Luis Cuervo is the CEO of Spanish Legal Reclaims, a legal advisory firm specialising in recovering money for clients in Spain, in particular from banks of developers who went bust with client money before delivering a finished home. In this Q&A he answers common questions about off-plan payments lost to bankrupt Spanish developers, and how to get your money back from the developer’s bank.
Why did so many off-plan investors lose money when boom turned to bust?
Because they made payments off-plan or under construction to property developers, most of whom went bust when the crisis started and were unable to finish building, and had no money left to refund client payments.
Weren’t off-plan payments supposed to be protected by law?
In theory, yes. Developers were supposed to arrange for off-plan payment protection from a bank or insurance company (few people got that), and these guarantees were sometimes mentioned in the purchase agreement. But in reality many clients did not get any effective guarantee as required by Spanish law.
Why did the consumer protection laws fail?
In those days nobody expected anything to go wrong, so everyone ignored them. Property developers didn’t fulfill their obligations to arrange and pay for off-plan payment protection, and buyers didn’t insist. Many lawyers failed to ensure guarantees were provided for their clients, in some cases due to lack of knowledge, sometimes due to lack of independence, and sometimes just plain unprofessionalism.
How many buyers from abroad lost all their off-plan payments in Spain?
It’s hard to be sure due to the lack of reliable, official data. By some estimates around 130,000 British citizens lost the money they paid off-plan, and another 100,000 people from other countries, all rough estimates of course.
What has now changed so off-plan investors who got burnt when boom turned to bust now have a realistic chance of getting their money back?
The Spanish Supreme Court, based in an old law that was little known even to Spanish lawyers, has declared that financial institutions who provided bank accounts into which property developers deposited client money should have known what the money was for and, in the caose of a property purchase, ensure the money was protected. Hardly any banks did that, so now the Spanish Supreme Court has declared three times (in other words, now a case of law) that banks have to reimburse off-plan investors the money lost to developers if a claim is made.
Who can claim back money lost to bankrupt developers?
Any private individual (or their heirs) who lost money in the form of off-plan deposits and stage payments for property in Spain. They had to be buying for personal reasons, so professional investors can’t claw back any money lost this way.
How long does the claims process take from start to finish?
Two years in the worst case, one year in the best.
Has anyone yet made a successful claim and recovered their money?
Many of our clients have already received a positive first ruling in court, but banks are appealing the decision in most cases, so we do not yet have definitive judgements forcing banks to pay up. So far only in five or six cases where the bank did not appeal have claimants already got their money back. As we work on a no-win no-fee basis with no upfront costs, our clients have nothing to lose.
Do you just get your money back, or do you also get compensation?
We also claim legal interest, which can add another 40% onto the claim value on average, and litigation costs, which could be another 15% on top.
Under what circumstances do you have no basis to make a claim?
If the delivery date in the private contract with the developer was before 2002 you can’t claim. Nor can you claim if the property was non-residential, for example an office or hotel. And as I’ve already mentioned, professional investors working through companies or funds can’t claim either.