2 Apr, 2012 @ 18:10
1 min read

The banks are to blame

COMMENT by Antonio Flores

WHAT do the following have in common?

An electrical company from Alicante, a cement subcontractor from Valencia, a real estate company from the Balearics, the Spanish Inland Revenue, the Spanish Social Security, six banks and 65 employees, and 150 consumers who were hoping to acquire Spanish off-plan property.

You guessed right: they are all registered with the courts, hoping to get some money back after the voluntary administration of a large Alicante property developer, San Jose Construcciones.

The above scenario, however normal it appears to be these days, hides a fundamental legal flaw that brings into question, once again, a system that has routinely failed to protect the ones deserving the utmost protection: consumers.

Such flaws can be inferred from the fact the first group of creditors are hoping to get paid with the monies of the second group – the buyers – who should have had their deposits bank-guaranteed or insured pursuant to a Franco time law, the 1968/57 Act, that was specifically enacted to avoid the situation they are now in.

In this case study, the irony (or irritation) is that BBVA, the second biggest Spanish bank, is queuing up to try to grab a chunk of the money it is supposed to have guaranteed in the first place.

This because it provided a collective bank guarantee to underwrite deposits on a 120-unit development – deposits on which it has already profited handsomely with the developer’s mortgage, as well as various commissions.

Crazily enough, this bank will only agree to ‘voluntarily’ comply with its mandatory obligation after some arm-twisting involving lawyers and legal action.

Another surprising aspect is that criminal case law states no developer can use consumers’ down payments for anything else but building the property, and this excludes real estate commissions, and staff salaries.

As there is not one brick on the plot, helping consumers get their deposits back should be a priority of any developer, particularly where many lawyers have found the criminal route renders results (many developers are serving prison terms for this) – and especially where the developer has broken the law so blatantly.

That said, ailing developers are probably too traumatised by what has happened and can only hope the market will recover one day (and that lawyers will not press too hard).

The real bad guys are the banks, shirking their legal and ethical responsibilities towards trusting buyers.

This must now come to an end, particularly where abundant bank guarantee case law is invariably favouring consumers, and banks are seemingly receiving unlimited funding from the Spanish state.


Eloise Horsfield

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  1. The situation with San Jose is repeated across Spain on many developments including Finca Parcs – “www.fincaparcsactiongroup.com”

    The Banks have failed to comply with their obligations according LEY 57/1968. Many banks are clearly guilty of gross negligence and a complete lack of professional due diligence. Some banks even colluded with the developers whom they financed and allowed purchasers funds to be used illegally.

    I am a victim of Bank Guarantee abuse on the abandoned Finca Parcs development.

    After paying my off-plan deposit in 2006 and not receiving the legally required Bank Guarantee I immediately thought the Banks had a liability according to LEY 57/1968.

    I suspected that in these situations, action solely against the developer would not result in the return of the deposit as most developers would asset strip or declare bankruptcy.

    However back in 2007 I found it difficult to find a Lawyer who agreed with my point of view.

    In 2008 I managed to find a Lawyer who began to share my view that the Banks had a liability according to LEY 57/1968. Consequently I instructed them to act for the Finca Parcs Action Group against the developer and funding Bank of the development – Banco CAM.

    In 2010 I launched the Bank Guarantees In Spain Website & Petition – “www.bankguaranteesinspain.com” As a result I have met with both the Spanish & British Governments to discuss the issue of Bank Guarantee Abuse.

    I have met with much resistance along the way – from Lawyers, Banks, Developers, Government Officials etc. However, slowly but surely the tide is turning in favour of the consumer/purchaser, whose rights granted by LEY 57/1968 are of an ‘inalienable character’. The rest as they say is history.

    I always believed that there was substance to my proposals and arguments!

    I am pleased that many other Lawyers have now followed this course of action and that there is Case Law to support the argument regarding the liability of the Banks under LEY 57/1968.

    I wish everyone success in their fight against the Banks for their failure to provide or to honour Bank Guarantees for Off-Plan developments in Spain.

  2. And in spite of the FACTS, the Junta de Andalucia puts on a “road show” that promotes to the UK buyers that: “purchasing new properties in Spain is safe, and a wonderful financial opportunity now that prices are low”. I foresee a legal case for Fraudulent Misrepresentation by those Junta INDIVIDUALS based on consumer losses

  3. I agree entirely with Keith as we are in the same position and have been fighting the bank and developer in courts since 2004 at great costs with no result as yet.

  4. I blame the whole real estate industry and the banks for over priced property’s. Here in the US it continues to be that way, even after this whole housing crash. Most agents and banks are still receiving large sums of money, that they share only with the top officers.

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