THE CYPRUS government has reportedly put on the backburner a bill allowing the repossession and auctioning off of mortgaged property, on the grounds that enacting the law now in the midst of the financial squeeze would be bad timing.
The bill has been prepared by the Land Registry Department and has been vetted by the Attorney-general’s office. It aims to amend the ‘Immovable Property (Transfer and Mortgage) Law 9/65’ so that mortgagees – such as banks – may sell off real estate, including via a private auction.
It would pave the way for mass repossessions by banks of mortgaged properties (residences and plots of land).
But on March 26 the Interior Ministry – where the bill is currently stuck – informed parliament in writing that it had been “suspended indefinitely due to the economic crisis.”
The ministry also informed legislators that “perhaps this is not the appropriate time for the mass auctioning of immovable properties by lenders.”
Hundreds of sale warrants for properties are pending at the Land Registry Department. Sale warrants are issued by the District Courts at the request of the Inland Revenue Department or other governmental agency for repayment of monies owed to the state.
One of the factors taken into account by the Land Registry in progressing sale warrants is the existence of encumbrances on property in question.
An encumbrance is any right or interest that exists in someone other than the owner of a property that restricts or impairs its transfer or lowers its value. This might include a mortgage, a writ of sale, a court judgement for an unpaid debt, a contract of sale, or accrued and unpaid taxes.
Alan & Nigel, thanks for your comments.
Alan – I for one do not find the things that the EU/IMF will probably do, unwelcome, in fact I look forward to them getting on with the job which is well overdue.
It will be very interesting to see what the ECB/IMF make of the double Bank loans secured against the same assets and what their stance will be regards recovering Developer loans.
@Costas Apacket – just to add to what Alan has said, the same report said that according to the International Monetary Fund, Cypriot banks have outstanding loans or other money at risk totalling €152 billion.
To put that figure in some perspective, it is eight times the size of Cyprus’ gross domestic product.
@Costas Apacket. Is it possible to get any lower than junk status? The recent NY Times article on the Cyprus economy was talking as if it is a foregone conclusion that Cyprus Popular Bank (former Marfin Laiki) will be forced at the end of June to seek government bailout assistance. If that is not available, it’s the EU/IMF -and they will impose some very unwelcome conditions on it e.g. significantly raising Cyprus’s corporate tax rate from 10%, cutting the over-bloated public sector payroll etc etc.
Alan – The key question is; Do the ratings agencies know about the Cypriot Banking sector using these sleight of hand tactics to effectively hide up to €10bn in mainly unrecoverable loans, or bad debts, when they rate them?
If not, and if this toxic situation became known to the ratings agencies, would the Bank’s credit ratings be even worse than what they are now?
The following is one case referring to Cyprus from the chapter on Immovable Property Fraud in my forthcoming book Corporate Risk and Governance (Gower, ISBN 978-1-4094-4836-5, due out Dec 2012)
Case 11.3 Tiny Developer, Massive Borrowings
A small developer who started around 2000 built modest developments in and around his home village. Over a ten year period, he built only three such developments of apartments. One buyer who bought several apartments as a business investment decided in 2011 to pursue his title deeds but found the developer difficult to contact and unresponsive. He then decided to do a search on the developer at the Registrar of Companies, which among other things lists every mortgage and loan taken out by a company, the date started, the bank and whether the particular borrowing is still open or discharged.
To his consternation, he discovered that over a ten year period his developer had borrowed from several different banks nearly €40m in total and none of the loans or mortgages had been discharged. To the buyer’s knowledge, the developer had not built anything since 2008, had no new projects being planned and had no known source of significant income. The non-discharged mortgages probably explained why the developer could not, and did not want to, obtain and release the title deeds to this buyer. How was the developer servicing these massive loans? Even if he could, would he ever be able to pay them off? If this case typifies the lax lending of the banks, even if on average they had lent out only €5m to each of 2,000 developers, the outstanding developer debt burdening the banks would amount to €10bn.
It is rumoured that some of the larger developers have debts ranging from €100m to over €400m each. The proportion of this that is toxic and virtually non-recoverable increases as the property market has remained stubbornly flat since 2008-9 and developers are unable to service their loans and mortgages.
Elsewhere, the book refers to the alleged ‘switching’ tactic of the banks to disguise NPLs (non-performing loans). As an unserviced developer loan/mortgage approaches the 90-day threshold, the bank simply switches the whole debt file into a new one with a different name and designation. I would be interested to learn whether this alleged practice really is feasible and whether it is practised elsewhere.
