THanks for your comments. I have got a Polish Lawyer. There were a lot of questions in the first response and I have all the answers, it's just that in the post I wanted to only put in what I thought were the most important relevant points.
The crucial document here is something called the "assigment agreement". This was signed by our lawyers on our behalf. It is a condition of the mortgage. The document confirms that we hand our rights over the property to the bank. The place hadn't been built at the time, but we signed over our rights attached to that property to the bank, as collatoral against the loan. However, it is just one form of collatoral. They can choose to go after anything else to recover the debt, technically. That is one thing that really gets my goat.
Now, the developer doesn't want us to walk away from the final agreement, obviously. They are treatening court action to force us to conclude the final agreemnet, but they are genuinely in the wrong. We were in the right to withdraw because the thing wasn't anywhere near ready in time. We threatening them with court action to return our money, which they are just not doing of course. The thing is, technically, the full amount paid for the apartment is due to go to the bank, not to us, because of this assignment agreement. As our lawyers put it, they are not our "receivables". The money should be paid by the developer to the bank, then credited to the loan, then we should get the remaining amount. How much is due back to us is under debate. We believe we are definitely due 110% of the purchase price. The developer would probably say 90% (with us paying a penalty because we "pulled out") or the minimum they can possibly get away with in truth. The developer is getting quite a name for itself in relation to very dodgy tricks and behaviour. They will stop at nothing to grab and keep every single penny.
The polish legal system is like that in a banana republic. This is apparently common knowledge, and polish lawyers acknowledge it. There is loads of curruption, inconsistent decisions, and it takes ages for anything to actually get to court. The developer also knows this. Nobody advises doing anything through the polish courts.
More interesting points:
Our bank (our mortgage lender in Poland) is also the bank that financed the development.
Our Lawyer also represents the bank
For these reasons we have to worry about a conflict of interest on the bank's part (The developer is a far bigger and more important customer to the bank than we are). Also in terms of our lawyers, they have told us that they cannot represent us, or even advise us about, any dispute or potential dispute with the bank, because the bank is a client of theirs.
We are currently putting pressure on the bank to recover their debt from the developer. I have made the decision pretty much that I am not going to make another payment against that mortgage.
Our argument to the bank is "we signed the assignment agreemnet. We have now withdrawn, lawfully, from the preliminary agreement. The full amount that the developer has received is therefore due to be paid back to you (with the part remaining after the loan due back to us. The money is there with the developer, and you should be recovering it from them. As far as we are concerned, we are not your debtor anymore, the developer is (and they also owe us money that we are banking on you to recover from us)"
I think that our position is very reasonable. We cannot keep making interest payments on money that the developer should have paid to the bank, and the bank should now be taking real steps to recover.
I am quite hopeful that in the UK given a similar situation our position would be seen as reasonable. If the bank got a judgement in Poland, then I don't know how or what the system is for enforcing it here in the UK. The thing is, we don't have cash, only our heavily mortgaged house and two other BTL's both with mortgages. Those other lenders have their claws on the other properties, so there really is nothing in the UK for the bank to claim. Surely we would be able to defend ourselves in an English court...? I can't even find an UK lawyer who can advise on this sort of thing - hence the original post.