In this case, it is a SW Hotels problem, and not a hotel problem (unless the hotel representative was just lying to me, which I find very unlikely.)
The stay/hotel was a refundable pre-paid booking (refundable until about two or three days before the stay, which is typical).
According to the Terms and Conditions, the way the platform works in that scenario is that when you click the link to book and pay, that gets collected by a third-party payment processor ("HotelBeds" is the name of the processor apparently). The selected hotel will then engage in transactions with that processor to collect the pre-paid fee (presumably with a small commission shaved off for Booking.com).
When I spoke with the actual property, they informed me that they canceled the booking (on July 25, three weeks before the actual stay) and any transaction with the processor, and that at the time of that cancellation, they had not collected any money from the processor. In other words, the prepaid funds is held by someone other than the hotel that was closed, presumably the processor. I suspect the funds are held in an escrow-like suspense fund at the processor, but Booking.com is a bit slow to sort all that out.
The good thing is that I'm a lawyer and commercial litigator, so this is what I do and well within my wheelhouse. I posted the warning about the situation given that it's hard to foresee because how the platform operates is actually a bit mysterious, and I don't think others may want to have to go through the efforts this will take (including paying an upfront $1,000 arbitration fee) to recoup a lost $600 hotel booking.
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