ᐅ Condo Scams – The Property Developer Company Dissolution Trick

Dear all,

I’m not sure if I want to post this here without mentioning specific company names, but personally, I don’t have all the documents and don’t want to name anyone involved in the ongoing proceedings yet. I hope the thread will be approved anyway, as I find the topic interesting and it might help other property owners or potential buyers.

So, this is about my condominium unit. I bought it in 2015 from a developer (hereafter “the developer”). The completion was in 2016, when I moved in.

The purchase contract was with a limited liability company (GmbH) set up specifically for the project, which was a 100% subsidiary of a well-known large development firm. Actually, the parent company (hereafter “the parent company”) was responsible for planning and supervising all trades. The people we dealt with were all employed directly by the parent company (or possibly hired as freelancers?) and had, for example, email addresses with the parent company’s domain.

During the handover, a few minor defects were reported in my private property and most were corrected. What remained was not much (maybe about EUR 500 in value).

An independent expert was appointed for the handover of the common property (although commissioned by the developer/parent company), who found so many, partly serious defects (including the roof) that, according to his statement, will cause problems in the future, that the owners’ association refused to accept the handover.

This led to back-and-forth defect notifications, offers for discussions, lawyers etc. Meanwhile, the developer GmbH was dissolved, and now the second legal successor, an investment company, is our counterpart. Currently, there is a preservation of evidence procedure against this investment company, whose lawyer only used stalling tactics, and recently a mediation appointment ordered by the judge failed because the lawyer did not show up.

A court hearing is now scheduled (February 21), and it seems likely that our claim will be granted in absentia. Since the amount involved is over EUR 300,000 (about USD 330,000), it is assumed that the investment company will go bankrupt.

Our owners’ association as well as the supervisory board, which includes a real estate lawyer, say that nothing can be done.

I am wondering, if it is obvious that this developer GmbH and its legal successors existed mainly to avoid liability for warranty and defects, meaning that the liquidation and ultimately bankruptcy of these companies with outstanding claims were knowingly accepted or even intended, couldn’t one then hold the respective managing directors or founding shareholders personally liable for fraud?

What is your assessment? Does anyone have experience with this?

Thanks and regards

Tolentino

Tolentino schrieb:

Isn’t it possible to hold the managing directors or founding partners personally accountable for fraud?

Fraud requires intent. Can you prove that? If not (which I strongly assume), you’ll have to swallow your frustration towards the managing directors and focus your energy on the legal dispute.

P.S. What exactly do you consider to be the fraud? Was money taken and the apartment never built, or something similar? Your issue seems to be “only” about defects. I know this is nitpicking and not helpful for your frustration.

So, there are defects in your apartment valued at around 500 euros, but defects in the entire residential complex amounting to 300,000 euros?

Basically, it is not forbidden for two limited liability companies (GmbHs) with identical shareholders and managing directors to be directly related in a parent-subsidiary relationship (100% subsidiary/parent), and property development companies exist precisely to prevent the possible insolvency of a homeowners association from affecting all sister companies. I would only consider criminal fraud if construction damages were deliberately caused to the properties out of greed for profit (such as using cheap steel, low-quality concrete, or omitting moisture barriers). If fraud is involved, insolvency does not protect those responsible.

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You should ask this question to a specialized lawyer.

The problem is always the burden of proof, and you have to act in advance. That’s why you should talk to your legal expenses insurance. If you don’t have one (like me), it can quickly become very expensive for you.

Experience with such cases generally favors the fraudsters – and is lengthy, costly, and frustrating for the plaintiffs.

This is about the common property. And yes, I also believe that the burden of proof is problematic in this case. However, it’s not simply that a project company (a limited liability company) was founded and then dissolved after the project was completed. Instead, before the acceptance of the building to be completed, the company was liquidated and merged into a new limited liability company—and then the same process repeated.

Currently, three lawsuits are ongoing against the GmbH, which now exists as the legal successor, dealing with defects in new construction projects. The proceedings are underway, and as a co-owner, I can only wait. But it is known that the managing parties have handled other projects similarly. In one case, the legal successor ended up being a British limited company, which was simply made insolvent with a capital contribution of 1 GBP.

So, this is not just a form of protection against the insolvency of the parent company. It seems to be a strategy to delay defect rectification claims and make them unenforceable through company restructurings. They play for time while maintaining liquid funds through salary payments.

This probably won’t work with our case, but in the overall scheme, maybe it’s still possible to hold those responsible accountable. I find it shocking that this is so easily possible—it appears to be a legal loophole from my point of view.

Everyone here can surely sympathize with you; but unfortunately, that doesn't help. Being right and actually winning a case are two very different things.

And even if you do win; there will likely be no money left to compensate you, so you will be stuck with all the costs. Liability lawsuits have a very difficult standing, not only in Germany. Even large organizations struggle to succeed with their claims.