Monthly Archives: October 2011

Ambulance-chasing in Altos de Alcaucin

October 30th, 2011

To our former clients it has come as a bit of a surprise that the Courts in Cordoba have all, invariably, ruled against them: the reason for their surprise? That they were told they had a strong case by a Fuengirola-based lawyer.

The developer for Altos de Alcaucin had finalized the construction on time and seemingly in accordance to the plans given to the buyers, and was hoping they would make arrangements to complete. Buyers on the contraty wanted to pull out as their hearts were no longer in this part of Spain. They sought legal advice from us and we said there was no case to be had. They then went to a see a lawyer that had the opposite opinion…

The contract in question stipulated that that in the event of the buyers failing to pay any of the instalments, as agreed to in the contract, they developer would be entitled to rescind the contract and return 80% of the sums received up to date, keeping 20% in concept of penalty. When our clients, due to the adverse economic climate, chose to invoke this stipulation to pull out, notwithstanding the developer’s complete fullfilment of their obligations, we advised that it was not in the essence or nature of such convention the right to pull out in case of convenience, but rather the developer’s prerrogative to do so, should he chose to.

Unfortunately for our clients they were herded away by the very unnatural legal thesis that this was a Get Out Clause and could enforce it. Far from it, 2 different Courts held that:

  • That the prerrogative to rescind the contract is only available to whoever meets their contractual obligations, and not to who defaults and invokes its own default.
  • That the penalty clause is a legal tool that serves one of two purposes: to coerce the party to the contract to fullfil the obligation he has entered into and to fix, in advance, the sum of damages caused by reason of default. According to the Court, the bursting housing bubble has prevented that such clause is used for one of the above two purposes and paved the way for it to be used incorrectly and unfairly: as a get out clause for buyers for whom the purchase is no longer a profitable venture.
  • That, having the Courts the right to modify the penalty clause by either reducing (when excessive) or increasing it (when notably small compared to the default in question), in the light of the circumstances, it is clear that the 20% penalty clause is clearly insufficient to cover the losses incurred by the buyer when defaulting, as it does not cover the real estate commission paid to the intermediary, bank interest and the loss of value sustained by the property (the Judge puts it at 15%, according to the Ministry of Housing).

Luckily for them the developer counter-sued to retain the full deposit, and not to force the buyers to fullfil the contract. Unluckily, there are costs incurred in that the developer could chase them for.

 

Equity victims fight back

October 3rd, 2011
Story by Mireille Toddington | Coastrider

EUAN_ARMSTRONG_450An expat is taking Denmark’s biggest bank to court after it persuaded him to use his Spanish property as collateral in an equity release scheme – and cost him his home. Scot Euan Armstrong, 73, is fighting every step of the way after the scheme left him almost penniless with the bank trying to force him to sell his two million euro home to pay off debts.

The pensioner had joined the Danske Bank scheme after he was told it would provide him with a salary for life. The other incentive used was that the move would reduce any inheritance tax for his daughters, who were liable to pay Spain’s top rate of 34 per cent. Mr Armstrong claims that employees in the former Mijas office of the bank outlined a plan where Danske Bank was supposed to use €850,000 to invest in bonds, Swiss Francs and Euro with the ‘profits’ being used to pay off the mortgage. Meanwhile, a €150,000 lump sum would be given to him as part of the equity release deal. However things did not go to plan, and after the first year Mr Armstrong realised that the bank had actually lost him €18,000. Unfortunately, the losses did not stop there. Over the next five years, the scheme continued to lose money and in 2009 Mr Armstrong was told by an account manager in Luxembourg that he should sell his property and pay the bank back the €650,000 they had lost. When Mr Armstrong refused, Danske Bank issued a foreclosure on his house and also a repossession order through Coin court. This was due to take place in July of this year, fortunately, his lawyer stepped in and obtained a court ruling suspending the repossession. According to Antonio Flores of law firm Lawbird – which is also filing eight separate cases against various Nordic banks in a similar situation – it is actually illegal in Spain to indebt yourself in order to reduce your inheritance tax liability. Nonetheless, he estimates that hundreds of people fall victim to these schemes each year and cases in Spain currently span the Costa Blanca and the Costa del Sol. The lawyer believes that this type of product, peddled by unauthorised agents under the endorsement of supposedly reputable banks, is becoming more and more common and should be avoided by people at all costs.

Several clients of these banks, led by Euan Armstrong have now set up the Equity Release Victims Association (ERVA.es) to denounce these schemes with the appropriate Government offices, with the aim of attaining a decision ruling that these schemes are completely illegal. The official bodies contacted include: the Spanish Prosecution Service, the National Consumers Association, the Financial and Insurance regulators and the Ombudsman.

Mis-selling
The crux of ERVA´s argument is why would hundreds of Spanish-based pensioners with their life-time savings buried in their retirement home, re-mortgage it to invest the proceeds with a foreign bank? Surely the answer has to be that it is the result of gross mis-selling

Euan Armstrong said: “This is a highly toxic product devised, marketed and sold by mostly Scandinavian banks to financially conservative pensioners and owners of unencumbered homes. These schemes threaten to cripple their health and well-being as there is no visible end to the situation they find themselves in, save for forceful and decisive legal and administrative action. The uniqueness of these schemes is nothing more than an alleged tax defrauding proposition: that by encumbering a home with a mortgage and investing the proceeds in bonds, stocks or life assurance policies, the would-be inheritors could reduce the exposure to inheritance tax.”

The Spanish Directorate General for Tax has confirmed on numerous occasions since 1999, that Luxembourg-based life assurance policies are subject to Spanish wealth and inheritance tax – and so are not exempt from inheritance tax as promised by the rogue sellers. This is much more than just false or deceptive advertising, it’s illegal and has also failed to gain clearance from insurance and financial regulators. Equity release schemes represent a complete departure from good banking practices by offering highly complex financial products on unintelligible contracts to pensioners who as less experienced, knowledgeable and sophisticated investors should be afforded the highest level of protection. Instead these huge-profit making banks have been allowed to steal their money.