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Banks and government destroying property market

The banks and the government have joined the band of ‘crooks’ masquerading as property developers and estate agents who seem intent on destroying the Island’s once thriving property market and its reputation.

LAST year the government introduced legislation designed to improve the protection afforded to those buying property on the Island.

One provision of the new law entitled ‘The Sale of Immovable Property (Specific Performance)’, N81(I)/2011, enables someone who is buying a property that is already mortgaged to pay a proportion of that mortgage to the mortgagee (usually a bank).

The mortgagee is required to accept this arrangement – and the buyer’s contract of sale, having been duly lodged at the Land Registry, will take precedence over that mortgage regardless of whether the whole amount of the mortgage has been repaid. Furthermore, the vendor cannot intervene in this arrangement.

Although this arrangement does not guarantee the eventual issue of Title Deeds and transfer of ownership to the purchaser, it does provide purchasers with a degree of added protection against the cowboys who plague the Island’s property industry.

However, cash-strapped banks appear to be exploiting this legislation to improve their cash flow to the detriment of both property developers and purchasers.

One case reported in the local press by Antonis Loizou involved the sale of a property valued at €2.5 million. The mortgagee demanded 70% of the sales price to release the property from the mortgage. Needless to say, as the developer needed 50% of the sales price to build the property and cover his other expenses, the deal fell through.

Cyprus government demands its pound of flesh

THE cash-strapped government has also joined the merry band of those demanding their pound of flesh.

It has always been the case that Title Deeds could not be issued to a purchaser unless the vendor provided a Tax Clearance Certificate to the Land Registry proving that he had paid his outstanding tax liabilities.

This condition is obviously detrimental to the interests of those who have bought property. Why should the government of Cyprus deny their rights to owning a property because the vendor has failed to pay his taxes? (In some cases purchasers desperate to secure ownership of their home have paid taxes owed by the vendor to the Inland Revenue department).

This situation was exacerbated recently when the government started lodging ‘memos’ for unpaid taxes against developments registered to property developers who have failed to pay their taxes.

A ‘memo’ is a charge against a property or properties resulting from a successful court action brought by a creditor (in this case, the government) for the payment of a debt (in this case, unpaid taxes).

This memo (more correctly a memorandum) effectively prevents the transfer of ownership from the vendor to the purchaser or the sale of a property until that memo is cancelled.

So we are now in the ridiculous situation where buyers’ rights to owning a property are being denied through no fault of their own and are being placed in a position where they cannot sell the property until the vendor (or they) pay the vendor’s tax liabilities.

I hope that some intelligent life form in Government (or is that an oxymoron) manages to resolve this situation before the European Court of Human Rights gets involved.

Until such time as a secure and reliable means of purchasing off-plan properties and a reliable means of transferring those properties to their purchasers is put in place by the government, you are advised not buy property in Cyprus unless it has a full Title Deed.

Readers' comments

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  • @Frank – Take a look at section 4 of the Department of Lands and Surveys Citizens Charter, which details ‘Encumbrances and Prohibitions’.

    Encumbrances, which include such things as mortgages, a deposit of a contract of sale, memos, etc. have priority according to the date they were registered.

    So if you bought a property and deposited your contract of sale on (say) 1st January 2010 and a memo was subsequently lodged for the non-payment of a creditor on (say) 2nd January 2010 – that memo would have no effect on you. It would only apply to contracts of sale that were deposited after 2nd January 2010.

    Let’s say you have paid for your property, and took delivery on 1st March 2011 – and you put it up for sale. You find a potential buyer who engages a lawyer to check things out and he uncovers the memo.

    If his client were to buy the property, his contract would be deposited after the memo – and therefore the memo would take precedence over his contract of sale – and he would not be able to get Title to the property until that memo had been cancelled by the judgement debtor.

    But there would be nothing preventing you getting Title to the property because the memo was lodged after your contract of sale and as such, your contract would take precedence over the memo.

    (If your neighbour on the estate deposited his contract of sale on 3rd January 2010 – he would be unable to get Title to the property until the memo, which was lodged on 2nd January 2010, had been cancelled).

  • Frank says:

    @Nigel

    I got that ‘fanciful notion’ from the same place that I got the fanciful notion that paying in full for something would give the purchaser legal ownership.

    There would be little purpose in placing memos or liens on a development if the memo was meaningless.

    As you wrote in the article; it is an impediment to the issue of Title Deeds (in itself a somewhat fanciful notion for many victims of developers).

    If payment against the memo is a precondition of the issue of Title Deeds; it has exactly the effect of fulfilling my ‘fanciful notion’, as it must be paid (and quite possibly by the buyer) BEFORE the Title Deed is issued. This gives it the effect of precedence: regardless of timeline.

  • @Frank – whatever gave you that fanciful notion?

    Charges/liens are dealt with in chronological order – the older ones taking precedence over the later ones.

  • @Keith – these taxes could indeed include Immovable Property Tax.

  • Keith says:

    Would these so called “taxes” include “Immovable Property Tax”? Which had I got the deeds on day one nobody would owe?

  • Frank says:

    @Nigel

    Thanks for that. However, I believe that; in the case of developer mortgages; time is of the essence: i.e. a mortgagee’s claim only takes precedence when it was established prior to the victim’s ‘purchase’ of a property. Thus, a Title Search will establish unalterable status.

    I’m getting a nasty feeling that tax memoranda will take precedence; regardless of the date when the memo is lodged. Thus a Title Search performed today may become meaningless, if the Cyprus government lodges a memorandum tomorrow. Little comfort there!

