Financial Institutions Petition Supreme Court for Rehearing on Bat Yam Ruling
Financial institutions and receivers petitioned the Supreme Court for an expanded rehearing on a ruling affecting homebuyer rights and closed construction financing in Bat Yam, warning of severe credit market impacts.
Financial institutions Yesodot and Ayalon, alongside receiver Adv. Hagai Ullman, have formally requested an expanded panel rehearing at the Supreme Court regarding a recent ruling concerning homebuyer rights in distressed construction projects. The petitioners warn that the decision upends decades-long industry standards and threatens tens of billions of shekels in financing.
The petition was submitted to the President of the Supreme Court by Adv. Hagai Ullman, Noa Solomon, and Vered Zabluda of Yehuda Raveh & Co., representing receiver Adv. Hagai Ullman, Yesodot A Real Estate and Development, and Ayalon Insurance Company.
The Controversial Ruling
At the center of the legal battle is a Supreme Court ruling handed down on October 7, 2026, which upheld the appeal of apartment buyers in a residential project located at 63 HaNevi'im Street in Bat Yam. The Supreme Court ruled that under the specific circumstances, buyers could offset compensation for delayed apartment delivery against the remaining balance they owed, sending the case back to the District Court to calculate the exact damages.
However, the petitioners argue that the ruling's implications extend far beyond this single dispute. The motion states that the decision fundamentally alters the legal and economic framework governing closed financial accompaniment mechanisms in Israeli construction—a system where banks and lenders provide credit to developers secured by project assets and cash flows.
"The legal doctrines established in the ruling alter a deeply rooted practice that has existed in the Israeli business ecosystem for decades," the petition reads. The applicants emphasize that this is a retroactive shift in financing and collateral rules, altering risk distribution after credit has already been extended.
Impact on Financing and Collateral
The petitioners outline three core areas where the legal landscape has been upended: the reclassification of securities granted to lenders as floating charges; the recognition of late-delivery compensation as administrative expenses that may take precedence over secured creditors; and the allowance of compensation offsets despite existing lender securities.
According to the motion, the ruling effectively dismantles the closed financial accompaniment model: "Based on the court's ruling, closed construction project financing will no longer exist. From now on, it will be called open project financing, where general company creditors share project collateral alongside the secured creditor."
Lenders warn that this precedent will force financial institutions to demand external collaterals, increase borrowing costs, and complicate financing for developers. Furthermore, it may reduce lenders' incentives to step into the shoes of failed developers and complete stalled projects for the benefit of buyers.
The Israel Association of Banks has announced its intention to join the proceedings as an amicus curiae (friend of the court), signaling the grave concern within the broader banking sector regarding the stability of construction credit.
