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(2) Providing overall settlement financing
Israeli housing construction projects (in Israeli and the Territories) depend heavily on loans from inception through completion. They're provided under special terms known as "accompaniment agreements" (Heskem Livui). Moreover, they're regulated by the Sale of Apartments Law (Assurance of Investments for Apartment Buyers) and under Bank of Israel management regulations. They're also supervised by the Israeli Ministry of Construction and Housing.
These agreements are crucial. Without them, completion of many projects might be jeopardized. Under their provisions, the accompanying bank holds property as collateral until housing units find buyers. Construction companies, in turn, get a reliable source of financing, including credit and guarantees on projects undertaken.
Prior to an agreement, special bank officers evaluate a project's profitability. If approved, development is monitored from start to finish, and banks also are involved in determining prices for finished properties. In addition, homebuyer payments are deposited in special accounts, exclusively for that purpose, controlled by accompanying banks to manage all related financial transactions.
In 2008, the Sale of Apartments Law was amended, tightening oversight of accompaniment agreements after fraud was exposed in a case called the Heftziba Affair. It involved one of Israel's largest construction companies - Heftziba.
Specializing in low-cost housing, it went bankrupt, after which its owner, Boaz Yona, was convicted of fraudulently stealing millions of dollars from unwary clients, without providing promised apartments. As a result, the amended Law requires an appointed Ministry of Construction and Housing commissioner, responsible for the registration and management of accompaniment agreements. The appointee must then submit an annual activity report to the Knesset Finance Committee.
In practice, however, agreements are privileged information between banks and construction companies, unavailable to the public. As a result, the 2009 report omitted privileged details, making it of little value. CWP appealed to the Ministry of Construction under Israel's Freedom of Information Act. Established by its Freedom of Information Law, it's, in fact, weak legislation, exempting many public agencies from complying, especially on security related issues. As a result, sanctions are seldom imposed, and appeals rarely upheld.
In response to CWP's effort, the Ministry declined, saying it lacked the requested information, whether or not true. As a result, CWP got what it could from banks and construction companies directly. They, of course, withhold vital details freely if they choose.
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