@ Janner. 13th April; at 7:11 pm. The only thing the Bankers gave a toss about, was their commissions generated from these loans! R.B.
Another side to all this is that the banks want to sell peoples homes to recoup the unpaid mortgage on the land. But what happens when the bank did not fund the building of the home; these are normally funded through stage payments so how can a bank grab the land and a house that someone else funded to build? It seems like a case of ‘heads I win – tails you lose’.
@Janner – the banks were throwing money around like there was no tomorrow. They seem to have believed that the upward spiral would never end, but as we all know it did!
Today, according to the International Monetary Fund, Cypriot banks have outstanding loans or other money at risk totalling €152 billion. To put that figure in some perspective, it is eight times the size of Cyprus’ gross domestic product.
Regarding lawyers, developers and bankers not telling buyers that the land was already mortgaged – if lawyers had done their job properly, very few properties would have been sold. Cyprus transposed EU Directive Unfair Commercial Practices Directive 29/2005/EC into a new law, 103(1)/2007, which became effective in December 2007. This law states that it is a violation for a business to omit or hide material facts from buyers, which if had been made known, would have influenced the buyer’s purchasing decision. (Clearly, the fact that a property being purchased has a developers’ mortgage on it is a material fact).
In the Cyprus Law 103(1)/2007, the authority for enforcing the law and to actively take steps to change the prevailing attitudes that result in mis-selling and other unfair commercial practices, is the Commerce Ministry’s Competition and Consumer Protection Service (CCPS).
People have written to the CCPS in their droves, without success. Many have now taken their cases to a higher authority, with the help of the Cyprus Property Action Group.
The UK Government cannot interfere with the running of the country, but it has put warnings on FCO website. I know that the British High Commissioner has met with government ministers about the problem.
A few weeks ago I, along with a dozen or so other people, met with the FCO’s director for consular services. He was left in no doubt of the problems and issues that need to be addressed.
The EU is presently assessing a reply it received from Cyprus about the actions it has carried out to address the reported practices and to ensure an appropriate protection of EU consumers. That assessment should be complete by the beginning of May. Following that a decision may be made, probably by June, as to whether an infringement proceeding needs to be started against Cyprus.
I’m not sure I understand this. If we put the dodgy antics of lawyers to one side for the minute. The banks must have been really stupid to lend money to people to buy property when the banks knew that the land was already mortgaged by the developer possibly many times over. They lent money for the purchase of a property knowing that the developer who had bought the land would probably never be able to repay the loan! This is mad.
I understand that EU legislation allows each country to set its own laws but I cannot believe that it is legal for the banks and lawyers to not tell buyers about the debt already on the land. It really is a question of ‘Who owns the property and who owns the land’? I also understand that EU legislation allows member states to directly enforce debt orders in the purchasers country. However, the system seems crazy.
So the situation is that if a UK purchaser bought a property for say €200,000, borrowing €100,000 from a bank, and that if they stopped paying their mortgage because they knew that even if they paid off the entire loan the property could still be taken off them because of the debt on the land. Then action could be taken against them by the bank to recover the debt.
I would like to see the UK Government say to Cyprus that we will not honour this bit of EU law until they provide the title to the buyers and promise that the property will not be taken off them due to the debt on the land that they were not told about in the first place. What are the UK Government doing about this? How are they protecting UK citizens?
I am sure that in the UK if a buyer was not told about debt on the land by the bank or the lawyer then they would be able to walk away and be compensated for their loss as the were defrauded. Has this every happened in the UK. I see that Ireland was mentioned earlier. Have the Irish banks really taken back the land that properties sit on due to the developer defaulting on their loan kicking people out of their homes? Amazing!
Denton, don’t think for a minute I am apologizing for anyone. All of the unholy alliance are guilty to some extent.
The most evil & sordid in my eyes are the legal profession. You actually paid them to look after your matters. Did they show due diligence? did they do a land registry search? Did they make you fully aware of any encumbrances?
Next the banks, well they are clearly guilty of fraud especially if the developer recommends them that’s 2 loans on the same property.
The developers of course especially with all their printed literature are clearly misleading people. But i think most people treat these guys with caution.
So it’s the lawyers and their governing body who are the biggest problem in my eyes.
@ Denton
It appears that in Cyprus from the President down they do not know right From wrong.
Might I suggest that Cyprus follows the lead of Iceland.
Investigate, prosecute and jail those bankers that cause so much grief to everyone solely for the purposes of greed and profit at the expense of all else, including the country.
