When a Real Estate Deal Abroad Goes Wrong: A Developer Who Is Late or Disappears, a Seller in Breach, Defects and Title Problems

1What do you do the moment something in a transaction abroad goes wrong?

Stop, document and send a written notice, before any other step. In most civil law systems in Europe, as in Romania, the right to terminate a contract or to claim compensation rests on the other party having received a formal notice and a deadline to remedy. If you stop paying, post on social media or go to court without a proper notice, you may weaken your position.

1. Gather the documents: the contract and all its annexes, payment confirmations, correspondence, an up-to-date extract from the land registry, photographs and minutes.
2. Check what the contract provides: deadlines, agreed compensation, a force majeure clause, choice of law and jurisdiction, and arbitration.
3. Obtain an up-to-date extract: to see whether a charge, an attachment or insolvency proceedings have been registered.
4. Send a formal notice: in the local language, in the manner that the law and the contract provide, with a deadline for performance.
5. Assess the options: negotiation, enforcement of security, legal proceedings or arbitration, according to the property and the amounts.

2Why do the protections of the Israeli Sale Law not help here?

Because they apply to apartments in Israel. The Sale (Apartments) (Assurance of Investments of Purchasers of Apartments) Law 5735-1974 requires a developer in Israel to give the buyer security, for example a bank guarantee, for the funds paid. In a project in Romania, Greece or Bulgaria there is no such obligation under Israeli law, and the only question is what the local law requires and what was agreed in the contract.

The countries differ greatly. In Italy, for example, local law requires a builder who sells to an individual a property not yet built to give a guarantee for the amounts paid in advance and to take out a ten-year insurance policy for serious defects. In Romania, by contrast, the law requires a dedicated account with spending caps by construction stage, but not a bank guarantee. In Bulgaria there is no general escrow obligation for developers, and the protection is built in the contract.

3What happens when a developer is late with handover?

The options depend mainly on the contract. In most of the countries we deal with, there is no fixed statutory compensation for late handover of a new apartment, so an agreed compensation clause, a clear date and a defined right of termination are the main tools. In Romania, for example, agreed compensation is collected without proving damage, and a formal notice is the first step.

Before terminating, consider what you lose. Termination restores the right to demand the money, but not the money itself, and a developer in financial difficulty cannot always repay. Sometimes it is preferable to continue with the contract, collect compensation and withhold payments as the contract allows. If a developer refuses to sign the final contract, in some countries you can ask for a judgment that takes the place of the contract.

4And what if the developer disappears or becomes insolvent?

Then the central question is what is registered in your name and what is held separately from the developer. A buyer who has only a contractual right usually becomes a creditor in the insolvency proceedings, alongside the bank and the suppliers. A buyer whose contract was registered in the registry, who has a bank guarantee, or whose money is held in an escrow account or a dedicated account, is in a better position.

5What do you do when a seller in a resale transaction breaches the contract?

Start with a notice, and then choose between three paths: enforcement of the contract, termination with compensation, or a settlement. In countries where a deposit is customary in the preliminary contract, such as Italy and Portugal, a seller in breach is usually required to return double the deposit, and the buyer can instead choose to demand enforcement and compensation under the ordinary rules.

In a resale transaction, the important protection is that the money does not pass to the seller before ownership passes: payment through a notary, a trust account or escrow, instead of a direct transfer to the seller’s account. Anyone who has paid the full price before registration may discover that the property was sold twice or that an attachment has been placed on it.

6What do you do when defects are discovered in the property?

Document them and give written notice immediately. In some countries late notice harms your rights. In Romania, for example, the seller is liable for a hidden defect that appears within 3 years of handover, and the builders are liable for hidden defects discovered within 10 years of acceptance of the building.

• Photograph and document every defect, with the date and location.
• Ask for an opinion from a local engineer, before carrying out repairs at your own expense.
• Send written notice to the seller or developer, and for a new property also to the contractor, as local law provides.
• Check whether there is contractor liability insurance, such as the ten-year policy in Italy, and who is entitled to claim under it.
• Pay attention to the limitation period for filing a claim in the country of the property, which is usually shorter than in Israel.

7And what if a title problem is discovered?

A title problem is any situation in which your right in the property is in doubt: a seller who is not the sole owner, an heir who has not signed, a charge that was not removed, an error in the cadastral registration or a restitution claim on land. The main protection is a check before signing, and the second protection is insurance or an undertaking by the seller.

In the USA it is customary to have owner’s title insurance, which covers losses from defects in title that existed on the day of purchase and were not discovered. In other countries, such as Romania, the seller is liable by law to the buyer if a third party evicts the buyer from the property, but this liability is worth something only when the seller exists and can pay. Errors in cadastral registration can usually be corrected in a local procedure, with a time and cost that depend on the country.

8Where is the dispute conducted: a local court, arbitration or Israel?

In most cases in the country of the property. Under EU Regulation 1215/2012, in proceedings concerning rights in rem in immovable property, the courts of the member state in which the property is located have exclusive jurisdiction. In a monetary claim under a contract, for example repayment of funds by a developer, there is more flexibility, and a jurisdiction or arbitration clause in the contract affects it.

Arbitration is possible only if it was agreed, and in a developer’s standard-form contract in Romania, for example, an arbitration clause is valid only with express written consent. An Israeli judgment is not automatically enforced in another country, so a claim in Israel against a foreign developer is not necessarily a shortcut. The decision on where and how to act is made together with a local lawyer, according to the amounts, the assets of the other party and the expected time.

9What do you prepare already on the day of signing?

Most of the protection is built before anything goes wrong. The contract is where you set what will happen on the bad day, and registration and security are what will be available to you when the other party is no longer cooperating.

• A payment schedule linked to approved construction stages and not to dates alone.
• Registration of the contract in the land registry, where local law allows it, immediately after signing.
• A bank guarantee, an escrow account or a dedicated account, and a check of who signs the release of funds.
• Agreed compensation for delay, a defined right of termination and a final date after which termination is possible.
• A narrow force majeure clause, and choice of law, jurisdiction and arbitration clauses that have been read and understood.
• Suitable insurance: title insurance in the USA, and a check of the contractor’s liability insurance in the countries where it exists.
• An organised document file kept outside the country of the property, including payment confirmations.

10What to do before signing and how we assist

Before signing, we go through the contract from a “what if” perspective, and check what security exists in the country and in the project, what is registered and when. When a problem arises, we help gather the documents, draft the notice and coordinate with a local lawyer the appropriate procedure in the country of the property. There is no way to guarantee the outcome of legal proceedings or the ability of another party to pay, so the preparatory work is the part that can be controlled.

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