been granted (4 August 2009) although one year after when it should have been issued.

Our clients hearts’, understandably, are no longer with the development and want to pull out of what they once considered a dream. A dream shattered by delays, court cases with the Town Hall and the Railway Company and, not the least, by an appalling treatment by Arrohabitatge.

Antonio Flores Litigation, Property Arrohabitatge, bank guarantees, Don Juan, Don Juan Phase II, Don Juan Phase III