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The property circus show

Why do Cypriots believe that their property should not be seized if they fail to honour their loan repayments and why would any responsible government even give 10 seconds’ thought to such lunacy?

circusTHERE is always a list of excuses for not doing something in Cyprus; some may have merit, others not. The point is that the reflex is always to keep the status quo, on which the ‘nice little earner’ corrupt practices depend.

Apart from all this, what is far more worrying is the way the government is giving serious time and attention to the idiotic notion that no-one who cannot/will not settle their bank debts should be protected from losing their primary residence.

It has always been the case in contract law that debtors run the risk of losing their collateralised assets should they fail to honour the repayments. So, why do a lot of Cypriots believe that this fundamental principle should not apply to them? It is childishly naïve in the extreme to believe that you can borrow large sums, not be responsible for repaying them and not bear a heavy penalty if you fail to repay. And why, pray, should any responsible government even give ten seconds’ thought to such lunacy? No wonder the Troika is being uncooperative on this one. Ergo, will the government fail to obtain its next bail-out tranche?

Why have we not yet seen one of the major developer defaulters being liquidated by one or more banks? Perhaps we are seeing the prize turkey being basted ready for the oven, with several different strands of alleged financial wrongdoing being touted and now a criminal investigation into one of them announced. It does rather look like a certain developer is being prepared for being the sacrificial lamb, or is it goat?

Unfortunately we cannot turn the clock back to the halcyon days when money in Cyprus grew on trees and no-one was called to account for not paying their debts. People have to realise that if they borrow money they have an obligation to repay the lender – or face the consequences (which may include the seizure and sale of their property).

As for the privatisation of auctions, Cyprus has agreed to this in the Memorandum of Understanding with the Troika – paragraph 1.28:

“The legal framework in relation to foreclosures and the forced sales of mortgaged property will be amended in consultation with the EC and the IMF and informing the ECB and the ESM, and adopted by end-June, with immediate effect for all mortgaged properties except primary residences (for which provisions will enter into effect by end-December, in line with the adoption of the insolvency legislation), to allow for private auctions to be conducted by mortgage creditors, without interference from government agencies.”

The government could (try) and introduce a scheme whereby home-owners become tenants paying rent until they recover with the rent being deducted from their outstanding debt.

But there is a problem if the likes of major developers set themselves up as auctioneers as well. Hopefully, the lunatics running the asylum will recognise this potential problem and put legislation in place to prevent it.

Readers' comments

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  • Paradox says:

    The title of the piece says it all really….and the comments fit perfectly, particularly from Gavin Jones who refers to the overt corruption here…..I would add also a reference to the covert corruption that has manifested itself against totally innocent buyers who were assured, by developers and lawyers, that their purchase (in particular the land) was completely encumbrance free and this group, in many cases, had this assurance placed within, and forming part of, their contract of sale which was then submitted as a legally binding document into the Land Registry.

    Subsequently however, many buyers in this group discovered that there was in fact pre-existing encumbrance on the land upon which their property was eventually built, and despite the fact that their property had been paid for in full, they have now had repossession notices placed upon their ‘fully paid for property’ because it sits on land that has an encumbrance that was not disclosed to them.
    Legal opinion states that contracts which state ‘No existing encumbrance’ are fraudulent, therefore, the people who bought properties under this situation were unequivocally mis-sold…they were deliberately and covertly duped and cheated, by the developer, by the lawyers’ sloppy or non-existent due diligence, by the banks for ‘rolling’ developers loans and, even more worryingly, by the government in the form of the LR, because this department accepted such fraudulent contracts, lodged them against plot numbers on sheet plans, accepting the subject content concerning ‘no existing encumbrance’ when this is the very government department that holds and, supposedly, maintains all data about what is encumbrance free and what is not, who surely should have cross referenced each contract against LR records to establish and confirm that a contract which stated that a specific tranche of land was free of encumbrance was, in fact, true to it’s wording. We now know of course that they didn’t, and the ramifications are that the government (LR) simply compounded the corrupt practise which effectively and potentially means that people who paid in full for their homes, assured into believing that their purchase was clean and safe by disingenuous promise and fraudulent contract, now face the very real possibility of losing their home for something they were not aware of, for something that was not their fault or responsibility, unless of course…..and here’s the most despicable part…..they agree to pay off the developers debt !!!!!!!

    With the immoral and corrupt mindset that is, and has been, prevalent here, it’s going to be a long time before Cyprus enters the 21st Century, and an even longer time before the Island regains any trust or credibility.

  • Denton Mackrell says:

    @Dave and @Janner. Yes, you are in an awful situation and my comments earlier were directed not at those in your situation but at the bulk of the Cypriot borrowers, most of whom have not gotten themselves entangled with unfinished or unbuilt homes or otherwise dodgy developers. They really don’t have a case for not paying back their loans.