Stupid me. I forgot about The Presidential pardon clause due when required by the elite!
@Simon Edwards. What you have overlooked in your apologia for the developers and the banks is that the developers deliberately hid the fact of the mortgages, the banks obligingly did not spill the beans and dodgy lawyers failed (negligently and/or corruptly) to present the buyer with an accurate search report. Such fraud in which the banks were already fully involved does not then give the banks the right to commit further fraud by pursuing the innocent buyers instead of the guilty parties who were contractually liable to the banks for their own loans i.e. the developers (corporately and personally) and their guarantors.
@Clive – the government could follow the lead shown by the Republic of Ireland and set up a local equivalent of the National Asset Management Agency (NAMA)
NAMA was established in December 2009 as one of a number of initiatives taken by the Irish Government to address the serious problems which arose in Ireland’s banking sector as the result of excessive property lending.
The Agency has acquired loans (land and development and associated loans) with a nominal value of €74 billion from participating financial institutions. Its objective is to obtain the best achievable financial return for the State on this portfolio over an expected lifetime of up to 10 years.
None of this would have occurred if lawyers would have shown due diligence. So when the repossessions start lawyers need to be sued. There has already been a landmark case won against a Cypriot lawyer.
People need to come together and take group actions. A huge fund should be put together. Anyone who thinks that their home could be next needs to join together and stand in the way of bailiffs.
DON’T ACCEPT THIS. UNITED WE STAND DIVIDED WE FALL.
Just imagine if somebody, or some country, wished to own a good slice of Cyprus, they could offer the Cypriot banks 50 cents on the euro for the outstanding mortgage loans and developer debts. I bet the Cypriot banks would settle for that and the government could do nothing about it.
Wonder who might do this. Discuss!
The Banks have been co-conspirators in this fiasco since day one. They have just been hiding in the background.
As far as this Bill is concerned it might well be The Banks who have asked for it to be halted. Pushing through many repossessions would surely result in them having to report the true extent of their losses and possibly revealing that some of them should not even be trading.
This will not be the end of it probably just the start in my opinion.
‘Suspended indefinitely due to the economic crisis’. Key wording. Not scrapped, not withdrawn but suspended. Pointless shouting hooray then for it’s still on the back burner.
Can’t wait for the next robbing, thieving ploy to be thought up.
The trouble in Cyprus is the car has no value, no-one knows who owns it, and the banks don’t want it.
The banks need to accept they have some responsibility for this mess and accept that their is some (not much I know) value in repossessed properties.
In Spain I notice the banks are selling off repossessed properties with long loans from their own bank. Maybe something for the Cyprus banks to look at. After all something is better than nothing.
The irresponsible lending by the banks that has resulted in this mess is not unique to Cyprus. It happened in other countries, most notably in the Republic of Ireland. There are a couple of situations that can arise and I think there may be some confusion:
@tony’s point about Ford Motors explains one of the situations well. Ford Motors borrows money from the bank to fund investment. It sells vehicles to its customers, and gets paid in full (by cash, cheque, hire purchase agreement, etc).
Ford Motors goes into liquidation and the bank seizes its assets PLUS the vehicles it has sold to its customers. The bank then sells the company’s assets and customers’ vehicles to recover the debt.
(In reality this wouldn’t happen, but because of the archaic property laws in Cyprus this is happening to people who have bought homes from a developer who has subsequently gone bust – even though they have paid for them in full and may have been living in them for many years).
Second situation. A customer borrows money to buy a vehicle from Ford Motors and the company acts as a guarantor for the loan. The customer finds that he can no longer afford the loan repayments and the company that loaned him the money repossesses the vehicle.
The company sells the vehicle to recover its debt, but finds that it can only recover 75% of the money it is owed. The company will then pursue the person who borrowed the money to recover the remainder of what it is owed. If it cannot recover the full amount, it will then pursue Ford Motors for the rest.
The banks lent money irresponsibly and with great greed to anyone they could. They secured it on the loaned property and the developer was in most cases the guarantor. The bank had useless cursory valuations carried out for show.
As a result of mortgage default by the purchasers, the banks will not stand by their secured property value (they say they cannot sell properties they do not own) and they will not invoke the guarantor obligation as they do not want to upset the developers.
Surely they should take some responsibility for their lending policy, take the properties back at their valuation “forced sale value” and if the borrowers cannot make up the difference then invoke the guarantor’s clause and make him pay.
The big question is Who actually owns these properties without title deeds and mortgaged 2 or 3 times???
What it makes me ask is how this situation arose in the first place.
