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The Spanish Lawyer Online

Antonio Flores’ Blog

Thoughts about laws and regulations which affect foreigners in Spain


Posts Tagged ‘spanish developers’

Defaulting Spanish Developers to Prove Destination of Deposits, Or Else!

December 20th, 2010

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”.

Two and a Halve Years Sentence for a Developer in Tarragona

Tarragona Provincial Court ruling of the 5-5-2010 – Perpetration of criminal action consisting on:  Using the funds and not developing the project. In this case, the developer took €24,000 from a buyer for the purpose of building a property and signed an off-plan private purchase contract. In this instance, the accused, with debts elsewhere, used the funds to settle these and did not build the unit. It is highlighted by the courts that the developer was almost fully aware that he could have not received the license since he did not submitted certain documents, which he completely ignored. This developer had boasted being a reputable developer in the area, and, on this premise, the buyer entrusted him with carrying out the agreed job. I cannot but add here that in the Ocean View Property scandal, Ricardo Miranda had boasted to the press, to gullible Monaco Prince Albert and to ever-smiling  President of Dominican Republic, Lionel Fernandez, that 6,000 built units by his “group of companies” preceded him. So either his group of companies encompass Ocean View Properties (who never built but simply acted as unscrupulous agents for several developments -by loading up prices dramatically) or we are going to have to get archaeological experts to dig out those units, most probably built in Phoenician times.

The Tarragona Provincial Audience highlights that the developer had also created an artifice to lure the buyer into buying, and had offered a bank guarantee to cover the down payment (which was never seen).

Three Years and Two Months Sentence for a Developer in Albacete

Albacete Provincial Court ruling of the 1-7-2009 The Court does a simple mathematical calculation: if when the construction was stopped the developer had only built 43% of his budget (€1,680,000, with a further €2,259,000 to complete the job), had received €3,200,000 from the bank, €980,000 from buyers, having himself put down €2,200,000 (part of which he got back), and after having paid the agents (€240,000) and architects (€80,000), they conclude that there are €580,000 missing

6 Years and 6 Months Imprisonment for Developer

Supreme Court ruling of the 23-12-2006: Perpetration of criminal action consisting on: Using the funds improperly and not for the destination agreed upon on a property development contract.

8 Years Imprisonment for Misappropriation, Swindle and Embezzlement of Funds

Supreme Court ruling of the 22-10-2008: In this case the developer was in the process of obtaining ownership of a plot of land by means of a swap contract, and whilst this was being processed, he started an aggressive campaign of promotion, as a result of which numerous people that wanted to acquire a property contacted the developer, agreed on the terms of a private purchase contract and paid an upfront sum. It is highlighted that these sums were not paid into a special account opened with the bank nor was an insurance policy issued to protect these down payments (in this instance, the developer argued that he could not get a mortgage for the plot in favour of the guarantor, and therefore the statutory obligation to insure third parties’ funds was not fulfilled).

The court found, when sentencing, that the developer did not pay the funds into the special account he was obliged to, in lieu of the 57/1968 Act, and used these funds to pay architects fees, construction costs, license fees, but also salaries and commissions, publicity and promotional issues which were NOT directly related to the construction and which should have been paid by his own pocket. As the developer could not finalize the construction he is deemed to have misappropriated the funds.

In this ruling, the sentencing court establishes that of the funds received (approximately €2 million), 36% have been used for the purpose of buying the plot and the construction whilst 46% have been used for, fundamentally, promotional costs.

One Year Imprisonment for Misappropriation  Reduced  After Refund

Supreme Court ruling of the 27-11-1998: This is probable one of the most relevant ruling in that, not offering the buyers bank guarantees nor insurance policies is deemed as a pivotal evidentiary element within the misappropriation, since the developer had received not only funds from buyers but also funds from the bank, all of which exceeded notoriously the cost of the construction, and therefore misappropriation is likely to have occurred.

In this instance the Supreme Court rules that it is notorious that the developers loan drawdowns were guaranteed by a mortgage, and therefore the pecuniary damage to the individual buyers is complete since not only they receive a property, nor can they seize the assets (since it is already mortgaged), nor is there an obligatory bank guarantee offered to protect the buyers, as the law prescribes.

The court determines that where a developer decides to start a project and received funds upfront, it is not mandatory for these to be blocked in a special account. However, it is essential that these funds are used, exclusively, for the use they were intended to, with the required proof of such use, all the while being protected by a bank guarantee. If this does not happen, the court determines that IF a definitive refusal to refund down payments where the property is not finished occurs, in detriment of the buyers, and NO bank guarantees are available to protect these, such omission to protect the buyers allows the court to conclude that the funds were used with a clear intention of not refunding these, in in a definite manner, and therefore intent to defraud encompasses not providing the said guarantees.

The court concludes that the title by which the funds were received includes an obligation to refund, by normative imposition, in the event that the works do not reach a satisfactory conclusion, and therefore deems illicit the use of the funds without ensuring that these are insured or guaranteed.

Litigation, Property, Scams , , , , ,

Judge Sentences Spanish Bank to Refund a Purchaser Without Bank Guarantee

October 9th, 2010

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”).


Litigation, Property , , , , ,

Failing to Give a Bank Guarantee Lands Property Developer in Jail

June 8th, 2010

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.

Litigation, Mortgages, Property , , , ,

CajaSur Refuses to Grant Apartment Prize to Winner of Property Draw

June 30th, 2009

arenal-golfCajaSur, 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).

Litigation, Property , , , ,

You Have a Strong Case… NOT!

October 1st, 2008

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!

Litigation, Property , , , , , ,