Protect home buyers first

Ordinary folks are left high and dry due to a firm's failure to live up to its end of the bargain.

Heftsiba 224.88 (photo credit: Ariel Jerozolimski [file])
Heftsiba 224.88
(photo credit: Ariel Jerozolimski [file])
The heftiest expenditure any family undertakes most often involves purchasing its own home. One would therefore assume that when making the "investment of a lifetime," buyers - especially those paying for housing still under construction - would be extra-wary and protect themselves against any legal contingency, no matter how remote. Time and again, however, the reverse of this expectation manifests itself. Ordinary folks, who have staked practically everything they own to acquire an apartment, are left high and dry due to a contracting firm's failure to live up to its end of the bargain. Despite the thick legal armor that Israeli law makes available to shield buyers, many venture into the marketplace without the securities to which they're formally entitled. This is precisely the misfortune of a sizable segment of the clientele of the Heftsiba construction company, which is now in court-ordered bankruptcy-protection to avoid seizure of its assets by creditors: About 4,000 buyers have been left without the properties they purchased from Heftsiba. These are in various stages of construction, with different proportions of the total price already paid in. Some buyers did make sure that Heftsiba issued the guarantees - most commonly bank guarantees - which the law obliges it to provide. These buyers have sounder chances of recouping their losses than those who did not exercise adequate precautions. The fact that Heftsiba would be liable for not furnishing the guarantees it is legally required to make available can be of little comfort for families who now find themselves at the bottom of the creditors' hierarchy - below banks, suppliers and subcontractors. Moreover, as Heftsiba's fortunes declined, it apparently began offering bargain basement deals on condition that everything was paid in cash upfront. Many buyers rushed to benefit from the discount without confirming that the necessary bank guarantees were in place and without availing themselves of the opportunity to check up on the builder's financial well-being in the contractors' register. The odds are that some arrangement will nonetheless be found to save all the buyers - most of whom are working people, who had to scrimp, scrape, beg and borrow the funds - from the tragedy of financial devastation. But what has happened to many of Heftsiba's marooned clients was utterly superfluous and eminently avoidable. The fact that this is far from the first case of a constructor's bankruptcy causing such hardship indicates that even what is regarded as the most comprehensive legal protection in the world is not fully adequate. The heavy losses suffered by some in the past, and potentially faced by so many now, speak volumes about the need for extra protection for ordinary people who are not always savvy about their rights and who don't always examine things in sufficient depth before digging into their shallow pockets. Perhaps the ultimate remedy will come in the form of MK Zevulun Orlev's pending Knesset bill that would put the individual purchaser at the top of the creditors' list instead of at the bottom. Thus, in the event of a housing concern's failure, its clients would be first in line for redress instead of trailing at the very end. This would constitute a revolution of sorts that goes against accepted business conventions, where the banks who underwrote an insolvent firm get first dibs on its remaining assets. According to present practice, whatever real estate Heftsiba possesses will first be attached by the banks, which will sell them off, thereby reimbursing themselves. This leaves purchasers with nothing, despite all their down payments. From a strictly legal viewpoint, careless buyers brought trouble upon themselves. Yet it is hard to expect everyone to resist the pressures of fast-talking sales personnel. The inescapable fact is that people have always been taken in and that they continue to be hoodwinked. In extreme cases, as in Heftsiba's, desperate buyers have been driven to squat in their own unfinished homes. It is they who deserve sympathetic legal safeguards far more than the big banks, which are in an incalculably superior position to that of individuals to ascertain the financial solvency of the builder. Banks can judge which builder is too great a risk to merit a cash transfusion. Small buyers cannot make that call. Hence small buyers, the people who stand to get hurt the most, deserves first priority in salvaging their savings.