This is a website for buyers, owners, and sellers of property in Spain, offering reliable information and resources to help you get things done with confidence. It is run by Mark Stücklin, author of the Spanish Property Doctor Column in The Sunday Times (2005-2008), and the book ‘Need to Know: Buying Property in Spain’ published by Collins.
Mark StücklinSome Spanish banks and insurance companies are breaching consumer protection laws by stalling, or refusing to honour guarantees for off-plan stage payments, reports the Spanish daily ‘El Pais’.
Bank guarantees are meant to protect the money of people who buy off plan or under construction, and are required by law. If the developer goes bust, or breaches contract by, for example, missing the delivery deadline, buyers can claim back their money, with legal interest of around 6%, from the financial institution underwriting the guarantee.
But, as the Spanish property market unravels, an increasing number of off-plan property buyers are complaining that banks are refusing to honour their guarantees, reports El Pais.
Many are also finding that they were never provided with a guarantee in the first place, in blatant disregard of consumer protection laws. It has even emerged that Martinsa-Fadesa, one of Spain’s largest listed developers, which recently went into administration, failed to provide bank guarantees for many of its clients.
During the Spanish property boom, when prices were rising strongly, bank guarantees were hardly an issue, as most buyers preferred to hang on for their property, rather than get their money back via the guarantee. Few developers were going bust back then.
BOOM TURNS TO BUST
But now that the Spanish property boom has turned to bust, leading to expectations of falling prices, most buyers would rather get their money back, and the list of developers going to the wall gets longer by the week.
“During the boom, developers were delighted if clients backed out and claimed on their bank guarantees,” a consumer association told El Pais. “Developers had buyers queuing up, so they could easily sell the property again for more money. Clients put up with long delays, and it was normal to allow a grace period of 3 months. Now it is all different.”
Consumer organisations and buyers have complained to the Bank of Spain, which claims it has never received this type of complaint before. The Bank of Spain is preparing a report, for release in September, expected to criticise the practices of certain banks. “We are still looking into some cases, but the conclusion is that some banks have not behaved diligently,” a source from the Bank of Spain told El Pais.
As one unhappy buyer explained to El Pais, the problem is that many developers now don’t have money to pay their builders, and so many buyers are demanding their money back at the same time.
The Bank of Spain is adamant that the financial institutions underwriting the guarantees must pay out in full if developers are in breach of contract. “The financial institution has to ask the developer if there has been any breach of contract, for example a late delivery. If so, the payout should be automatic,” the Bank explained to El Pais.
In practise, and increasing number of people are finding that this is not happening.
“The latest thing I’ve been told by the bank is that the developer is their client, not me,” one frustrated buyer told the paper.
And clients of Martinsa-Fadesa, or at least those lucky enough to have a valid guarantee, are finding that banks are using the company’s status under administration as an excuse to delay paying out. This is not a valid excuse, according to Fernando Herrero, VP of the Adicae association of bank users. “The law is clear. If the conditions of the guarantee are satisfied, execution is obligatory, regardless of the situation of the developer.”
So an increasing number of off-plan investors in Spanish property are finding they have nothing to show for their deposits and off-plan stage payments, and the bank guarantees they were given are not worth the paper they are printed on.
Ianm says:
Very good article. But what happens if your contract doesn’t have a start or completion date and the development is nearly two years late. Do you still have grounds to claim back your bank guarantee?
Spanish Property News says:
That’s tricky. How do you argue it is 2 years late when there is no completion date? You will need a good lawyer on this one. You might be able to argue that the contract has what they call ‘abusive clauses’ by virtue of not stating deadlines, but I wouldn’t place much hope in that. Let’s face it, even people with strong contracts and explicit deadlines are having trouble getting their money back, which is the main point of the article. Financial institutions are trying to wriggle out of paying up, knowing full well that the poor buyers will think twice before embarking on long and costly legal action with no certain outcome. That’s Spain. Best of luck.
christine says:
completion date on our contract was for Nov 2007 the building work NEVER started!. We have 2 bank guarantee with Cajamurcia Bank for £30,000 and have been told they have expired! NO EXPIRY DATE shows on the guarantees – we visited the bank 23 june 2008 told all OK! then 30 June 2008 told our bank guarantees had expired because the builders DID NOT take their mortgage out with the bank. We are being told the bank guarantees are only PROVISIONAL has anyone heard of such a thing? please email with any information. thankyou
nigel says:
We were told that a bank guarentee wasn´t needed. Now the builder has stopped paying his mortgage and the bank have told us we will need to pay it or they will reposses our houses which we have lived in for over 2 years.
I have asked the bank to reduce my payments so that I only the pay the interest but they have refused. How do I go about making a complaint against the bank against regarding this situation?