Houses were being thrown up left right and centre using cheap imported labour with the ‘Martini’ “anytime, any place, any how” attitude at vastly inflated prices.
So with profits being so high what happened?
The ‘tipping point’ has presumably arrived where banks set to call in unpaid developer mortgages will push the banking system and the whole economy with it into the abyss?
The debt overhang of unpaid developer loans is enough to send shivers through the Eurozone?
@Tony,
No. Because individual owners of cars do not owe anything to Ford Motors bankers.
If Ford Motors were to go bust would the banks repossess individual owners of these cars to offset against Fords debt?
A bank in Paphos (who shall for the time being have to remain nameless) has been clouding the issue for a number of years in what seems to be an attempt to disguise or bury the evidence of their ‘irregularities’.
It has reached the stage where court action was threatened in order to get them to produce documentary evidence of a developer loan but the bank have asked for yet more time and one wonders why.
If they know the amount owed, tell us, if they don’t, give us our deeds.
Touch of the ‘Back from the Brinks’ this, more a sign of economic reality than any cares for the rights – and Possessions – of the 1,000s who have been conned. Where to next tho? And when??
The banks are going for the easy target rather than the developers villa.
The Banks are negligent in firstly allowing loans way in excess of the value of the land. One of my friends has three mortgages against the land on which her villa stands totaling over €300,000. The land and villa combined are not worth anything near this.
Secondly the Banks are guilty of poor accounting practices. These loans are not being serviced and should be on a ‘doubtful’ list and written off after 12 months. http://www.accountingtools.com/allowance-for-doubtful-account But the banks keep on adding compound interest on an noncollectable loan making their worth appear more than it is. The Central Bank should get a grip and reduce the value of some of the Banks to junk.
We would then have some honesty in the Banking system.
Surely the mortgagees could target the unsold properties on a developers portfolio in the first instance thus avoiding the complications of evicting purchasers who have paid for their properties in good faith.
This solution would also have the benefit of targeting the developer that took out the loan in the first place.
The operative word you mention is “should” Denton. Do you really think the developer was not protecting his position? Otherwise the deed would be available and he would of used his own assets. The house may rightly be yours but the land it’s on is effectively not. The developer will claim everything is legal he’s right the authorities & banks allow this situation to exist.
Denton of course you are right. However the mortgage was secured against the title hence the developer is safe. The bank is chasing this collateral not the developers assets.
@Simon Edwards
Yes, but the repossessions and any financial claims should be against the developer personally and whoever his guarantor was. It was not the buyers who took out the mortgages which the developer defaulted on.
For mortgagees to exist repossessions are a necessary evil. Otherwise the bank has no redress apart from hefty un-collectable fines and interest rates.
In the late 80s, Michael Caine and Steve Martin starred in a film which was a comedy romp about a couple of con men. It was called ‘Dirty Rotten Scoundrels’.
The Cypriot establishment can pull whatever legislative stunt that takes its fancy, delay this bill or tweak that law, but the reality is that they’ve been well and truly rumbled. There’s nowhere left for them to hide as the ‘dirty rotten’ wheezes that some of them and their cohorts in the construction industry and legal fraternity have concocted are out there for all to see.
Here’s hoping that those who’ve been on the receiving end of the tricks of certain ‘scoundrels’ will obtain the justice they deserve in the not too distant future.
So Nigel, What can those who have been duped into buying property built on mortgaged land do where ‘their’ lawyer has not mentioned this to them during the legalities at the purchasing stage?
@ Nigel
I wish them luck, they are going to need it but at least the legal system is starting to get fairer with regards to taking action against the non Saintly (there are good and bad in every race) Cypriots and it would be a public relations disaster to let these (the conned) people lose their fully paid for properties because Costas and Andreas etc have conned them and put their €3-4 million into their wives names in several countries plus their several Mercedes and their white marble 6 bedroom mansions complete with 2 Philipenesas or Vietnamese more likely.
@Robert – Those who have been duped into buying property built on mortgaged land could face the risk of losing everything if this bill were to be passed – even though they may have paid for their homes in full and have been living in them for many years.
Even without this bill people may lose their homes if their developer goes bust. As we speak people in Paphos and Larnaca are defending court actions to repossess their homes because of this.
If there is a covert loan (which has not been serviced) taken out by the developers on these properties.
Would this Repossession Bill if implemented, resulting in foreclosure procedures, affect the property buyers, despite them having paid in full to the developer/s, as per their sales contract?
Please let me know ASAP. R.B.