Recently, some of the country´s biggest developers have collapsed leaving behind them billions of Euros of debt. Not only the banks and trade creditors are affected but all these problems have hit prospective purchaser´s hard, both emotionally and in their pockets. If you discover that the builders of your dream home in the sun have declared themselves bankrupt or gone into administration what can you do about it?

First, always keep a close eye on the progress of construction. If you suspect the builder is getting into difficulties take independent legal advice immediately. Under Spanish Law a builder selling property “off plan” must provide an “aval bancario”, a bank guarantee to protect all money paid by the buyer until completion can take place, or an insurance policy with the same effect. The guarantee document, or insurance policy must be named in the documentation provided to the buyer. You should receive a copy of the guarantee or extract of the insurance policy at every staged payment.

The precise terms under which you can exercise your rights will depend on the wording of your contract and either the guarantee or insurance policy. If your builder declares itself bankrupt – “quiebra” -or goes into administration – “suspension de pagos” - it is vital that that you take immediate legal advice so as not to lose your right to claim under the builder´s guarantee or insurance policy.

Bankruptcies and Administrations are registered in the provincial Registro Mercantil (commercial registry) and also in the central registry maintained in Madrid and are announced in the daily bulletin published by the registry. If there is no bank guarantee or insurance policy or if you have missed the deadline for claiming under them then you will have to file a claim for any money paid by you in advance with the “Administrador” in the bankruptcy or administration. You will need a lawyer to fill out and sign the claim forms and submit all the documents. There are strict deadlines for the submission of these claims. In the absence of a bank guarantee or an insurance policy the success or failure of your claim in a bankruptcy or administration will depend on the state of the builder´s finances, and how many other creditors there are. If the builder´s finances are reasonable and the creditors can agree a rescue package, then you may recover some, if not all of the money paid and in some situations even get your property finished. If you are or think you may be in this situation it is vital that you take immediate independent legal advice to protect your interest before it is too late.

By Michael Olmer  Solicitor • Link Point Legal and Business Services
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