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Positive developments on hidden mortgages

The updated Memorandum of Understanding (MoU), which includes some positive developments for those deceived into buying property built on mortgaged land, has been published courtesy of Stockwatch.

mortgageONE of the key issues facing many who bought property in Cyprus is their inability to obtain Title Deeds as corrupt developers have previously mortgaged the land on which that property was built – a fact that was ‘hidden’ from purchasers when they agreed to buy.

As any prior claims, including mortgages, take precedence over sales contracts deposited after all earlier claims lodged at the Land Registry, those who purchase property are unable to obtain its Title Deed until those prior claims have been settled.

Although a new law was introduced in 2011 that provided ‘new’ purchasers with a degree of protection against this deceitful practice, it relies totally on the honesty and integrity of lawyers and vendors to advise their clients accordingly – or an intimate knowledge of the Cyprus immovable property laws, which are very different to many other countries, including the UK.

There are possibly thousands of deed-less homes built on land that developers have used as collateral to obtain mortgages, which will be at risk of being seized if the mortgage becomes non-performing or if the company fails and is liquidated. This situation will be exacerbated when the Cyprus parliament finally passes a law on foreclosures as it will accelerate the seizure and sale of mortgaged property if that mortgage is non-performing.

A number of development companies are currently being liquidated and liquidators have ‘requested’ that purchasers without deeds contribute to repaying the developer’s debts or face the consequences even though they have paid for the property in full.

Many of those facing these ‘requests’ are pensioners who used the proceeds of their home sales in the UK to fund the purchase of a retirement home in Cyprus. They simply have no money to pay. But we must not forget that there are probably many more Cypriots in the same situation.

There have been some positive (if limited) developments to rectify this corrupt practice. Paragraph 1.31 of the fifth revision of Memorandum of Understanding MoU, which the Cyprus government has agreed with the Troika of international lenders states:

“The Task Force on registered, but untitled, land sales contracts will, by end September, finalise a study assessing the magnitude of registered, but untitled, land sales contracts and underlying mortgages, in close cooperation with the working group reviewing the issuance of title deeds under the MoU provision 5.3.

Based on this assessment and the recommendations developed so far, the Task Force will coordinate the work of the authorities involved and develop, by end-October, an action plan addressing at least,

(1) the removal of administrative hurdles for the transfer of title,

(2) the provision of tools to encourage the release of encumbrances on properties to facilitate title transfer, and

(3) the development of contractual standards for land sales contracts and connected loan and mortgage arrangements.”

Although this may be seen as a small step to secure the rights of those who have been duped into buying property built on mortgaged land, it is a move in the right direction. If the government meets its agreed target to prepare an action plan to deal with this issue by the end of October, we should know how this very worrying problem is to be resolved when the next review by the Troika takes place.

The Task Force comprises representatives of the Central Bank, the Ministry of Finance, the Law Office and the Land Registry.

Further reading

Memorandum of Understanding on Specific Economic Policy Conditionality (Fifth review)

Readers' comments

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  • demetri says:

    Hi Nigel much appreciated reply, if my post is off topic please can we private email each other? let me just confirm all buyers below purchased property off developer who used land 3/4 of the plot to secure loans for SOME buyers, so the loans are in the buyers not on the developers name.

    buyer 1 bought with loan, dev. land used as security to secure loan. IS keeping up payments.

    buyer 2 same as above.

    buyer 3 bought with loan, dev. land used as security to secure loan IS NOT KEEPING UP PAYMENTS.

    buyer 4 bought with no involvement of bank,yet the developers land the property is built on was still used as security for the loans of above buyers.

    Bear in mind no separate home or land deeds to distinguish all above from each other exist..in my view because of this the bank will have no way to link one non-payers to a particular home as encumbrance is using all 3/4 as security for the loan, so bank will just go for all the plot (although not quite sure how they can do this as 3/4 was used as security) I actually had this confirmed by one bank! However are you saying that buyer 234 will be exempt from actions of bank if the case buyer 1 loan is not serviced? whereas had the loan/mortgage been in the developers then the bank had every right to go after remaining properties regardless of whether they kept up payments on not?

  • @demetri on 2014/08/29 at 5:11 pm – I have no problem with your comment, it raises an interesting question.

    In the event that home buyer defaults on his loan repayments, the bank will seek a court order enabling it to recover the relevant property, others on the development will be unaffected. The developer’s mortgage enables the bank to have ‘first claim’ on all the properties for which it has granted loans to their purchasers.

