A mix of fraud and bankrupt builders is shattering the dreams of Britons who bought homes abroad

By Anna Mikhailova

When Maryla Guzinska, a housewife from the Isle of Wight, read an article in a national newspaper extolling the virtues of property on the Estonian riviera, it seemed like a sound investment. In June 2005, she put down a deposit of £10,500 on a two-bedroom villa in Parnu, the seaside "summer capital" of the Baltic state, and was told her new holiday home would be ready by the end of the next year, when the remainder of the £42,500 sale price would be due.

Churchill Properties Overseas, which was building and selling the villas, assured Guzinska that her home would double in price in the 18 months or so it would take to build, thanks to the property boom under way in the former Soviet republic. Guzinska, 49, believed them - not least because the company was based near her on the Isle of Wight. When she went to the office, the salesman was "professional and well spoken" (even if, in retrospect, she recalls that he never looked her in the eye).

The completion date came and went, however, and in the months that followed, Guzinska was repeatedly told that her home on the Churchill Village development had been delayed.

Then, last July, she received a letter from Churchill Innovative Solutions - as the company appeared to have renamed itself - saying that it had been put into "voluntary liquidation". Guzinska began to doubt that she would ever see her £10,500 again. "I was hoping to buy something that would be an investment and a holiday home," she says. "Now I'm on a debt management programme."

Gary Fensome, a company director from Luton, has also lost hope of recovering the £12,000 he invested in a one-bedroom flat in the same development. "I'm furious and I want my money back," says Fensome, 48. "When Churchill showed me the site in 2006, it looked lovely. It all sounded reputable. But for the next year I had to keep chasing them for receipts, then it emerged that nothing was being built."

Churchill - which had a local office in Parnu, but sold its off-plan log cabins and villas largely to British customers - is not believed to have obtained planning permission for Churchill Village or for two other developments in Parnu, Audru Golf and Parnu River (although it appears to have received it for a fourth one). As a result, no building work had started on the land, even though Churchill gave the impression to investors that the projects were in full swing.

In the meantime, hundreds of investors are left wondering what has happened to their deposits, which total more than £1.5m. Hampshire Constabulary confirmed that two men, aged 40 and 44, were arrested on suspicion of theft in August and November last year, respectively, and released on bail until this August. No charges have been brought. They are thought to be Paul Wade, 40, and Karl Goldthorpe, 44, both directors of the company.

In an attempt to recoup their losses, 120 of the investors have signed up to the Action Against Churchills group (actionagainstchurchills.blogspot.com), founded last summer, but are frustrated at the lack of progress. "We've given up hope of getting our money back," says Guzinska's husband, Clive Bowley, a spokesman for the group, who separately invested just over £14,000 in another Churchill villa. "Lawyers tell us it will cost £100,000 to fight our case, so it's out of the question." Churchill - which has no connection with the insurance company of the same name - did not respond to requests for comment from The Sunday Times.

Estonia is not the only place where Britons have seen hopes of easy profits turn to dust. During the boom years of this decade, property abroad - once the preserve of the wealthy - became all too accessible for anyone with a few thousand pounds for a deposit and, ideally, a UK home from which to withdraw equity. Teachers, civil servants, social workers and academics all piled in. It was, in the words of salesmen, a "no-brainer": you put down a deposit on an off-plan flat, chalet or villa, then sat back and waited for the profits to roll in.

Since the credit crunch struck and world economies hit the buffers, however, the laws of gravity have come back into play with a vengeance. It is not just that many buyers have seen the capital gains on which they were counting turn into losses as property prices across Europe - and beyond - continue to spiral downward.

More serious is the impact that the downturn has had on the developers who were meant to be building those homes. Many have run out of money, leaving properties unbuilt and developments as little more than ghost towns. In other cases - such as that of Churchill Properties Overseas - there are doubts as to whether they ever intended to build anything in the first place.

John Howell, senior partner in the International Law Partnership (ILP), which specialises in overseas property purchases, says he has seen a fivefold increase in the number of clients with problems over the past 12 months. In the same period, the number requiring conveyancing has dropped by 70% as sales have plunged. "Developers are either going bankrupt or the development is not as specified," Howell says. "One of the first things that happens when developers are in trouble is that they start stripping back on expensive items."

The problem, he says, has been especially acute in the "emerging markets" of eastern Europe, whose economies - until recently the most dynamic on the continent - have been hit hard. Matters have been made worse by the way in which some local developers teamed up with foreign estate agents in the hope of selling to gullible foreigners at inflated prices.

"In places such as Bulgaria, everybody wants to become a developer, and as well as illegal building, you get oversupply in a market that is always going to be a marginal one," Howell says.

ILP is representing a number of clients who bought property from Bulgarian Dreams, a London-based estate agency that folded last year, but have yet to take possession of their homes.

Founded and owned by Robert Jenkin, a Cambridge graduate, and his Bulgarian wife, Mariya Georgieva, the company sold flats and houses at more than 40 developments in Sofia, the capital, in ski resorts such as Bansko and Pamporovo, and on the Black Sea coast.

A message on the Bulgarian Dreams website says that the company has ceased trading "following the extraordinarily difficult economic conditions" and suggests those who bought property through it should contact the Bulgarian developers directly.

One of the three companies it names is Interlink BG, of which Georgieva was a "manager". Jenkin insists, however, that the position did not give his wife similar powers to those of the director of a British company, and says she took it merely so she could "have better access to information regarding the developments".

Bulgarian Dreams is being investigated by the City of London Police Economic Crime Department. "We have received a number of complaints about Bulgarian Dreams and have begun an investigation," a spokeswoman says. She confirmed that the company closed its Moorgate offices at the end of 2008, but could not comment further.

