Have You Lost a Spanish Property Deposit? You May Still Get it Back


Certain European regions have always represented lucrative real estate investment opportunities. This was particularly the case in regards to southern Spain. Thanks to a balmy climate and comparatively inexpensive costs, thousands of Britons decided to purchase properties here. However, this region was not without its own share of risks. Speculative development, questionable lending standards and the global credit crunch soon took their toll. Between 2000 and 2009, no fewer than five million houses had been built throughout the country. These were added to the total aggregate number of 20 million; an increase of no less than 25 per cent. With every boom comes a bust and inevitably, the market crashed.

Immediate Effects

As credit started to dry up, developers began to experience a profound cash flow problem. Some made excuses to their customers or delayed projects for months on end. Other were even forced to abandon ventures entirely; leaving many investors in a financial vacuum. Since the crisis, countless insolvency hearings have taken place and some are still being addressed to this present day. The end result is that many would-be property owners are left wondering whether or not they will ever see their funds materialize.

Initial Proceedings

Not all buyers were willing to sit back and wait. One case involved an investor who deposited €39,000 euros into a project in Alicante (southern Spain) in 2004. However, it would take three additional years before the construction finally commenced. Due to the financial crisis as well as other reasons, the development was never completed. The client then sued both the bank and the development company. This was actually quite extraordinary, for banks were rarely implicated in such litigations. Surprisingly, the case was initially successful before the ruling was overturned on appeal. It was deemed that the bank was not directly involved in the contractual agreement between the developer and investor and therefore, it could not be implicated in any lawsuit.

The Spanish Supreme Court Overrules Judgment

In what can only be called a landmark event, the case was taken up by the Spanish Supreme Court. This governing body subsequently found that the bank was indeed liable for the initial money deposited. Citing a law dating back to 1968, it stated that the banks had an obligation to place any invested funds into an earmarked account to make certain that they would be utilized only towards the completion of a development project. As this article highlights, the ruling went further to state that the banks also needed to make certain that there were mechanisms in place in the event that a developer went into liquidation or a project was unable to be completed.

The Issue of Guarantees

One of the sticking points that has confused many revolves around the type of guarantee (if any) that was attached to their initial investment. Although all legal property commitments are associated with some type of formal contract, some may not include a clause that guarantees that the investment will be refunded in the event of financial hardship. However, it must be noted that even if this was not present, the Spanish Supreme Court ruled in 2015 that banks had a “surveillance duty” to oversee such transactions and to ensure that the developer was complying with all fiscal (and legal) obligations. We should note here that although the initial law dating from 1968 was retracted in January 2016, the court has since stated that buyers still may have the opportunity to recuperate lost funds as well as the associated interest directly from the banks.

What Actions can be Taken?

Although conservative estimates place the number of foreign buyers who may have been impacted by this situation at 600,000, this figure may actually be much higher. So, what options do investors have if their money has apparently been “lost” due to a breach in contract or construction that was never completed?

According to by-law 1.964 within the Spanish Civil Code, property investors have a time frame of 15 years to begin legal proceedings. It should also be stated here that there is no longer a need to involve the developer in question. The courts have ruled that the associated bank is equally liable for any such breach. Thus, some are projecting that these legal opportunities could help countless thousands of would-be property owners.

Similar cases have already shown that financial institutions are far more willing to settle a dispute out of court as opposed to endure lengthy (and costly) legal proceedings. It could therefore be a good idea to investigate this matter further if you feel that you have been a victim of such real estate development pitfalls.