    In these actions the developer will also be named as a defendant in the case as the company will have acted as a guarantor for the purchaser (although no action will be taken against the developer as he is ‘innocent’ of any offence in the eyes of the law.)

  • demetri says:

    We talk about developer debt often but how about this kind of debt? Not sure Nigel will allow upload of this post but I will try (debt is always debt I guess but please bear with me).

    Scenario: Developer owns plot of land, approaches bank says “I have found buyers for proposed properties I plan to build on my own land, can you arrange loans/mortgage’s for them? as security for these buyer loans I lay down a portion of my land (3/4) of it? Banks says yes. One or more of these borrowers then fails to service his/her loans and they become NPLS, bank proceeds with action. Simple so far.

    However what happens to the remaining buyers who have purchased on this plot and are keeping up payments and others who have paid in full also without the aid of a loan from this bank? Bear in mind there are no deeds for separate sold properties.

    Bank in theory can force sale the whole plot in order to recoup any losses, and this is because there are no separate house or land deeds issued for the plot. Is this correct?

    What about these kinds of hidden mortgages? Suppose again a large portion of the blame goes to the developer for hiding loans from buyers… curious to know if anyone has come across instances like this, where the debt is actually another buyers and not the developers. AND if anything can be done bearing in mind all buyer sales agreement are preceded at land registry with one or more of the encumbrances on the land.

  • demetri says:

    Anyone else have options on the action paln in Nigels article?

    ACTION PLAN

    (1) the removal of administrative hurdles for the transfer of title, GOOD GOOD

    (2) the provision of tools to encourage the release of encumbrances on properties to facilitate title transfer, BAD BAD BAD what’s stopping ‘them’ passing laws that stipulate you even as a duped buyer must by law pay for your developer’s debts whether you like it or not?

    and (3) the development of contractual standards for land sales contracts and connected loan and mortgage arrangements.GOOD GOOD

  • @nigel mutton on 2014/08/25 at 11:09 am – Good morning.

    Yes the lawyer would have a case to answer. But the only case that I am aware of took 11 years through the courts – see Landmark ruling by the Supreme Court.

    (You will note that in this case the couple lost around €120,000 – but the lawyer didn’t lose his licence and he’s still practicing).

  • nigel mutton says:

    Good Morning

    As to mortgages which were in existence at the time of purchase would there not be a case against the Solicitor who carried out the work to complete the purchase for not highlighting the situation.

    Nigel Mutton

  • Mike says:

    Very good news indeed, on the face of it, we shall see if… “The Task Force on registered, but untitled, land sales contracts will, by end September, finalise a study assessing the magnitude of registered, but untitled, land sales contracts and underlying mortgages, in close cooperation with the working group reviewing the issuance of title deeds under the MoU provision 5.3.”…and whether or not an action plan id developed by end-October.

    My experience based cynicism leads me to think that the permanent secretaries are now scurrying round with their legal advisers in their attempts to formulate a response to satisfy the broad terms of the MoU without having to alter the status quo.

    Interesting to note that the Task Force comprises of representatives of the Central Bank, the Ministry of Finance, the Law Office and the Land Registry. Could that be akin to placing the fox in charge of the chicken run?

  • molliemoo says:

    This is a the first bit of light in a very dark and long tunnel – but at least it is light. How brightly it shines is yet to be seen.

  • Stuart says:

    Whilst paragraph 1.31 of the fifth revision to the Cyprus MoU introduces some hope that the vexed question of Title Deeds is finally to be addressed, there still remains the provision of paragraph 1.30 regarding the seizure and sale of loan collateral within a reasonable period from the initiation of the relevant proceedings.

    Paragraph 1.30 reiterates the maximum time-span of 1.5 years but “in the case of primary residences this time-span could be extended to 2.5 years.” It then continues by also stating that the authorities commit not to introduce any further impediments to the seizure of assets which are pledged as collateral.

    Although the Troika wants all legal, administrative or other hurdles currently constraining the seizure and sale of loan collateral to be removed, it does not appear to have taken into account the agreement supposedly reached with the government regarding the protection of primary residences nor the possibility of legal actions against the banks which could delay or preclude any possibility of such repossessions.

  • Scruffy says:

    Its good news that Troika have even acknowledged our predicament and some action might now soon be forthcoming.

    We can only live in hope.

  • Andrew says:

    This does indeed sound encouraging.

    However, “(2) the provision of tools to encourage the release of encumbrances on properties to facilitate title transfer” makes one wonder, what these tools will cost the innocent buyers.

    Surely there is simple solution which does not involve litigation involving the very lawyers who caused this mess.

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