Indy Gill, 45, an accountant from Nottingham, and his wife, Kim, 44, who runs a nursery, are among those ruing the day they invested in Bulgaria. In 2005, he says, he paid Bulgarian Dreams a £15,930 deposit on a £55,000 penthouse flat in the first phase of the Windows to Paradise complex in Balchik, on the Bulgarian Black Sea coast, which was due to be completed in December 2006.

Early in 2007, having heard nothing, Gill says he contacted Bulgarian Dreams and was told that, due to planning problems, the top floor of the building, with the penthouse, would not be built - and he would instead be given a flat in the development's third phase, due to be completed a year or so later.

Then, this year, he received a letter from Bulgarian Dreams informing him that it was no longer acting as agent for the development - and told him to deal directly with Interlink BG instead. Despite sending the Bulgarian-based company repeated e-mails, Gill has heard nothing, and says he fears work has not even started on the third phase in which his flat is meant to be. "We've got absolutely nothing to show for our money," says Gill. "I've resigned myself to losing my £16,000, but my wife still wants to do something, so we are trying, though a Bulgarian lawyer, to recover our money."

In a statement to The Sunday Times, Jenkin insists his company is working with Bulgarian developers to resolve problems with projects in the country with which it has been involved. "If any delays or issues exist with a development, they are due to the current economic conditions affecting all of the property industry," he says.

Most of the investors who have lost out in schemes in Bulgaria, Estonia or elsewhere put their money into projects that seemed completely above board and were, in some cases, recommended by independent financial advisers. In retrospect, however, some buyers appear to have been simply too trusting - especially when developments were being sold by British-based agents.

"A lot of people never took legal advice, never got an independent valuation or never checked the deeds," says Simon Conn, technical consultant to Conti Financial Services, which specialises in overseas mortgages. "Many overpaid for their property even before the credit crunch struck, and now these homes are worth even less." In many cases, Conn says, buyers took advice from a lawyer recommended to them by the developer. Others made the mistake of signing an "English version" of their contract rather than obtaining an accurate translation.

Nor is it just in eastern Europe that things have gone wrong. Hundreds of Britons are reported to have lost money in an alleged £24m housing scam in Orlando, Florida. This month, court documents were filed in America on behalf of a class action against the Superior Homes & Investments estate agency, accusing the company of defrauding customers by taking payments for homes that were never built. More than 500 people paid deposits of up to £217,000.

In Calabria, southern Italy, meanwhile, British and Irish investors have run into difficulties with properties they have purchased. One of the biggest developments in the region, the Jewel of the Sea, was blocked for environmental reasons. Last month, 120 illegally built flats, valued at a total of £28m, in the Santa Venere and Marinate resorts at Vibo Marina were sequestered by police. The El Caribe scheme, where 90 investors have paid deposits totalling £4m, was due to be completed in May, but work has not started.

Then, of course, there is Spain, where a mixture of collapsing property companies, arbitrarily implemented government rules, and out-and-out fraud have put paid to the property dreams of many British buyers.

Last year, Spanish police broke up For-tuna Land, an organisation they claimed had cheated foreign investors, predominantly from Britain and Ireland, out of £61m. As many as 2,000 people are believed to have lost money - some as much as £500,000 each - after investing in the developments in Andalusia.

Others, such as Paul Sibley, 45, an electrician from Luton, have been caught out by the collapse of Martinsa-Fadesa, one of Spain's biggest developers, which filed for court protection from its creditors last year. In 2005, Sibley put down a €119,000 deposit on a €400,000 villa on the La Oliva Golf development, near Corralejo, in the north of Fuerteventura, one of the Canary Islands. Although the property was already built when he paid his money, the golf course was not, and problems in obtaining a licence for the course, compounded by the discovery of an archeological site, delayed completion. Then, in the middle of last year, Martinsa-Fadesa went down.

"Work stopped before they finished the access road and the mains water connection," Sibley says. "I would consider completing without the golf course, if the price was reduced enough, but not without access and water."

Sibley hopes that the administrators will make finishing the development a priority for Martinsa-Fadesa. If not, his money could be tied up for years. "We decided to invest because the developer was the biggest in Spain, listed on the stock exchange - a blue-chip developer," he says. "It should have been one of the safest."

Anna Micklewright, a senior NHS purchasing manager from Cheshire, paid a 30% deposit of €39,000 in January 2006 for an off-plan two-bedroom semidetached house in Jumilla Golf, Murcia. Then, last May, the developer, Herrada del Tollo SL, was obliged to seek voluntary protection from its creditors. Although companies can recover from administration, this is difficult at the best of times - let alone during the current economic conditions.

"The administrators are now in charge, but millions of euros that the developer took in deposits seem to have disappeared," says Micklewright, 33, adding that under Spanish law, those deposits should have been ring-fenced. "It's a disaster for hundreds of British buyers who have lost their savings. It is especially tough on those who moved out to Spain to live in rented accommodation provided by the developer while waiting for their retirement homes. They have been evicted."

"Some 95% of the buyers at Jumilla Golf don't have a bank guarantee, even though many were told that they did, and they only found out they didn't when the developer went into administration," Micklewright says. In her case, she says, they insisted on - and obtained - a guarantee from a bank called Banco Pastor, but were not sure whether this would mean they would be compensated.

Micklewright has complained to the Foreign Office, her MP, her MEP and the Bank of Spain. "In Spain, developers and banks announce that they are not going to honour contracts, and lawyers just shrug their shoulders," she says.

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