UTF Law Firm | Urban Thier Federer, P.A.

Call Us Internally: 001 888-799-7037

Outside of the US: 001 212-257-0898

Spanish Law 57/68 Bank Guarantees Provide Investors the Right to Recover Their Deposits

by | Jul 29, 2017 | Business, Business and Commercial Law, Firm News |

Spanish Law 57/68 Bank Guarantees Provide Investors Who Paid Deposits in Failed and Untimely Completed Spanish Property Developments the Right to Recover Their Deposits

By John L. Urban, Shareholder Urban Thier & Federer, P.A. (“UTFPA”)

A Fresh Look at Spanish Law 57/68:

For well over half a century, the Spanish real estate market, and especially the Spanish off-plan/preconstruction real estate investment market, has regularly cycled through boom and bust phases. Some of these busts were caused by unscrupulous Spanish real property developers who would start a development and then take the investors’ purchase deposits and disappear. Other times, well-intentioned developers would burn through the investors’ deposits and find that they were unable to secure sufficient financing to complete the development. Regardless of how the deposit funds disappeared, the development was left incomplete and the investors were left without their money and without their contracted for property.

In 1968, in order to encourage foreign real property investment in Spain, the Spanish legislature passed Law 57/68, which places the liability on the Spanish banks in cases where developers disappear with investors’ deposit funds or where developments are otherwise not timely completed. The rationale for the law was that the Spanish banks, holding the investors’ deposit funds, were in the best position to monitor the developer and ensure that funds were not released without assurances that the developer would complete the development.

Unfortunately, for most of its history, Spanish Law 57/68 was not very effective in protecting investors because the Spanish banks’ attorneys were able to limit its application and the Spanish courts routinely ruled in favor of the Spanish banks and against foreign investors. Spanish Law 57/68 first became truly effective in protecting foreign investors in the 2011-2014 timeframe as a result of a number of Spanish Supreme Court decisions that overturned pro-bank Spanish trial court decisions and ruled in favor of investors.

Regardless of whether or not the investor was actually issued a “Bank Guarantee” document, Spanish Law 57/68 effectively makes the Spanish bank receiving deposit funds the guarantor of such funds when they are paid towards the purchase of an off-plan/preconstruction property.  This includes the initial deposit that serves as a reservation deposit which takes the property or unit off the market. It also includes all subsequent deposit payments related to the unit.

The Bank Guarantee is triggered if the property is not completed or delivered to the investor on time or if the developer becomes insolvent or files for bankruptcy protection.

Although Bank Guarantee documents may provide strict time limits or conditions to their enforceability, Spanish Law 57/68, article 4, takes priority over such purported bank imposed limitations.  Spanish Law 57/68, article 4, expressly provides that the Bank Guarantee stays in effect until such time as:

  1. the developer secures a License of First Occupation (LFO) for the property development which contains the unit (which is issued by the local Spanish government planning department) and
  2. the developer is ready, willing and able to deliver the contracted for unit to the investor.

Accordingly, if the developer becomes insolvent or fails to timely complete the development, the Bank Guarantee remains in effect and enforceable. However, under Spanish law, there are time bars which ultimately bar any legal action, including a Spanish Law 57/68 action.  The absolute “long stop” time bar, or statute of limitations of actions, is 15 years or less, and may be case specific.

The Spanish banks and their attorneys are still aggressively fighting against any effort to enforce the Spanish Law 57/68 Bank Guarantees.  Many foreign investors are confused and frustrated by the vast amount of often conflicting information available on the internet and from other sources, including from other attorneys. There are also many true cases of foreign investors paying large hourly fees and large retainers to Spanish attorneys and waiting many years only to lose their case due to incompetent representation, leaving them without their deposit funds, without the 1000s or 10,0000s of Euros paid to their Spanish attorney and possibly facing a cost award against them as the losing party and in favor of the Spanish bank.

In order to serve United States based, and other foreign investors who paid deposits in connection with real estate investments in Spain for developments that were never completed, or not timely completed, UTFPA is part of a team that it truly believes is made up of the best of the best. This includes a claims company that specializes in screening clients, compiling the necessary documents and working with the Spanish attorneys to put forth the strongest case possible.  It also includes a team of Spanish and United States attorneys that have won every single deposit return or Spanish Law 57/68 case that they have ever litigated to conclusion.

Our team’s track record speaks for itself – every Spanish Law 57/68 case brought to conclusion has resulted in a victory – a Spanish court judgment awarding the full deposit paid plus interest.  In all but one of these cases (which case involved multiple properties and multiple bank transfers of the deposit funds), the cases were won without the client ever having to travel to Spain.

If you wish to pursue a Spanish Law 57/68 claim, PLEASE LET US KNOW AS SOON AS POSSIBLE by completing the “Contact Us” form. For those who do, we will immediately have the UTFPA team screen your claim and, if determined eligible, move it forward.  Your agreement will be with the claims company, which will further review all documentation to determine your eligibility.

If determined eligible, the Spanish lawyers will be tasked via a limited power of attorney issued by you to proceed in enforcing your legal rights in Spain via the Spanish courts.

Please include your email address and your full name in the subject line of your communications with UTFPA.

Please feel free to share this information with others who may be eligible for recovery.  We encourage you to become informed of your rights and options. You should also ensure that any law firm or claims company you consult or retain to represent you has the experience, resources and ability to take your case through trial and appellate courts, if necessary.

by John L. Urban shareholder