Property developer insolvent: Act correctly as a buyer/owner

If the developer goes bankrupt while building the home or apartment


The advantages of buying a property from a property developer is that everything is from a single source. Once the contract is signed, things are guaranteed to run smoothly. But this guarantee does not exist.



And even then, the advantage of getting everything from a single source can quickly turn into a disadvantage. The property developer no longer appears and after a short time the bankruptcy announcement follows.

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The following framework can initially protect property owners and buyers

Immobilie mit Grünfläche und Verkaufsschild

A property developer and the contracts should therefore be legally and independently checked in advance by a legal advisor. A (notarized) purchase contract should exclude the possibility of foreclosure on the property. The so-called conveyance notice is the buyer's right to later be registered as the owner in the land register. According to the insolvency regulations, an unfinished building is not included in the assets. The exclusion of compulsory enforcement in the notarial purchase contract should only allow this possibility and contain a corresponding clause.

Insurance against insolvency and associated defaults

So-called insolvency insurance may also protect against a foreclosure auction of the building. In the event of insolvency, the insurer will cover the financial costs, including additional costs for the remaining completion of the construction project.


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



First signs. This is how you recognize an impending insolvency of the property developer

  • The developer asks for several advances and installment payments that go beyond the contractually agreed payment plan.
  • Construction stops or construction time delays occur.
  • Subcontractors are not paid and lead to unrest and construction stops.
  • Material that has already been delivered will be picked up.
  • Check online in your federal state to see if there is an entry consists. https://neu.insolvenznachrichten.de/ap/suche.jsf
  • Subcontractors contact the builders directly to clarify the financing for the continuation.
  • The builder is suddenly no longer accessible or is difficult to reach


>> Read more basics in our overview of property developer insolvencies.

What are the consequences for buyers and owners?

Käufer tragen Kartons in ihr neues Haus

Apartment buyers can hope that the construction will be continued by another developer due to the progress.

It will most likely take a lot of effort to find a developer who will continue the construction. Above all, the property developer will not assume any liability for construction work already carried out by other property developers.


In the event of a continuation, the insolvency administrator would still have the opportunity to gain more money for the insolvency estate.

...But not without financial consequences for owners:

The costs will most likely increase significantly as a result... Because new construction managers, materials and craftsmen will 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 should not be very pleasant for those affected from a professional or private environment...

Buyers are in an uncertain position

The process can take a very long time and costs time and resources. An additional strain on the nerves, in addition to the everyday challenges.


Additional costs such as legal fees etc. are to be feared. The status of the construction project must therefore be determined by a construction expert. If family members, acquaintances or other investors are involved in the project, buyers also have to explain and have to present a good concept.

Compensation for damages against banks possible?

Regardless of the type of insurance, buyers should always check whether the credit institution that is financing the construction project for the developer has not made itself liable for damages.


The bank may be held liable if it was subject to a conflict of interest or had an advantage in knowledge regarding the financial situation. Despite banks' known liability risks, it still often happens that they cooperate institutionally with the property developer.

How can buyers and owners additionally protect themselves?

Buyers and owners should have the developer contract, the declaration of division and the construction and service description checked before signing the contract. Particularly on 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 available and also checked.


Ideally from experienced lawyers.

Particular attention should be paid to the payment terms in order to protect against possible risks in the event of the developer's bankruptcy.

The “Living in Property” association calls for legal protection for buyers in the event of property developer insolvencies, e.g. B. by waiving advance payments until the property is ready for occupancy or 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 opportunity to dispose of his assets (§ 80 InsO). At the same time, there is a ban on enforcement by the creditors through individual compulsory enforcement. The insolvency proceedings are managed by the central person of 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 as much as possible during the insolvency proceedings and the claims of the creditors are satisfied.


>> Further details on the insolvency procedure can be found on the “Company insolvency” page.

A special case and its consequences: termination after the property developer becomes insolvent

Anwalt prüft den Vertrag sorgfältig

A particular problem arises if the buyer terminates the development contract while the developer is insolvent. Reasons for termination may include delayed completion or serious defects. But the reason is of secondary importance here, but the consequences of premature termination can be serious. The conveyance notice entered in the land register (see above) becomes ineffective as it depends on the contractual claim. This means that it is linked to this requirement. As a consequence, the insolvency administrator can authorize the deletion of the reservation without having to reimburse the buyer the purchase price from the insolvency estate. Termination here can therefore have significant effects.


It is advisable for buyers and owners to seek legal advice before possible termination of the property developer contract during the insolvency phase. A lawyer can examine the individual situation, explain the possible effects of the termination and show alternative options for action. It is also important to carefully review the contract documents and ensure that potential consequences of termination are fully understood. This allows buyers and owners to make informed decisions and best protect their interests.


Tip - consult a specialist lawyer for professional advice

You should also contact a construction lawyer and involve our professional debt advice center. We would be happy to help you choose the right law firm for construction law.

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