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Ban the sale of mortgaged property

An overwhelming percentage of our readers who voted in a recent on-line poll want the Cyprus government to ban the sale of mortgaged property.

Poll results

Ban the sale of mortgaged property - poll results

A RECENT on-line mini-poll conducted by this magazine revealed that more than 90% of our readers who voted want the Cyprus Government to ban the sale of mortgaged property.

Property buyers in Cyprus are continually being deceived into buying property built on mortgaged land and may be left at the mercy of the banks if the mortgagor (the person who borrowed the money) defaults.

  • Developers often mortgaged the land on which they are building to help finance their development projects. Should the developer go bust, those who have bought properties built on that land will be faced with paying off those mortgages. If a buyer is unable to pay off the mortgage, the bank can repossess their property and auction it to recover the developer’s debt.
  • There are further complications in Cyprus arising from the σύστημα της αντιπαροχής (antiparochi system). This is an arrangement between a landowner and a developer in which the landowner provides land to the developer in exchange for a number of properties being built on his land. The landowner may also have mortgaged his land to the bank, and if the bank forecloses on the loan for any reason it can seize the land and auction it to recover the debt. And once again, those who have bought property on that land face the very real threat of losing their homes is they do not pay off the landowner’s debt.
  • There are even further complications. Even though property buyers may have paid for their properties in full, developers and land owners can continue to borrow money against land they have mortgaged by rescheduling and extending their existing loans without the agreement or even the knowledge of those property buyers.

All of these ‘scams’ are permitted under the Island’s antiquated property laws. And there is no way a property buyer can force a developer or landowner to pay off their mortgage. There may be recourse through the courts, but this could take many, many years.

The banks

MANY buyers have been granted mortgages to buy homes by the bank that loaned the developer or the landowner the money in the first place. This is a win-win situation for the banks!

  • They receive mortgage payments from developers and landowners.
  • They receive mortgage payments from property buyers.
  • If developers, landowners or property buyers fail to repay their mortgages, the bank has all their mortgage repayments to date plus it can seize and auction the assets of the party in default to recover its debt!

In July last year a senior banking source told the Cyprus Mail “We have been prudent in our lending” – I think that was something of an understatement!

Furthermore, the banks appear to be under no legal or moral obligation to advise possible mortgagors of existing loans on property they are buying. And banks refuse to provide details of any existing loans on properties bought by those to whom they have granted mortgages. (However, I am certain that if a buyer offered to repay a defaulting developer’s or landowner’s loan that the bank would be more forthcoming with this information).

(A number of buyers who have discovered that their property has been built on mortgaged land, have approached various banks offering to repay the developer’s/landowner’s mortgage. But the banks have refused their generous offers telling them that they need the approval of the mortgagor.)

Once again, their lack of transparency and refusal to divulge this vital information seems to be permitted under the Island’s antiquated laws.

Readers' comments

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  • baileyboy says:

    Hi Nigel,

    Firstly let me congratulate you for a very good article and your quest to keep us informed on what is happening on the property front. I wonder if you would have any objection to me printing off this article and distributing to the owners on this complex. The apathy I experience when I speak to people about this subject just amazes me. Perhaps some of the subscribers on this article would like to have a look at the posting I submitted on the Cyprus Eastern Forum “arrange a demo?

    Only a half dozen people bothered to comment even although there are over 120 posts. Therein lies the problem. APATHY. Some of the comments from people I have spoken to comment “it will never happen” or ” what can you do about it?” Perhaps get off your backsides and support those of us who are trying to do something about it.

    How about we all put a For Sale sign on our property at the same time and see if that would shake the Cyprus government.

  • Hi baileyboy,

    No problem. Use the ‘print this article’ button in the centre column and then copy and paste the preview into your word processor. I’d appreciate it if you would leave the links intact.

  • baileyboy says:

    Hi Nigel,
    I wonder if you would have any objects to me printing off the above article and distributing to the owners on the development where I live?

  • alex g grant says:

    Nigel,

    Thank’s for all you have done. I wonder is it now time for us to pay a certain amount into a fund, and take a test case in the courts. There is no doubt in my mind that the case would be won. I doubt the Cyprus government would even let it go public in a court of law. I’m up for it, anyone else?

    I don’t think developers will take notice until this happens, and one i was talking to lately told me they are terrified this will happen, as are the banks.

  • A Fraser says:

    Hi Nigel

    We have been told by our builder that as the property is registered in our name on the land register we would not have a problem but that’s not the case reading your report definitely the banks to blame (At least Dick Turpin had a mask that’s how I feel) we all know how difficult it would be to borrow money in Britain it just would not happen.

    No wonder people will think twice about buying property on this lovely Island.

    Keep up the good work Nigel it is very much appreciated.

    Kind Regards

    A Fraser

  • R Knowles says:

    It seems very prudent to have laws governing the protection of both the developers and the land owners. It seems riduculous to any thinking human being on this planet to think there could not be a concerted effort to discern who that is!
    The fact that Cypriot banking lenders have no interest in disclosing this basic and necessary information to potential buyers is absurd and clearly suspect. It reeks of espionage and fraud to keep this information.
    The fact the “antiquated” laws haven’t been dealt with reflects the same suspicion onto the legal and government officals that seem to be “not noticing this issue as dire”.
    While it might afford a loss to some unsuspecting foreigner, it is commonly believed by those “in the know” that they simply don’t care. Only, perhaps, if a local Cypriot suffers financial loss, then the banks may, and I mean only may, make an exception, however, you won’t hear of it. It will be (yet another third world type) backdoor deal.
    When will this horrendous garbage and ignorance STOP and the rights of buyers be dealt with?

