Antonio Flores’ Blog

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.

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

CajaSur, through it’s affiliate Prienesur, has decided not to grant the prize to the winner of the Arenal Golf apartment lottery. The winners, a British couple currently living in Antequera, have decided to hire lawyers to sue the company for refusing to honour the lottery draw result.

The draw was envisaged between Andalucian Dream Homes (ADH) and Prienesur among property purchasers and was signed in the presence of a Marbella notary public. Months after the draw, the winners tried to force ADH and Prienesur to deliver the apartment but was told that talks to agree on the procedure were under way and consequently had to wait.

Three years later, talks seem to still be underway as nothing has moved forward. ADH owners have affirmed, on many occasions, that they will pay Prienesur 50% of the value of the apartment as soon as the developer transfers ownership to the legitimate winners. Prienesur, on the contrary, remain suspiciously silent.

After being instructed by the buyers to enforce the lottery draw result, we decided to telephone Mr. Dugo, manager in charge of developments, to seek his opinion. His answer was plain but shocking: “this matter is not among my priorities at this time but will look into it”.

From a legal viewpoint it is clear that both companies are liable to deliver the prize but only Prienesur actually owns it and so a legal suit will have to be directed against them, without prejudicing their right of recourse against ADH (who in spite of being under administration, apparently still wish to comply with their part of the deal).

aflores Litigation, Property Andalucian Dream Homes, Arenal Golf, Prienesur, spanish developer, spanish developers

More often than is desirable some of my colleagues tend to overindulge in optimism when providing a legal opinion on a soon-to-be litigation matter. You can often hear and read on online forums the words “You have a strong case!“. This sort of a ‘closer’ phrase when selling services can bring about nasty surprises, especially if the judge thinks otherwise.

So I tend not to use this language when dealing with my clients, and will, on the contrary, give them a more elaborate opinion which will invariably include playing the devil’s advocate and exclude encouraging clients to file a case. Let’s not forget that the opposing party will also be assisted by expert legal advice who knows the law, case law and how certain judges perceive different types of disputes.

In my opinion any lawyer needs to be very frank and open about the possibilities of obtaining a favourable ruling and should provide a per cent ratio of success, which even in the most blatantly clear case should not exceed 75% (so run away from the 95% success rate claims, and do it quickly!).

Litigation is a double-edged sword that can turn out to be very expensive for our clients, especially if a case is lost and therefore we (lawyers) should contemplate all -legally- available options prior to dragging our clients into courtroom, with their best interests as the main motivation and the legal fee bill as the last!

aflores Litigation, Property ambulance chasers, litigation against spanish developers, spanish developer, spanish developers, spanish development, spanish property developer, spanish property developers