Valencia bank is made liable for off-plan development purchase gone wrong

September 11th 2019: The Valencia Appeal Court has ruled that a bank be made liable for the fraudulent acts of a developer against a buyer. 

The buyer purchased an off-plan property with good intention from the developer and made initial payments amounting to 126,221.64 €.

However the purchase was never completed and the developer’s bank refused to acknowledge that payments were made in order to reduce the developer’s mortgage on the unit, which the buyer understood he was purchasing. It was found that the developer used the client’s money for other purposes. 

During a property purchase, a buyer is normally protected under the Law 57/68. However, the guarantees which fall under this decree were never provided to the buyer on this occasion, and although he has been occupying the property since 2012, he is considered an illegal occupant and does not have owner status, despite having paid 126.221,64€ for the property. 

Since the outset the buyer had experienced problems with claiming ownership on the property:

  • He was not able to complete on the property before a Notary and transfer the mortgage title, because their off-plan amounts had not been used to pay off the outstanding development mortgage
  • Subsequently, he was unable to get the property registered in the Land Registry in his name
  • Because the off-plan payments had not been used correctly, the bank enforced the developer’s mortgage loan and auctioned the property to a third party. The buyer – as the possessor of the property, claimed the nullity of the enforcement and subsequent auction, however, his plea was denied.
  • The property was subsequently allocated to a third party. A judge then ruled not to evict the buyer and allowed him to retain rights as ‘possessor’ of the property.
  • Social Security embargoed the property for debts of the developer and the buyer has now had to oppose those embargoes as ‘possessor’. 
  • There is an ongoing criminal prosecution against the developer for misappropriation and fraud.

On September 11th a Valencia Court ruled that the Bank, which received the original purchase amounts, should be made liable to refund this money to the buyer.

There is evidence which suggests that the Bank knew that it was receiving off-plan money in its accounts and did nothing to protect the buyer, allowing the developer to use the funds for other costs, rather than to pay off the development mortgage.

These facts and others have made the Judge rule that the bank is liable for those amounts and criticised them for the lack of control shown in this case.

The case clearly shows that the Bank was fully aware of the particulars of the developer and development since it was financing the works.

It then became obstructive when asked to present the development accounts to the Courts.

This ruling is good news for buyers who have experienced problems with off-plan purchases.

For full details (in Spanish) see the PDF below:11-09-2019-Valencia-Court-Ruling

Please get in touch with us at Costa de la Luz Lawyers if you are having problems with an off-plan property purchase. We’re here to help. Call us today for a free consultation.

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