  • Tulloch Kempe says:

    Very interesting reading as an owner of two apartments – one in Pafos and one in Limassol.

    Sadly I have only had bad experiences of the developer I bought through a number of years ago (Aristo), and the Cypriot legal system, which myself along with a number of others are trying to use for some recourse on the way we have been treated – now nearly 4 years on!

    This experience has led me to start to plan pulling out of Cyprus. I know many others who also feel the same and it is not neccessarily because of the speed things can sometimes take as this is part of the culture and endearing quality of Cyprus, but because of the corruption and lack of transparency we have experienced. It is a real shame and the Country is really losing the support of people who had seen it both as their dream or a sound investment.

    Is there any way that the poll outcome and the information you have summarised can be used to put greater pressure on the Government.

    I.e. by saying that it will be publisised on UK property websites, utube, face book etc

    I also wondered if your paper would possibly be interested in our legal case as a case study of what can go wrong and how the system is treating people?

    With many thanks

    Tulloch

  • Graham Young says:

    A good post. one of many.
    Also looking at other peoples comments., –
    It just goes to show, to whom , the web of deciept clings, – the judge,the guilty or the system, created by the law makers.
    Complain and tell others ,then your bringing down the image of Cyprus – Or we, through giving it a bad image, are the cause of its downfall.
    While the interests of the Banking institutions is so closely tied to the interests(personal and business) of the developers and their lawyers, who in turn, their ‘conlicts of interests’ continue to be closely embedded (personally and in business)with the lawmakers and shakers of cyprus.

    We as the individual, are the victims, of the many institutionalised collaborations, we will left to be eaten alive.
    Always the same outcome. the victim is NEVER the lawyer, the minister or the CEO of the banks.
    Cynical certainly.but who’s consciences have a bad taste? (part of the 8% maybe), so why not be cynical.

    Graham Young, Chloraka

  • Maxwell R Hannah says:

    Nigel ,just seems to me that cyprus is a very corrupt place ,everyone is cheating the very people ,namely we,who live here or want to buy Property here ,the Developers and Lawyers and Banks who will get our money in the end anyway ,but still have to cheat and lie to us ,it doesn`t make sense ,
    can`t they see that if they are honest and truthful with us ,more people will trust them and come back to cyprus , and the economy will get back on track ,
    etc etc etc , but this is cyprus after all and they have been doing this kind of thing for ages and they will carry on in their same old manner because they know best .
    they will never learn Regards Maxwell

  • Stuart Davies says:

    Makes you wonder who the 8% were who voted not to ban the sale of mortgaged property! The were presumably people who didn’t understand the question in the first place, or developers, or the banks. Perhaps they are all one and the same person!!

  • Greg Gregory says:

    I took this issue up with a senior banking director in Cyprus 2 years ago who advised that the safest way to acquire property in Cyprus was to arrange for a mortgage via the bank whereupon the bank would carry out all the searches and ensure that clean would eventually pass to the buyer as the bank would seek to protect itself and it’s loan which is all very well and good.

    When I put it to him that the vast majority of foreign buyers didn’t need a mortgage as no doubt they would have arranged their mortgage abroad or liquidated assets to purchase and pay for in cash the simple answer was that well that is tough.

    For that reason I am led to believe that the remaining 8% who voted no in the survey clearly have a vested interest and can only deduce from this that these are banks. Until such time as there is a system like the U.K in place I would recommend that any would be purchaser uses a bank for a mortgage regardless if they have the cash in place until such time as property is completed and then settle the banks mortgage in full. In so doing the bank would be held liable and as such there is no risk of them going bust. Think in terms of if the landowner is not passing clean title the banks are hardly going to advance him any credit lines in the first place.

  • EleniP says:

    I very interesting post. A situation that I was not aware of. We brought our 3 bedroom apartment 20 years ago – way before the “property boom” of the past few years. Even back then it took us over 6 years to acquire the title deeds. Even though I wish we could afford a new property I would not want the grief that goes with building and buying property in Cyprus. Be on your guard people!!!!
    Keep up the good work with this site and congratulation on the half a million mark!
    Regards,
    E

  • Colin Brightwell says:

    To ban the sale of mortgaged property would work but why do that when it would be possible to achieve the same thing by another means and at the same time resolve the other major problem of purchasers being able to complete without receiving their title deeds.

    As everyone knows, all developers and estate agents will tell prospective purchasers that the process of purchasing a property in Cyprus mirrors that in the UK. Nothing could be further from the truth.

    The simple solution is to pass a law that requires title deeds to be handed to the purchaser in exchange for payment for the property. Lawyers would be required to check that the land is free of any encumbrance before allowing the purchaser to complete the purchase i.e. exactly as is done in the UK.

    The above would then focus the government and the legal profession on cleaning up the mess that they have got themselves (and purchasers) into and not before time … and they could do it now by taking advantage of the currently low volume of transactions resulting from a stagnant property market.

  • Clive Fletcher says:

    A good article that clearly lays out the problems with buying property in Cyprus without title deeds.

    Nigel refers to the sharpe practices by developers and banks as ‘scams’ which they are. However, maybe they also constitute outright fraud. As we know the Cypriot legal system will not help, indeed they are part of it, so perhaps one or two well-presented cases to Interpol might attract enough attention to get something done about.

    Just the publicity in the UK and local press that certain developers and banks in Cyprus are under investigation by Interpol for alleged fraud might just move along.

  • Frank Swindells says:

    Even by your usual high standards; this is an outstanding article and summary. Congratulations.

  • The views expressed in readers' comments are not necessarily shared by the Cyprus Property News.

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