    I am not a lawyer but I recall that Nigel has on several occasions advised that legally even those in your situation still have a contractual duty to keep on repaying your loans. I also recall that SoOJob advised to the contrary in terms of tactics but, whatever the case, that you should ever have been put in this position just goes to highlight the depravity of the Cyprus property market, banking system, judiciary and poor governance.

  • Janner says:

    @Dave. Spot on! I’ve been saying this for ages now. We’re being slated for not paying but what are we paying for? We can never own it due to the corrupt practices in place.

  • Dave says:

    One of the reasons some mortgage payers including myself refuse to pay our outstanding debts/mortgages to the Banks who misrepresented us in taking out mortgages on land that has already got developer mortgages on them hence not getting title deeds or unable to sell the properties to pay off the outstanding loan. Not having been told by my previous crooked lawyer (name I will not mention here) that the so called Freehold property I purchased has over €600,000 of outstanding mortgages on the land prior to me purchasing it. To add insult to injury the Developer’s bank is the same as my bank in the same branch! So why did the bank lend me this money to buy this particular property on an already mortgaged land! It seems like the developers, lawyers & bank all work together to misrepresent the innocent British buyers to no recourse to damage payments. Is it any wonder buyers do not want to pay their mortgages and no defence by us want to be heard by the Cyprus courts – a law to themselves!

  • Denton Mackrell says:

    It is far too easy to react emotionally: visions of thousands of families all made homeless are a powerful political weapon. But, is that what NPL resolution is likely to entail? In a recent article in Financial Mirror, Dr George Mountis summarized very well the considerable array of ‘more benign’ options open to lenders, as applied already in Greece, Ireland and elsewhere. Those of us who experienced the UK financial mess in the 1990s, with borrowing interest rates at 15% and mortgage repayment horrors for many, will recall that lenders offered a ‘soft landing’ way out by either extending the borrowing term from, say, 20 years to 30 years or switching repayments from capital-plus-interest to interest-only.

    This is the sort of action that the Troika is expecting Cyprus lenders to take with NPL borrowers. Indeed, it has been happening for some time. For example, recently a borrower with a €150,000 mortgage who had not made repayments for 2 years, was offered a new deal whereby he could pay only Euro 50 per month for several years instead of the current €775.

    You may think that with such a rescue plan, the borrower would have readily accepted. But no, he turned it down!

    This real example highlights the fact that if a borrower refuses to agree to a relatively benign rescue deal from the lender, he has got only himself to blame if ultimately they foreclose on him and he loses his home. From the several cases I know of, the banks have been bending over backwards to offer borrowers such rescue plans. A drowning man does not reject a rescuing hand from the only lifeboat in sight!

    So, we need to separate the thousands of NPL defaulters potentially at risk of foreclosure into categories. I suspect that by far the largest group are those who will be offered a rescue plan by their lender and will accept it. That leaves a rump of those borrowers who, for whatever reason, refuse to accept a rescue plan. Among the latter group will be some of the ‘big name’ developers who believe that they can hold out, plead poverty, not make repayments, and get away scot-free. These are the group who are daring the lenders to foreclose, believing that the developers are too big to fail and the lenders too terrified of them to act. With the Troika in charge of the bailout tranches, that belief is soon to be tested.

  • Gavin Jones says:

    Why is it that Cyprus always feels that it’s outside all international financial norms and should be treated with kid gloves? I’ll tell you why.

    It’s because the village mentality of doing things has been transferred to the cities with laws and agreements only being paid lip service and discarded when it doesn’t suit. New York’s Mafia families operate in exactly the same way having imported exactly the same Mediterranean island mindset, in their case Sicily.

    When cheap loans and their accessibility were being thrown around in their bucketful to the likes of the developers, as well as the general public, all was well. Now that the mirage has been exposed for what it is, many cry foul and blame the troika, international finance and Uncle Tom Cobley.

    Sorry people. Cyprus needs to be forced to pay the consequences for its overt corruption, inept behaviour and immaturity, take the medicine like everyone else and grow up.

  • Eric Markley says:

    I’m uncomfortable saying this because I love Cyprus and (nearly) all the Cypriot people I know, but it’s a small country and I hypothesize that the talent pool is limited. People are promoted to positions beyond their ability by virtue of their connections. Cypriots themselves know this but those without social capital can do nothing and those with social capital won’t change the status quo. Impasse!

  • Peter Davis says:

    Stop press.

    I see from UK papers that repossessions of homes is down to 11,800 for the first 6 months of 2014, the lowest for 8 years.

    If people in the UK can lose the roof over their heads why should Cyprus be saved?

    The people in Cyprus voted for the politicians who made this mess through lax controls of the banking system. By all means red-line the expats as most of them have paid for their houses in full.

  • Peter Davis says:

    All power to the Troika without whom we would not be having this conversation.

    In the UK if you default on your mortgage the bank/building society can repossess your home in 12 months.

    If you can’t make payments you approach the lender and make a agreement, even if it’s only to pay back interest, because if you do nothing you have a big problem.

