Getting deposit back from developers with no bank guarantee

We purchased an off plan property in Spain, at Fortuna Golf in Murcia, through X (now in administration), which was due to have completed March 2008. The developers are Y who have now stopped work on the site and therefore we believe they are in breach of the contract.

Our deposit was 30% of the purchase price of 148,325 euros, firstly 3000 then the main part 44,612.33 plus legal costs. We are paying 5.49% interest of around £125 per month (roughly £30k) since 1 June 2007, as we released equity in our residential property to fund it through a drawdown mortgage.

There are several complications.

Firstly, the developer failed to provide our spanish solicitors A, with the required Bank Guarantees, despite persistent requests on their part (apparently). Some investors may have these, others not (we think we have no B.G. and are trying to confirm that situation with solicitors A).

Secondly, the developer is in severe financial crisis (apparently) and may not have funds to return deposits (so is litigation a useless expense on our part especially if we do not have the legal B.G., which is our right to have received from the developer).

Thirdly, a newly formed child of Property services X, is trying to help investors of Y developments in offering a 'flip' property alternatives. Although these supposedly include a discount equivalent to our deposit with the developers, these are around 20 euros more expensive, which we are unable to find for above the budgeted completion costs.

Can you give me a call to discuss (i) in what ways you can advise us, e.g. regarding our chances wrt spanish property law, and (ii) what your charges would be for litigation and how long you believe the process would take. (You very useful article on Bank Guarantees suggested an Executive order for judges ruling would be only a few months to litigate, is this possible, we were told it could take 2-3 years!)

With best regards
Jay

P.S. I also submitted this with named parties through your contact us form.

Dear Sir/Madam,

Many queries.-

Firstly, the developer failed to provide our spanish solicitors A, with the required Bank Guarantees, despite persistent requests on their part (apparently). Some investors may have these, others not (we think we have no B.G. and are trying to confirm that situation with solicitors A).

If you have no Spanish Bank Guarantees then it's rather unfortunate as they act as a financial safety net should the developer file for bankruptcy.

Secondly, the developer is in severe financial crisis (apparently) and may not have funds to return deposits (so is litigation a useless expense on our part especially if we do not have the legal B.G., which is our right to have received from the developer).

Normally we only recommend to litigate if the developer has enough assets so as to place a charge against them, if needed be, as not in all cases it is necessary of course as its only a precautionary measure. Please read both of our articles on the matter.-

Is Litigation Against Spanish Developers Worthwhile? - 23 May 2008

10 Reasons Why Your Case Against a Spanish Developer May be Thrown Out of Court - 30 Sep 2008

Thirdly, a newly formed child of Property services X, is trying to help investors of Y developments in offering a 'flip' property alternatives. Although these supposedly include a discount equivalent to our deposit with the developers, these are around 20 euros more expensive, which we are unable to find for above the budgeted completion costs.

20 euros more expensive? You mean 20,000€? On you swapping to a new contract you forfeit your rights to claim compensation because it's as if the legal relationship started anew; so all those years you have been waiting will not be factored in

Can you give me a call to discuss (i) in what ways you can advise us, e.g. regarding our chances wrt spanish property law, and (ii) what your charges would be for litigation and how long you believe the process would take. (You very useful article on Bank Guarantees suggested an Executive order for judges ruling would be only a few months to litigate, is this possible, we were told it could take 2-3 years!)

Thank you for your kind words! We appreciate it.

Regarding following an Executive Procedure you are unable to as you were not provided with a Bank Guarantee in the first place. A Bank Guarantee is an executive onto itself.

Bottom line: No BG, no Summary Execution Procedure.

The only option availabe for you would be an Ordinary procedure, 2-3 and half years of litigation. Let us know if you are interested in pursuing it.

Thank you so much for your detailed response. It doesn't look too optimistic without the bank guarantee. A couple of points ...

- the developer has plenty of good assets (many properties are completed and in fact we were considering flipping to an alternative of theirs which is key ready

- the value of properties has gone down, so if we did the above, it looks like we are purchasing well about market value based on our previous property purchase price.

How can we walk away without losing £30,000 deposit?

Thank you so much for your detailed response.

You're welcome.

It doesn't look too optimistic without the bank guarantee. A couple of points ...

- the developer has plenty of good assets (many properties are completed and in fact we were considering flipping to an alternative of theirs which is key ready

One thing is a developer facing financial difficulties and another different thing is a developer without assets.

On the former depending on the case we would advice to litigate as there are assets available. On the latter we would turn down litigation and recommend you swap over whilst they are still trading. The property you swap over to must be key-ready and must have a Licence of First Occupation, otherwise you'll be caught in a catch-22.

- the value of properties has gone down, so if we did the above, it looks like we are purchasing well about market value based on our previous property purchase price.

How can we walk away without losing £30,000 deposit?


Buying off plan has huge rewards but also its hazzards.

If a developer is cash-strapped you are only going to be refunded normally by means of litigation.