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Pledge to protect paid-up buyers

Following President Anastasiades rejection of the ‘home buyers protection bill’ the Interior Minister has instructed the House of Representatives to draft a bill to protect paid-up buyers from repossession.

Pledge to protect paid-up buyersINTERIOR minister Socratis Hasikos yesterday urged MPs to give the government a three-month window to submit legislation comprehensively regulating the matter of homes paid for by owners but facing the prospect of repossession because of developer mortgages.

Last month parliament passed a bill, indefinitely banning repossession of houses whose owners have no title deeds, even though they may have paid for them 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.

Tens of thousands have been left without title deeds as a result.

A clause in the main foreclosures law exempts this category of properties from repossession until April 30. 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.

But in March MPs amended the duration of the exemption, making it indefinite.

The President then refused to sign the bill into law and sent it back to parliament, arguing that it was unconstitutional and created a general and permanent shield, not for vulnerable groups, but a number of sellers and land developers.

Hasikos proposed to MPs that, rather than an indefinite exemption, legislators should instead extend the initially envisaged deadline of April 30 to June 30. By that time, he said, the government will bring to parliament a comprehensive law dealing with this class of home owners without title deeds.

The government’s top priority, he added, was to protect all those people who paid up fully for their homes, or up to 80 per cent but are unable to get the title deed.

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.

A lasting ban on repossessing any properties would breach the terms of the island’s bailout deal, which mandates that Cyprus enact effective foreclosures legislation allowing banks to gradually recover bad loans.

This has given opposition parties ammunition to accuse the government of siding with banking interests rather than with distressed borrowers.

It is perhaps why Hasikos told MPs that Cyprus’ international creditors – known as the troika – have “pleasantly surprised” the government.

According to the minister, the troika are not seeking mass foreclosures on properties, and are working on various scenarios to avert this phenomenon.

The ministry has already drafted legislation on this class of properties; the item is currently being vetted by the Attorney-general’s office.

Under it, the director of the department of lands and surveys will review title deeds in limbo on a case-by-case basis.

Hasikos went on to explain how the new system would work. Where an apartment bloc has 10 flats, of which nine have been sold and paid for, the bloc as a whole is still held in mortgage due to the developer’s debt, and title deeds cannot be issued to any of the buyers.

By way of example, if the developer’s outstanding loan is €100,000 and the value of the flat that has not been fully paid for covers the developer’s mortgage, then the other nine flats will be released from the encumbrance and title deeds issued to their buyers.

On Friday, April 17 the House plenum is to convene extraordinarily to vote on the President’s referral of the MPs’ bill.

Should the House reject the President’s referral, the matter will be settled by the Supreme Court.

Also on the same date, the House plans to finally put to the vote the insolvency framework, which is inextricably linked to the foreclosures issue.

The parties have tabled a raft of amendments to the framework – a set of five government bills regulating personal and corporate bankruptcy.

During Monday’s joint session of the House finance and interior committees, AKEL said it disagreed with the philosophy of the bills because they provide no real safety net for vulnerable borrowers.

In particular, AKEL wants to strike a clause stipulating that banks cannot be left in a worse financial position once a property is repossessed.

For his part, DIKO chairman and MP Nicolas Papadopoulos said they would vote down the framework unless their own amendments are adopted.

The centrist party is proposing debt cancellation for debts up to €25,000 where the borrower is unable to repay – has a monthly income of up to €200 – and has property worth up to €1,000.

DIKO further proposes that a bank may not take legal action against guarantors unless it has first exhausted all means against principal debtors.

They also want primary residences shielded from repossession, where properties are worth up to €300,000 (currently the bill stipulates up to €250,000) and where a person’s total debts are under €350,000.

Socialist party EDEK meanwhile propose that during a debt restructuring process, a court may order banks to write off compound interest, with lenders instead allowed to charge a maximum 2 per cent interest on loan payments in arrears.

They insist also that a guarantor should be let off the hook when the principal debtor declares bankruptcy.

Readers' comments

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  • Pete says:

    I can see this dragging on and on and . . . . . . . .
    Is it any wonder this whole stupid mess has been orchestrated by a bunch of lawyers? Either they’re deliberately obfuscating or they haven’t a clue what they’re doing; or both. It no good ‘protecting’ people if they’re not free to sell the property for which they paid so instead of voting on ‘protecting them’, how about voting on the issuance of unencumbered title for all who’ve paid in full? Or would doing that lose extra work for our ‘lawmakers’?

