Financiers Warn of "World Order Change" After Israeli Supreme Court Ruling on Homebuyers

The Receiver of Property, Adv. Hagai Ullman, along with financing companies Yessodot and Ayalon Insurance Company, have filed a request with Israel's Supreme Court for an additional hearing on a recent ruling concerning homebuyers' rights to compensation for delayed apartment deliveries in distressed projects. The applicants argue that the precedent set by the court could fundamentally alter financing practices in the construction industry, jeopardize the security of financial institutions, increase credit costs, and hinder the completion of projects under receivership.

The request, supported by a letter from the Banking Association of Israel indicating its intent to join the proceedings as amicus curiae, stems from an October 7, 2026, ruling. In that decision, the Supreme Court upheld an appeal by apartment buyers in a Bat Yam project, establishing that a financial entity and a receiver of property who choose to complete a troubled project and honor sales agreements cannot evade compensation obligations for delayed deliveries stipulated in those agreements.

Under the ruling, compensation accrued before the receiver's appointment is classified as past debts, while compensation accrued after appointment is considered an expense of the receivership process, to be paid from the receivership estate with priority over debts secured by a floating charge. The court also ruled that such compensation can be offset against the remaining balance owed by buyers. However, the ruling does not impose blanket responsibility on financiers but rather sets payment priorities in specific circumstances.

The applicants contend that the ruling's implications extend beyond the individual case, altering the legal and economic basis of the closed financial accompaniment mechanism in construction. This mechanism typically involves banks and financiers providing credit to developers against a pledge of project assets and revenues to secure loan repayment. They argue the decision retroactively impacts projects where financing has already been provided based on previous legal understandings, affecting tens of billions of shekels annually.

Key issues raised in the request for an additional hearing include the classification of securities given to financiers as floating charges, the recognition of delayed delivery compensation as priority receivership expenses over secured creditors, and the allowance for buyers to offset compensation against their debt despite existing securities. The applicants warn that this could lead financiers to demand additional external collateral, struggle with risk assessment, and increase credit costs, ultimately impacting construction expenses. They also express concern that financiers might be less incentivized to complete distressed projects if their exposure to liabilities becomes unpredictable.

Furthermore, the applicants question the court's decision-making process, asserting that some of the fundamental rulings exceeded the scope of the appeal without adequate opportunity for parties to present their arguments on the potential impact on the financing market. They claim these rulings contradict previous Supreme Court decisions and decades of established legal and business practice. The request seeks an expanded panel of justices to re-examine these core issues and their consequences for construction project financing in Israel.

Poli Tetro, co-founder of the financing company Top Capital, commented that the ruling is significant and game-changing for financiers, particularly those providing credit against surplus project collateral. He explained that the decision prioritizes buyers and landowners in the order of claims during receivership, transferring the developer's liability to the financier from the date of receivership. Tetro highlighted the substantial financial implications, especially for second and third-tier financiers, and noted that the ruling could lead to increased costs for buyers as these expenses are passed on to apartment prices. He described the decision as potentially flawed and overly broad, suggesting a need for more nuanced application based on specific circumstances.