Unfortunately, these days, this is not an uncommon problem. What happens when the Spanish builder goes bankrupt can vary considerably depending upon whether the builder has arranged a bank guarantee or contracted an insurance policy to protect the stage payments already made by the purchaser.
The situation is more positive if these safeguards are in place but, unfortunately, they do not offer complete protection against the bankrupt Spanish builder. Clauses, conditions and time limits can often impede the process of refunding the amounts guaranteed.
If the bank guarantee or insurance policy do not exist, the situation is far more complex and there is simply no other option but to defend the purchaser’s rights in the legal Spanish bankruptcy proceedings, known in Spain as the concurso de acreedores, which means “list of creditors”. In these circumstances we recommend that you appoint an experienced solicitor.
Below are some general recommendations. However, every case is different and you should take legal advice:
- Stage payments must be continued to be made to the builder according to the dates stipulated in the purchase contract. Failure to do this will result in a breach of contract and legally this would absolve any right to claim against the builder for his breach of contract in not delivering the property. In the eyes of the law two wrongs to do not make a right.
- Notify the bankruptcy administrator that the purchaser wishes to be listed as a creditor of the builder. Although technically at this stage this is not the case, it is far better to be recognized as a possible creditor and placed higher on the creditor’s list.
There are different actions you should take, depending on what you want the outcome to be. You can only recuperate the payments and close the contract if the property is not started or completed on time or if the builder publicly declares that he is not going to build at all. Bankruptcy does not equate to breach of contract. Taking this into consideration the purchaser must rely on the good will of the builder to obtain a refund and if this does not happen a lawsuit must be brought against the builder in the mercantile court dealing with the bankruptcy. There are certain rights that creditors can evoke such as taking action against the building company’s directors, or voting for or against agreement proposals.
If you have paid the total cost of the property you might prefer that it is completed and that you take possession of it. Usually the builder has mortgaged the property in order to obtain funds to build it and this situation results in the purchaser having to wait for an agreement to be reached between the builder and the lending bank. If the property is not mortgaged and it is free of debts and charges, again the purchaser has to rely on the goodwill of the builder to proceed with the signing of the deed. Without this, litigation must take place.
If the appointed bankruptcy administrators believe that the builder cannot comply with his obligations the building company might be put into liquidation. Otherwise an agreement must be reached with creditors accepting reduced or postponed refunds to help the builder comply.
Bankruptcy must be dealt with calmly. By taking steps at the appropriate time, with professional guidance it is possible to recuperate part, or even all, of the purchaser’s funds or take possession of the completed property. It takes time and patience.