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Property buyers at the mercy of title deed traps

WE REFER to your article of September 22, “Law reform hopes to clear up title deeds trap“. This reported that the House Legal Affairs Committee had discussed the issue and it is very encouraging that the government is starting to address some of the pitfalls of buying property in Cyprus. A change in the law […]

WE REFER to your article of September 22, “Law reform hopes to clear up title deeds trap“. This reported that the House Legal Affairs Committee had discussed the issue and it is very encouraging that the government is starting to address some of the pitfalls of buying property in Cyprus.

A change in the law is being investigated with the aim of ensuring that a contract of sale takes priority over any developer’s mortgage; the contract will also need a bank’s written consent.

Despite the fact that estate agents, developers and lawyers continue to assure buyers that their ownership rights are fully protected by virtue of the Specific Performance law, the Lands and Survey Department has now admitted openly that they are not. Something that the Cyprus Property Action Group (CPAG) knows only too well and has raised previously.

Under the present system, if the buyer finds that a the developer has a mortgage on the property they’ve bought and paid for, using the Specific Performance law in order to force transfer of Title Deed is futile.

The chairman of the Committee, Ionas Nicolaou, was reported as saying, “In every other European country a contract is tantamount to ownership. In Cyprus you need to have the Title Deeds so that someone doesn’t sell it elsewhere“. Adding that this is “where a buyer failed to deposit a contract of sale with the Lands and Survey department and the developer could sell the property to a third party“.

Indeed the seller could sell it up to 4 or 5 times to unsuspecting buyers, as has happened in one scandal that’s been reported to CPAG! The police seemed reluctant or unable to investigate this fraud, which, according to the victims (10 families at least), must have involved collusion by various organisations to allow it to happen.

The victims hired a litigation lawyer, Marios Shiaeles, to pursue their case. But he fled the island after taking £3 million of client monies with him, including theirs!

Unlike some other European countries, lawyers in Cyprus are not required to carry substantial professional indemnity insurance; neither is there a Law Society compensation scheme for those who have been defrauded. As a consequence, these victims now have very few assets and are unable to pursue their cases through appropriate channels.

These two ‘title deed traps’ above demonstrate the inadequacies of the current system.

Another example is the problem that occurs when a buyer, who has yet to receive their title deeds, wishes to sell their property. Even though they may have paid for it in full and may have been living in it for several years, the developer has them over a barrel. Some developers charge a reasonable sum to reassign the original contract of sale to the new buyer, while others charge thousands of pounds; we have heard as much as 17 per cent of the selling price! Some developers even decide who you can and can’t sell it to!

Also, nearly all developers charge purchasers their own version of annual immovable property tax which can run into thousands of pounds per client until they obtain their deeds. After owners receive their title deeds, unless their property is worth over £2 million at today’s values they find that they will not be liable for this ‘tax’ which the developers collect. This is because the law states that the tax is assessed on property using ‘1980 indexed’ Land Registry valuations and virtually every individual property falls below the threshold for tax.

Developers exploit buyers in these and sometimes more shocking ways, using the threat of witholding title deeds. CPAG has been contacted by many buyers who are being treated in this way and who are often afraid to go public with their stories. However, the main potential trap centres around the full legal ownership of property by virtue of its title deed. Currently, developers are carrying a record £3.6 billion in loans, much on the back of title deeds they have yet to make available to buyers. The main consequence of this is that the risk of loan default is shared with the buyers. If the property market suffers a slowdown, if external banking problems have knock-on effects in Cyprus, if developers default on mortgage repayments, buyers’ homes are at risk.

As the article stated, “where a development company goes bankrupt, the bank puts up the land for public auction to make back its money. Any money left over goes to the (homeless?) buyers“. Presumably, this may also mean after the other creditors e.g. the tax authorities have had their dues.

Assuming that the proposed changes to the law are implemented, what impact will it have on existing property buyers who find themselves in one of these particular ‘traps’? Will they be able to get their hands on their title deeds, even though they have eluded them for many years?

According to the original article, it appears that buyers would still need to go through the rigours of the Cypriot legal system to prosecute for their rights, with all the attendant costs, delays and uncertainties.

Although these proposed measures are very welcome, CPAG envisages that the Lands and Surveys are going to face stiff opposition from various vested interests! But even if the Department does succeed and the law is changed, the proposed changes still fail to address the underlying problem of full legal ownership at the time of purchase, as is the practice in other EU countries.

The Lands and Survey Department had been given a month to submit its suggestions prior to a bill being drawn up. CPAG would welcome any opportunity to share our unique insight from the ‘sharp end’ in these deliberations.

Copyright © Cyprus Mail 2007

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