  • Aggis Demetriou says:

    After a Meeting with Mr Hasikos in 2013, I made him fully aware of the pitfalls Cyprus will be facing once it arrives with repo’s especially properties with no titles, after 10 minutes into the meeting I knew he was ill advised with the procedures required before issuance of titles.

    We have said it all before there must be titles on day of sale otherwise this problem will never go away.

    what a mess Mr Hasikos…….

    I fully blame the government for not issuing final approvals on completed properties, due to them not carrying out site visits while construction.

  • jjames says:

    “The Cypriot authorities will allow for lenders to obtain adequate updated information on the financial situation of delinquent borrowers under sufficient safeguards, via court order if necessary.” – quote from MOU 2013

    “While the banks have records relating to each of their customers, there is no centralised database and an official from one of the banks said that the bank would “make arrangements to have this information in the near future.” The Director of the Department of Lands and Surveys, Andreas Sokratous, said that no-one knows exactly how many of these double-mortgage cases there are, but it is in the tens of thousands.” quote from CPN article 17.3.2015

    This latest “positive” development is just the beginning of another huge circle leading back to where we are!!

    Until the EC start reading and re-reading their conditions and acknowledging that nothing is moving to any significant degree from one week to the next – NOTHING WILL CHANGE!

    It would be really encouraging if the EC were to speak to us, (through the Cyprus Mail e.g.) and re-assure us that they are CLOSELY monitoring the Cypriot authorities and are no our side! Any chance?

  • andyp says:

    I will not be holding my breath for this one. As usual too many complications and populist proposals.

    The protection of innocent buyers should be a given and these measures should be enshrined in law separately from the other nonsense.

    Whilst I am no supporter of banks, as I strongly believe they have been part of this fraud from day one, how can a system work where the law protects primary homes, guarantees the right off of the first 25k of debt and absolves loan guarantors from responsibility?

  • @Scruffy on 2015/04/07 at 10:48 pm – If you repay the home loan before receiving the deeds, there is no 1% charge.

  • Mike says:

    A couple of points here. As one who has suffered this system and eventually overcome it to secure title I can affirm that every point in Nigel’s advice and explanation is spot on and well heeded. I speak the language so what hope anyone who doesn’t is beyond me.

    I think that notwithstanding national legislation (or the lack of) when push comes to shove the inalienable fact that an EU citizen has fundamental rights in property – as far as I understand it although how that is policed (if at all) I do not know as I do not have my house and land in the occupied areas so it may be empty rhetoric.

    I think it is about time we stopped formulating re-active legislation and laid down pro-active laws superseding all others and without the input from those lawmakers with clear conflicts of interest (that may end up as 80% of them) but so be it. We cannot continue protecting those who are bringing the country to its knees, owe the country billions or are guarantors for billions or permit obscure technicalities define what a conflict of interest is much to the delight of those with something to hide.

    If someone has paid for their property it must be theirs, if they have also paid the transfer tax then title should also be theirs either way it should not be considered collateral for a banks balance sheet.

  • Richard says:

    @Nigel. All of which is fine and dandy – apart from one small fact. NONE of this was properly explained to 95+% of people who bought off plan.

    The banks did not explain the arrangements
    The developers did not explain the arrangements
    The greedy brokers hungry for commission did not explain the arrangements
    The lawyers SURE AS HELL did not explain the arrangements (when they have a specific duty of care to the buyers as clients).

    There almost seems to be another rise in the old thinking “it’s the buyers fault and the poor old banks are out of pocket”.

    From where most buyers are standing – the banks, together with the government, brokers and lawyers colluded to cook up this scam – and it was dastardly clever. Unfortunately – it wasn’t clever enough – and it’s collapsed like the preverbal house of straw in the hurricane force winds of global fiscal collapse.

    Now – as I ‘may have mentioned once or twice’ in the last 5 or so years – it’s time – high time – well overdue time – for those in authority and power to come up with something that is reasonable and fair to those of us duped into this scam to stand either a fighting chance of contributing fairly to new loan arrangements (with the FULL & COMPLETE regulatory protection that was clearly NOT in place when we purchased) or the chance to finally close this ghastly chapter in our lives and be able to walk away without losing everything a great many of us have worked hard for mainly intact.

