- Cyprus Property News Magazine - http://www.news.cyprus-property-buyers.com -

Positive developments on hidden mortgages

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)