Spanish bank guarantee petition

Quite a while back I wrote an article on Spanish bank guarantees, how they work, etc… Unfortunately how so something theoretically is supposed to work does not always work in practice as I found out not too long ago when I came into contact with Ruth Genda.

Ruth put down a deposit on an off-plan property in Santa Maria Green Hills back in 2003 with completion set for the 1st of July 2005. As expected, a bank guarantee (Aval bancaria) was supplied, and if the completion date went beyond the stated completion date and time of grace, the buyer would be able to reclaim the deposit.

The development did complete, if slightly late, but still within a reasonable time frame. What was unexpected for Ruth and many others was that Santa Maria Green Hills would become a prime example of the planning scandal in Marbella, with no First Occupation Licence (LFO) having been granted, thus making the development illegal.

This should have made perfect grounds for the buyers in Santa Maria Greenhills to reclaim their deposits, which unfortunately was no the case as the bank did not honour the aval bancaria. This led a successful court case forcing the bank to pay, but on appeal the bank overturned the original ruling.

So in an attempt  to help Ruth and all others caught up in a similar situation please find the petition below, and a link to the sight where you can sign the petition. Please note there are only a few days left, so the sooner you sign the sooner you help these people find justice.

Andrew Bellés

Spanish Bank Guarantees dishonoured!

A Petition highlighting the worthlessness of Bank Guarantees when buying off-plan property in Spain is to be sent to the Governor of the Bank of Spain in January 2009.

A bank guarantee, known as an AVAL, is a legal requirement (Law 57/1968). It is designed to give would-be purchasers an insurance against losing their deposits and stage payments they have made if for any reason the developer is unable to complete the contract. These reasons could be late delivery, the build not as promised in the contract, an illegal build, or a build with no Licence of First Occupation issued by the Town Hall. The AVAL is a document drawn up and vetted by lawyers acting independently of each other representing the developer/vendor, the purchaser and the bank. One would think that between the three of them they would get the document right. Unfortunately not.

The Petition requests that the Governor takes action against banks refusing to honour guarantees by invoking the Banking Discipline Law. This allows the Bank of Spain to apply pressure and, in some cases, sanctions against banks who are not following the law to the letter. At the present time that means most banks. The Petition demands the return of monies paid.

Would-be purchasers are finding that, on taking the banks to court, they are not supported by Spanish law. The Spanish judicial system has let people down very badly and there is much anxiety and a feeling of helplessness amongst the many hundreds caught up in this disgraceful business. It should not be beyond the wit of Spanish lawyers to devise a standard AVAL, a template, which allows only names and dates to be inserted with every sentence in the body of the document legally sound and incorruptible.

Spanish bank guarantee petition

One Response to “Spanish bank guarantee petition”

  1. Andrew says:

    An update from Ruth

    My mail has just arrived. In it I have received a letter from Andrew Duff, the leader of the Liberal Democrat MEPs in the EP. He has been supporting our petition and wrote to the Governor on our behalf. Enclosed in his letter is the reply he received from the Secretary General of the BoS, Jose Antonio Alepuz. It reads:

    Dear Mr. Duff,

    I hereby acknowledge receipt of your letter dated March 5, 2009 urging favourable consideration on petitions submitted to Banco de Espana regarding the alleged failure of Spanish banks to honour bank guarantees (avales bancarios) granted in relation to real estate purchase agreements between construction companies and/or developers as sellers and UK citizens as purchasers. Please allow me to clarify a couple of points:

    Firstly, Banco de Espana has no supervisory power over construction companies, builders or developers. Its regulatory powers are limited to banks in order to ensure compliance with a set of rules and prudential regulations dealing with bank solvency and liquidity. Subsequently, it has no authority to enforce the law that regulates payments made to the builders during construction (Law 57/1968). Rules or agreements governing escrow accounts or bank guarantees, and related claims brought by bank customers, are outside the scope of our enabling statute and, therefore, any claim or dispute between the parties – including grantors – arising in connection with the enforcement of real estate purchase agreements, must be filed before the competent Court of Justice.

    Secondly, as regards the petitions mentioned in your letter, they have been always re-directed to Banco de Espana’s Complaints Service i.e. The Spanish equivalent of the UK’s Financial Ombudsman Service. So far, they have in fact received only three complaints filed by UK citizens in 2008. All of them were dismissed for breach of procedural rules (lack of previous claim before the relevant bank customer’s assistance department). Since the Complaints Service is not part of the Judiciary, its reports are not binding and rather vested with a sort of witness expert evidence effect. In spite of the non-binding effect, Spanish banks tend to proceed voluntarily in accordance with the report in most cases.

    I hope that the above clarifies the position of Banco de Espana and the role it can play in this matter.

Leave a Reply