    Anastasiades & that nincompoop Christofias before him – have prevaricated, stalled, shifted left, right, up, down, back & forth and drawn up more bills than an African dictatorship.

    For heaven’s sake Government and banks of the Republic – man (or woman) up & come up with something we can:

    i) Understand
    ii) Believe in
    ii) Make work

  • Scruffy says:

    @ Nigel

    Thanks for the explanation. I understand now. If my home loan is paid off before receiving deeds does that negate the right of the LR to claim their 1% of the original loan?

  • @Scruffy on 2015/04/07 at 7:01 pm – A mortgage is a special type of loan that uses the property being purchased as collateral. When you buy a property off-plan, it doesn’t exist and so cannot be used as collateral for a mortgage.

    A home loan is granted to a person to assist them buy a property. If they fail to repay the loan, the banks can recover what exists of the property via the developer who acts as a guarantor for the loan.

    When the Title Deed to the property is issued and the purchaser pays the Property Transfer Fees and the property is registered in their name, the home loan is converted to a mortgage and lodged against the property (for which the borrower pays the Land Registry 1% of the loan advanced).

    In Cyprus, a home loan is similar to a home construction loan in the US or a self-build mortgage in the UK. It finances the construction of the property.

  • Andrew says:

    I like the idea of a pledge to protect buyers but wheeling out this old Chestnut.

    “Hasikos went on to explain how the new system would work. Where an apartment bloc has 10 flats, of which nine have been sold and paid for, the bloc as a whole is still held in mortgage due to the developer’s debt, and title deeds cannot be issued to any of the buyers.By way of example, if the developer’s outstanding loan is €100,000 and the value of the flat that has not been fully paid for covers the developer’s mortgage, then the other nine flats will be released from the encumbrance and title deeds issued to their buyers”.

    The system regularly allowed for one unfinished property on any site or apartment block. This let the developer avoid issuing title deeds or paying his taxes etc. Banks in the past have tried to calm buyers by saying that remaining property might cover a developers debt. Yet the same banks would not tell you how much a developer owed.

    Many developers have sites where all homes have been sold and yet a substantial debt remains on the land.

    I hope Minister Hasikos has made provisions to protect buyers in these instances.

  • CP says:

    As soon as the tax authorities realise (if not before) that transfer may take place they will slap a tax note on file which the developer will have to pay to transfer the title.

    Developer cannot pay so who will?

    Plenty of developers with unpaid tax demands and a revenue service eager to take measures.

  • Scruffy says:

    @Nigel

    This distinction between a loan and mortgage is very confusing. Our bank had POA re the purchase of our property as we were in the UK at the time.

    On the actual loan agreement it does say Loan Agreement.

    However throughout the POA document it continually refers to the mortgage.
    e,g The debtor appoints the bank to sign any necessary document/documents of the bank for the registration of a mortgage on the said property.

    e,g to appear before the Land registry and sign any necessary documents of that land registry for the registry of the above property and registration of above mentioned mortgage.

    There are other references to the “mortgage” and in fact no mention of a Loan Agreement.

    Is there any legal significance in whether they call it a loan or a mortgage?

  • @Janner on 2015/04/07 at 12:55 pm – No-one can get a Title Deed in their name until they have paid the Property Transfer Fees.

    Initially, individual deeds are prepared in the name of the owner (the developer) and it is only when all earlier liens (such as a developer’s mortgage) have been removed can the buyer get the deeds registered in their name. And if there are any liens that were lodged after their contract, a court would have to order the Land Registry to remove them before the transfer can take place.

    Also there’s the problem of unpaid taxes. As the system currently stands the owner (developer) has to provide a tax clearance certificate from the Tax Office to prove to the Land Registry that any Immovable Property Tax on the property and any Capital Gains Tax arising from the sale has been paid.

    Finally, anyone who stops making their home loan repayments (they’re mot mortgages) is merely putting themselves at greater risk of losing their home as the bank can (and probably will) take action against them to recover the debt.

  • Janner says:

    This is good for those who have paid in full. However, I’d imagine those with mortgages will continue to withhold payment until they know a clear title deed exists with their name and the banks on it with the clear understanding that when you pay your mortgage off you will own the property outright. Anything short of this is ridiculous.

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