    So why should Cyprus be any different?

    Sooner or later, today or tomorrow we will have to get real. Banks are businesses, not charities. If people default take their properties and sell them for the best price. It doesn’t make sense to keep putting it off.

  • Steve says:

    This article is a glimpse back into the real world and tells it how it should be and how it used to be, but I have to say it’s not like that any more. We have governments that take bank depositors’ money in haircuts and no action taken against all sorts of criminal activities by politicians and their friends in the banking and property fields. No one can guess what the outcome on any issue will be, except maybe the politicians who are making it up as they go along.

    As for a (Paphos) developer facing criminal charges – read what I just said above.

  • @Mike on 2014/08/14 at 9:19 am – Thank you for your comment. There is no question of families being thrown out of their homes in Cyprus – primary residences will not be seized and auctioned under the provisions of the foreclosures bill currently being discussed.

    The bill will protect primary residences until the 1st January by which time a new insolvency law will (should) be in place. This will also protect primary residences from seizure if the debtor is unable to maintain loan repayments.

    Scanning the news this morning it seems that if homes valued up to €350,000 will be protected and a few other changes are made the ruling party and the Democratic Party Rally will support the bill (in which case it will pass.)

    (Some time ago Spain introduced a law that failed to protect primary residences. The government withdrew it following a couple of suicides.)

  • stevie R says:

    If these auctions go ahead it would be madness. How do they expect to sell a property that does not have a title and further more has a specific performance registered against it by the purchaser.

    They would sell for peanuts. If you then take out the auctioneers fees and all the legal fees this would reduce the peanut figure even further. I seem to remember an auction not long ago and not 1 single person turned up.

    I do realise that doing nothing isn’t an option but they really do need to look at this from a different angle.

  • Mike says:

    To understand the point one has to understand the Cypriot psyche.

    It was not too long ago (within the last 50 years) that the nation as a whole was uneducated and of simple means. Hardworking, poor and with access to schooling reserved for a selected few and probably the eldest son in any rural family. Other siblings were required to work the land. Consequently a ‘trade’ that would be of use to the family was the aim and anyone clever enough or wealthy enough to be permitted an academic or classical education was held in high esteem. A clerical job was considered the pinnacle of achievement (think civil service). I suggest 90% of the population signed documents with a X and thumbprint as most of my family did. As a result “the government” such as it was, provided for all as best it could, normally by rhetoric and platitudes via printed media and simple country folk naturally believed it (much the same as today). We now have rafts of graduates, a bloated civil service, knowledge of the outside world, but still refuse to be dragged into 20th Century thinking and methodologies let alone 21st Century processes. We want to hang on to the socially inclusive policies, family values, central and regional government protection and as a consequence whenever a dependent society is encouraged one gets a burden on the welfare state. A Cypriot’s home is sacrosanct but I do appreciate that the UK principle of “an Englishman’s home is his castle” has been forgotten and lost over the decades to the banks, building societies and other financial parasites bleeding people dry.

    There is no valid reason for protecting an asset bought on credit where the loan is not serviced as in the terms of agreement (other than social conscience). However what would government do with, lets say, 125000 families living on the streets and how would they cope with the social unrest that would follow. How would civil, or uncivil, servants deal with the onslaught when it is clear they struggle to turn up and complete a few hours work as it is and constantly fail to achieve very low standards (I mean the management not those on the front line who in my opinion work hard in spit of, not because of, their bosses and ministers). That is why these procrastinations are being debated, there are far more far reaching consequences which require mitigation and contingency which sadly are beyond the abilities of the majority of our elected representatives. The majority have ambition, albeit well meaning, way beyond their abilities or strengths. Popularism rules, one cannot be seen to be taking the hard and unpopular decisions that need to be taken which will be to the detriment of the population. It is just not done unless on a political suicide mission.

  • scruffy says:

    On the face of it, it does seem ludicrous that the government would try to protect those who have failed to pay their mortgages. However, it has been too easily forgotten that the reason why many cannot pay their mortgages is because of the economic crisis. Who caused, or at least heavily contributed to this crisis? The very banks and government officials who are crying for their money back.

    We should all be concerned about the tactics of TROIKA. They reject any amendments to the foreclosure bill. One of those amendments rejected is the right of appeal. This is giving carte blanche to the banks to seize anything they see fit without fear of challenge.

    Does anyone really expect that the banks here will take a fair and honest approach to this? I seriously doubt it.

    They also reject bringing forward the Insolvency laws that will protect vulnerable groups. Why? They say its too complex. Financial commentators have disputed this answer as nonsense.

    More likely that they have no real intention of protecting anyone.

    So maybe it is right and proper that someone should stand up to the TROIKA etc. After all, they have all but admitted that Cyprus is an experiment in progress.

    It seems to me that all the TROIKA are interested in is keeping the balance sheets of Eurozone banks healthy in order to keep what is a failing system alive. Hang the collateral damage. They will survive somehow.

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