The fall of the Spanish property market has inevitably led to an increase in litigation matters, as many notaries have seen.

Over-inflated property prices, short demand, tight financial conditions and a very worrying increase in unemployment have all contributed to the fall of a large number of Spanish developers during the last three years.

The most problematic thing is that the Spanish economic downturn has affected not only small developers but also larger firms, as recently reported in the Spanish press.

Companies such as Martinsa-Fadesa and AIFOS have filed for court protection (declaración de concurso), leaving thousands of purchasers, both foreign and nationals, without their promised properties. At the same time, many of those developers who are still surviving have left projects unfinished due to lack of cash or finance.

Notaries practising in the UK have seen an increase in the signature of Spanish powers of attorney for litigation. In some cases, the power is only for the purpose of issuing proceedings in the civil courts against a Spanish developer who has failed to deliver the property on time – or deliver it at all, having cancelled the project.

However, in the majority of cases the norm is for the affected buyer to sign a general power of attorney for litigation, which also includes powers for insolvency and sometimes even criminal proceedings.

This is quite normal in Spain where the lawyer and the “procurador” (a legal representative for Court communications) needs to be appointed by the claimant personally at the court or, if not possible, by way of power of attorney.

The current downturn of the Spanish market has clearly changed the scope of the legal work. Whereas three or four years ago, a Spanish lawyer dealing with British clients used to spend 80 per cent of his time dealing with conveyancing matters, now it is the other way around and conveyancing is a very small part of his work.

On the other hand, litigation has replaced conveyancing as the main source of income for these lawyers and many have identified a golden opportunity with the increase of instructions to issue proceedings against Spanish developers.

Notwithstanding the above, we shall not forget that Spain is experiencing very difficult times and many developers are short of cash. This leads to long and painful legal proceedings where eventually the claimant, after obtaining a judgment, may see all his hopes turned down because the developer has turned insolvent or has no equity in its assets.

But not all the cases look that grim. There are many buyers who were buying off plan properties and were lucky enough to get a proper bank guarantee in place to safeguard their deposits. This has led to an increase in legal proceedings against the banks that issued those guarantees and has proved the easiest and quickest way to recover the monies paid to the developer, plus some annual interest.

Will this year show a similar pattern? I am inclined to think that it will. The situation in Spain is still very difficult and more developers will either apply for court protection or leave other projects unfinished.

This will translate into a continuous flux of powers of attorney during the year. Confused British buyers will come to Notaries with the aim of signing a power of attorney that will allow their Spanish lawyers to recover their deposits.

Unfortunately, not everyone will be successful and therefore it is advisable that any buyer willing to take such a step in Spain is advised properly about the costs involved and the chances of getting any money back before spending thousands of pounds on fruitless actions.

There is a big difference between issuing proceedings against the bank guarantor or issuing proceedings against a developer with no cash or assets. Buyers should be properly informed before embarking upon long legal proceedings in which there are few possibilities to obtain refunds.

But not all, necessarily, has to be bad news. The property market in Spain is suffering a correction on its over-inflated prices which will hopefully translate into a more realistic and sustainable property market in which prices will be more in line with levels of income in Spain.

This article was published in The Notary Magazine in February-March 2010