Developer insolvent: what buyers should review immediately

The first step is clarity about your own situation. Check how much you have already paid, which construction phase was reached for it and how your advance payments are secured under the BTVG. These three points determine how strong your position is and which steps make sense next.

Look in the contract and instalment schedule to see whether a security registered in the land register with an instalment schedule, a bank guarantee or an insurance is agreed and who was named as trustee. Contact the trustee, because they know the status of the instalments and releases and are a central point of information in an emergency.

Record all payments without gaps and assign every receipt to the respective construction phase. Avoid hasty further payments before the situation is clarified. An early legal assessment prevents you from taking steps in uncertainty that weaken your position.

The core of the BTVG is the protection of advance payments. Because the buyer makes advance payment for a performance that is only to arise in the future, the law prescribes a security. It can be done contractually via a bank guarantee or insurance, in rem via a security registered in the land register together with an instalment schedule, or via a security by lien on the property.

Under the common instalment schedule model, payment is tied to construction progress: you only pay once the agreed construction phase is reached and confirmed. As a result, a corresponding value at the building always stands opposite your payment. The details of the instalment schedule are deepened in the glossary entry on the instalment schedule.

Which model applies in your case is stated in the contract and decisively determines your position in the event of insolvency. The overall overview of the security system and its risks is offered by the article on the risks of the developer contract under the BTVG.

Under the BTVG the trustee must be a lawyer or notary and is to be named in the contract. Their task is to administer the instalments and to release them only once the construction progress provided for is confirmed. This places an independent controlling body between your payment and the developer.

If the developer becomes insolvent, the trustee is a central point of information. They know which instalments have already been released and which have not yet been paid out. Amounts not yet released are tied to their purpose and may not flow to the developer without further ado, because the confirmed construction progress is missing. The function of the trustee is explained in the glossary entry on the trustee.

Contact the named trustee early and document the correspondence. Clarify which of your payments have already been released and which still lie with the trustee. This information is decisive for the assessment of your position.

If insolvency proceedings are opened over the assets of the developer, the court appoints an insolvency administrator and issues an insolvency edict. It states the relevant deadlines, in particular the deadline for the registration of claims and the date of the examination hearing. Keep to the deadline stated in the edict so as not to endanger your claim.

Register your claim in writing with the insolvency administrator and enclose the contract, the instalment schedule and the payment receipts. At the examination hearing a decision is made on the registered claims, that is whether they are recognised or contested. A recognised claim is the basis for later participation in the proceedings.

Important is the distinction between secured and unsecured claims. A position secured in the land register or a claim from a bank guarantee or insurance stands independently of the general distribution in the insolvency. A mere monetary claim against the developer without security, by contrast, hits the insolvency estate. Which classification applies is to be reviewed carefully.

Besides the money, the question of the building itself arises. Whether and how the project is continued depends on the decisions in the insolvency proceedings and on the ownership and security situation at the property. In some cases the project is continued, in others the buyers must organise the completion themselves.

If a replacement contractor is commissioned with the completion, their performance is to be clearly distinguished from the original contract. Record the construction status at takeover precisely, ideally with photos and an inventory, so that it remains recognisable later which performance stems from the insolvent developer and which from the new contractor.

If defects show on the performance already rendered, their classification and assertion is to be assessed separately. How to proceed after a handover and which rights exist is deepened in the article on the rights in case of construction defects after handover.

The insolvency of a developer combines contract, security and insolvency law. Even the classification of your security and the question whether a claim is secured or unsecured requires a precise review of the contract, the instalment schedule and the security document. Mistakes regarding deadlines or the registration of claims can hardly be corrected later.

Early legal support helps to take the right steps in the right order, from contacting the trustee through the timely registration of the claim to the assertion of claims from a bank guarantee or insurance. The overview of the entire topic is offered by the topic page on the developer contract and the BTVG.

Even if a dispute over open payments or performances has already arisen, the early classification is worthwhile. How payment questions at the building can develop is shown in the article on the remuneration claim and refusal of payment.