UPDATE 2-Judge puts Martinsa Fadesa into administration

(Adds Martinsa statement, more details from court ruling)

By Sarah Morris

MADRID, July 24 (Reuters) - A Spanish judge put Martinsa Fadesa (MFAD.MC) into administration on Thursday, the largest insolvency case in Spain's history, saying the property firm was facing "stagnation, if not recession" in the housing market.

Martinsa asked to be put into administration last week after failing to raise 150 million euros ($235 million), which was a condition for a 4 billion-euro debt restructuring agreed in May.

"(The board will work) to find a quick solution to the administration and reach an early agreement with the creditors in a reasonable time frame," Martinsa said in a statement.

Martinsa is the biggest of a number of construction and property companies that have gone into administration this year as once rampant Spanish house sales slow sharply, sucking away the cash flow developers needed to pay back debt.

"(Martinsa) is in a state of imminent insolvency," the commercial court in the northern town of La Coruna said.

It added that Martinsa had experienced a "drastic reduction in business" as Spain suddenly found itself with a surplus of houses and banks started reining in loans in the wake of the global credit crunch.

The judge said Fadesa's current liabilities totalled 5.2 billion euros but that its cash flow, funds and liquidity were not enough to meet its obligations without it selling some of its 10.8 billion euros of assets.

Martinsa closed its acquisition of Fadesa in early 2007, one of a spate of companies that went on a spending spree just before the property bubble burst.

Another of those, Colonial (COL.MC), is now more or less being controlled by banks including Popular (POP.MC) and La Caixa, which had to seize equity in the developer to square the debts of major shareholder and former chairman Luis Portillo.

Martinsa's Chairman Fernando Martin has also resigned.

SIGN OF THE TIMES

The court decision gives Martinsa protection from creditors and suppliers while it tries to restructure.

The judge said Martinsa's management would continue to run the company but they would have to get all decisions passed by three administrators -- a lawyer, creditor bank Bankinter (BKT.MC) and another person to be named by market regulator CNMV.

Martinsa reached a refinancing deal with 47 creditors including Morgan Stanley (MS.N) in May but could not meet the conditions lenders put in place for the following few months.

Under Bank of Spain rules Spanish lenders will now have to add debts owed by Martinsa to their bad loan rates, which are rising across the board as companies and mortgage holders start to default as interest rates rise and the economy slows.

Spain's second-largest unlisted savings bank, Caja Madrid, has 1 billion euros of exposure to Martinsa while its larger rival La Caixa has 700 million euros of exposure.

Banco Popular is owed about 400 million euros. (Additional reporting by Teresa Larraz, Carlos Ruano and Robert Hetz; Editing by Greg Mahlich)