  • John Fisher says:

    Simple answer NEVER PURCHASE IN CYPRUS

  • @Frank – Yes – the buyer may request the Land Registry to carry out a Title Search.

    In addition to mortgages, the search report will also show ‘memos’ such as those referred to in the article.

  • Frank says:

    There is a system whereby a fraud victim (buyer) may ascertain (from Land Registry) if the fraud perpetrator (developer) has a mortgage on the property for which that victim paid in full. Is there a method whereby that fraud victim (buyer) may ascertain if the fraud perpetrator (developer) has tax delinquencies which may be charged against the property for which that victim has paid in full?

  • @Robert Briggs – the way the system works is that someone who is buying a property that is mortgaged pays an element of that mortgage to the mortgagee.

    Let us suppose the price of a property is €200,000 and it is one of 10 being built on a plot that is subject to a mortgage of €1,000,000.

    The purchaser pays €100,000 (one tenth of the mortgage that represents his portion of the whole) to the mortgagee and €100,000 vendor.

    This is the same as the system in the UK (although in the UK, it is the lawyer acting on behalf of the purchaser who pays the mortgagee).

    The problem in the example quoted is that the mortgagee is demanding far more than he should.

  • Dunn Good says:

    Would you let a thief look after your property? Would you entrust a legal document to a confidence trickster? Would you accept advice from a known imposter? So how is it that the E U is allowing Cyprus a six month presidency period.

    Have they done their “due diligence” as we purchasers were asked when things went wrong. It will be interesting to see what mess they can make of that, they can`t even make up their mind over the Chinese investment offered to Larnaca airport and may lose out to Malta.

  • Robert Briggs says:

    Sale of Immovable Property: (law, N8(1)2011.)

    In order to obtain their individual Title Deeds, “The buyer to pay a portion out of the developers mortgage to the Bank.”
    You could not make this up!

    As far as I am concerned, these people are taking the p**s. R.B.

  • jon frazer says:

    @ Nigel Howarth 2.49 pm. June 24th.

    You express your hope “that the European Court of Human Rights does not have to become involved in this fiasco”.

    Last November I and a substantial number of other people submitted cases against Cyprus through the ECHR and to my knowledge no case has so far been rejected. As the process is ongoing it would be imprudent of me to comment further, but I have to stress that the ECHR is most definitely involved.

  • Jim says:

    I strongly advise any prospective property purchaser, in Cyprus, not to buy any property (off plan, or built) unless the seller can transfer a clear title deed at point of sale.

    Do otherwise & you stand a very good chance of losing everything.

  • @Gavin Jones – I hope that the European Court of Human Rights does not have to get involved in this fiasco.

    But if the government is unwilling or unable to resolve the situation, which is of its own making, what other recourse is there?

  • @Andreas – welcome – I guess you are based in the states.

    Registered estate agents in Cyprus are governed by the Real Estate Agents’ Law which states “A real estate agent, irrespective of whether he is acting on behalf of the buyer or the seller, is obliged to notify the prospective buyer of the property of all the information relating to the physical condition of the property, the charges thereon, including any other restrictions on the property under any legislative, judicial, administrative or any other governmental act or decision…”

    However, as many have found to their cost, having a law is one thing – ensuring it is properly enforced and that effective action is taken against law-breakers is another.

    The problem we have with the government (and other) ‘memos’ is that these can be lodged against the property’s title even though a purchaser has paid the vendor in full for the property and may have been living in it for several years.

    This problem stems from the unacceptable length of time it takes the government to issue Title Deeds and the antics of the more nefarious property developers. At the present time it has been estimated that there are some 130,000 properties in Cyprus that have yet to have their Title Deeds issued.

    (Even if an registered estate agent had carried out a title search when the property was originally purchased, these memos would not have been in place).

    It’s a complete nightmare and a problem that the government must address if it wants to restore the tarnished reputation of the Island and its property market.

    But rather than looking at ways to resolve the problem it seems that the government, as evidenced by its latest actions, is intent on making matters even worse!

  • Andreas says:

    First, the “memo” is called a lien. Allowing a creditor to place a lien against the property is a common, and, a reasonable practice to enable collection of monies owed by the current owner.

    In the US such a lien can be placed, besides a tax authority, by a water company, an engineer who has done work for the owner, etc. A lien prevents the owner from selling the property and then transferring title until he or she pays the monies owed.

    What is not fair, is to allow the seller to take money knowing there are liens against the property preventing the buyer to take title. That is fraught and should be punishable as such.

    Furthermore, it should be the legal obligation of the licensed real estate broker to ensure that all liens are cleared before money changes hand. And the buyer should always make sure to use a licensed broker.

  • Costas Apacket says:

    Well done, Nigel, for your last paragraph which is really the most important thing that anyone needs to know before considering buying in Cyprus.

    The more we can get across this simple message to all EU countries the better.

    I think that if I won the lottery I would take out full page adverts in all of the European and Russian newspapers with just that simple statement.

  • Gavin Jones says:

    Nigel Howarth.

    We all know that as the operator of this website you tread a very fine, diplomatic line when it comes to publishing certain articles, offering your own advice and viewpoint and allowing the rest of us ours.

    On this occasion, to my mind you’ve made it abundantly clear that the general shenanigans that are being perpetrated by certain ‘elements’ in the Cypriot property market have gone way beyond the pale.

    Your final two paragraph say it all.

  • Janner says:

    The entire situation is just ridiculous. It is dragging on and on. The EU Commission cannot standby and let purchasers’ foot the bill for the systematic failures of Cyprus. The powers to be in Cyprus are protecting themselves but who will protect the purchasers?

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