AN AMENDMENT passed by the parliament this week, banning banks from repossessing homes that owners have paid for but have no title deeds because of developer mortgages, has done little to relieve those affected, property experts have warned.
“It is a complete and utter mess,” property advisor Nigel Howarth told the Sunday Mail. “I don’t know if the people in government really understand what is going on.”
On Thursday, parliament voted to indefinitely ban foreclosures on homes whose owners had received no title deeds, even though they may have paid for their homes in full, because the building developers had already taken out loans on those properties which they cannot repay.
Developers’ land and buildings are counted as assets that need to be offset against their debt to banks, which gives lenders a claim on people’s properties that had been mortgaged by developers.
According to the provision, such properties will be exempted provided the buyers paid at least 80 per cent of the sale price or have fully complied with their contractual obligations towards the seller.
AKEL, which had tabled the amendment, said the legislation fully protected thousands of people whose homes or businesses could not now be foreclosed because a developer was insolvent.
But Howarth said that the amendment would actually do very little to remedy a problem that affects an estimated 30,000 home-owners as they still would not be issued their title deeds.
“What parliament achieved is merely stopping the bank from repossessing people’s homes. But what good does that do them if they don’t get the title deeds they paid for?” asked Howarth, pointing out that the issue dates back as far as 1986.
The property advisor added that even if a title deed were issued, it would still be in the name of the developer, not the buyer.
“And the developer cannot transfer that deed if his debt isn’t settled.”
This means that while the property would not be repossessed, owners might end up paying the developer’s debt just so they could get the deed for a property they had already paid for.
Not having a title deed makes selling the property difficult, if not impossible, he said.
“When people come to me looking for property, the first thing I advise them is to go for the ones that have a clean title deed, just so they can be on the safe side and avoid the hassle,” he said.
The banks readily lent to property developers, especially between 2004 and 2008, fuelling an unsustainable frenzy of building activity which roughly tripled prices.
The outdated legal framework enabled property developers to sell on property that was already mortgaged.
Authorities had ignored the title deed problems created by developers’ mortgages for years, despite the protests of mainly foreign buyers. But as the economic crisis got worse and developers tanked, it became obvious that Cyprus had a huge problem on its hands.
Years later, and under pressure from its international lenders, the island must now deal with the sorry state of affairs that authorities effectively allowed to happen with their inaction.
Under the terms of its bailout, Cyprus has set up a task force “on registered, but untitled, land sales contracts” that must prepare a study by the end of May.
The task force is made up by staff from the finance ministry, the Central Bank, the land registry, and the state law office.
After identifying the scale and various aspects of the problem, the task force must prepare 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.”
This should have been done by October last year.
Included in their tasks would be a financial impact assessment regarding title transfers and lifting encumbrances.
“First we must measure the scale of the problem,” a government official said. That will be followed with “how can we solve it with the least possible effects.”
Resolving the matter will not be an easy feat.
Stavros Papadouris, chairman of the association for the protection of primary residence, said they have received complaints from over 1,000 cases of people who bought flats and houses and have no titles despite paying for them.
“All conditions were there for the system to be exploited,” Papadouris said. “The state did not have any safeguards in place.”
A case in point is the involvement of lawyers.
Before 2011, the land registry did not have to warn buyers of any encumbrances on property they were planning to buy. That was the work of the lawyers who either failed to do their due diligence or, as some allege, were in bed with the developers.
According to a report drafted by the Cyprus Property Action Group (CPAG) and handed to the government in 2007, lawyers were introduced or recommended to clients by property developers, estate agents and other vendors.
“As a result many contracts signed by buyers under the ‘guidance’ of their ‘own’ lawyer are, as they may later find to their cost, heavily in favour of their developers,” the report said.
One example is that many contracts called for stage payments at certain dates rather than the standard system of other countries for payments to be made on far the project had progressed.
Buyers complained that that even if these stage “payments are contractual on ‘progress’, lawyers do not check that the stage has been completed before asking their clients to pay. As a consequence, buyers arrive in Cyprus to find that progress is not as advised by their lawyer. Indeed, some developers take the ‘stage’ payments and may not do any work at all and then, when found out, simply tell the buyers to ‘take them to court’,” the report said.
AKEL has urged the government to defend the legislation and not to try to annul it since it removed the risk of a blatant injustice against thousands of people. It also lessened the danger of another negative development that could push Cyprus deeper in recession.