The following framework can protect buyers and owners

Summary:

• If the developer goes bankrupt during the construction of the home or apartment
• The following framework can protect property owners and buyers for the time being
• Insurance against insolvency and related defaults
• First signs of impending insolvency of the property developer
• What are the consequences for buyers and owners?
• Buyer in an uncertain position
• compensation against banks
• How can buyers and owners further protect themselves?
• opening of insolvency proceedings
• A special case and its consequences: Termination after insolvency of the property developer

If the developer goes bankrupt during the construction of the home or apartment

The advantage of buying a property from a developer is that you have everything from one source. Once the contract is signed, there is a guarantee that everything will run smoothly. But there is no such guarantee.
And even then, the advantage of getting everything from one source can quickly turn into a disadvantage. The property developer no longer appears and bankruptcy is announced shortly afterwards.

It is advisable to have the purchase contract reviewed by an independent legal advisor. A notarized purchase contract should contain clauses that exclude foreclosures on the property and ensure that the buyer is protected by a preliminary entry in the land register. This secures the claim to ownership.

The following framework can protect property owners and buyers for the time being.

A property developer and the contracts should therefore be legally checked in advance and independently by a legal advisor. This is because a (notarized) purchase contract should exclude the possibility of foreclosure of the property . The so-called preliminary notice of conveyance is the buyer's right to be later registered as the owner in the land register.

According to the insolvency law, an unfinished building is not included in the assets. The exclusion of compulsory enforcement in the notarized purchase contract should only allow for this possibility and contain a corresponding clause.

insurance against insolvency

A so-called insolvency insurance also protects against a forced sale of the building. In the event of insolvency, the insurer assumes the financial costs, including additional costs for the remaining completion of the construction project.

Such insolvency insurance provides additional security for the customer. As a buyer and future owner, ensuring that such insurance has been taken out can provide additional security. The construction company bears the costs.

First signs of impending insolvency of the property developer

• The developer requests several advances and installments that exceed the contractually agreed payment plan.
• There are construction stops or delays
• Subcontractors are not paid and lead to unrest and construction halts
• Material that has already been delivered will be picked up
• Check online in your state to see if there is an entry. https://neu.insolvenzbekanntmachungen.de/ap/suche.jsf
• Check online at www.insolvenzbekanntmachungen.de whether there is an insolvency entry.
• Subcontractors contact the builders directly to clarify financing for continuation
• The developer is suddenly no longer reachable or only difficult to reach

Consequences for buyers and owners

Buyers can hope that construction will continue under a new developer. However, the new developer is unlikely to be liable for the construction work of the insolvent predecessor. This often leads to higher costs and delays . In addition, the property loans remain in place even if construction is stopped.

However, not without financial consequences for owners:

This will most likely result in costs increasing significantly... Because new construction managers, materials and tradesmen have to be found. All of this involves additional time and financial expenditure. In addition, completion is delayed and other plans have to be postponed, which is not very pleasant for those affected from a professional or private perspective...

Buyer in an uncertain position

The process can take a long time and costs time and resources. It is an additional strain on the nerves, in addition to the everyday challenges. Additional costs, such as legal fees, etc. are to be expected. The status of the construction project must therefore be determined by a construction expert. If family members, friends or other investors are involved in the project, buyers also have to explain themselves and present a good concept.

compensation against banks

Regardless of the type of insurance, buyers should always check whether the credit institution that finances the construction project for the developer has not made itself liable for damages. The bank may be liable if it was subject to a conflict of interest or had an advantage in terms of knowledge regarding the financial situation . Despite the known liability risks of banks, it is still common for them to work institutionally with the developer.

How can buyers and owners further protect themselves?

Buyers and owners should have the developer's contract, the declaration of division and the construction and service description checked before signing the contract , paying particular attention to legal pitfalls and disadvantageous regulations to the detriment of the buyer .
In addition, insurance (see above) and other associated construction warranties and guarantees should be in place and also checked.
Ideally by experienced lawyers.
Particular attention should be paid to the payment conditions in order to protect yourself from possible risks in the event of the developer's insolvency.
The "Wohnen im Eigentum" association is calling for legal protection for buyers in the event of property developer insolvency, for example by waiving down payments until the property is ready for occupancy or by securing this payment through insurance.

opening of insolvency proceedings

As soon as the insolvency proceedings are opened by the insolvency court, the debtor loses the possibility of disposing of his assets (Section 80 InsO). At the same time, the creditors are prohibited from executing the debt by means of individual enforcement proceedings. The insolvency proceedings are managed by the central person, the insolvency administrator, who is appointed by the insolvency court. The insolvency administrator's main task is to identify the insolvency estate. This is collected in as large a quantity as possible during the insolvency proceedings and the creditors' claims are satisfied.

Further details on the insolvency procedure can be found on the page " Company Insolvency "

A special case and its consequences: Termination after insolvency of the property developer

A particular problem arises if the buyer terminates the property development contract during the developer's insolvency. Reasons for termination can be delayed completion or serious defects. But the reason is secondary here; the consequences of premature termination can be serious.

The reservation of transfer entered in the land register (see above) is therefore ineffective because it is dependent on the debt claim. This means that it is linked to this claim. As a result, the insolvency administrator can authorize the deletion of the reservation without having to reimburse the buyer the purchase price from the insolvency estate. Therefore, termination can have significant consequences here.

It is advisable for buyers and owners to seek legal advice before considering a potential termination of the developer contract during the insolvency phase. A lawyer can examine the individual situation, explain the potential impact of termination and provide alternative courses of action. It is also important to carefully review the contract documents and ensure that potential consequences of termination are fully understood. This will enable buyers and owners to make informed decisions and best protect their interests.