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Who really owns your home?

WITH the Cyprus property market finally slowing down and more disreputable developers entering the fray, an increasing number of property buyers could be at risk of losing their homes. Last month, the Inland Revenue Department released figures showing that Capital Gains Tax revenue on property sales dropped 17 per cent in the first four months […]

WITH the Cyprus property market finally slowing down and more disreputable developers entering the fray, an increasing number of property buyers could be at risk of losing their homes.

Last month, the Inland Revenue Department released figures showing that Capital Gains Tax revenue on property sales dropped 17 per cent in the first four months year on year, and income from property taxes fell 25 per cent in the same period.

George Coucounis, a lawyer specialising in property issues, admitted there was a major problem in the issue of separate Title Deeds to buyers.

Often the Title Deeds are held by banks as security for a developer’s debts, making the property liable for repossession if developers go bust, even though home owners themselves may not owe a single cent.

The lawyer explained what happens with a property in the event the developer goes into liquidation or goes bankrupt.

“The answer depends on whether a purchaser has legally protected himself at the time of the signing of the sale contract,” he explained. “If the land was not mortgaged and he deposited the sale contract at the Land Registry, he is fully protected and his rights cannot be affected.”

Many civil actions have already been instituted before the courts by the banks to recoup their money.

“In fact, this happens frequently and soon these cases will be increased. That is why we notice day by day more and more people are deciding to resell their property,” Coucounis said.

Leading economist Dr Stelios Platis agreed. “Given the current situation, the possibility of seeing more developers going bankrupt has increased,” he said.

Platis said that based on his experience, developers going under is not something which has happened frequently.

“Had this been the case, the market would not have grown so rapidly, especially in the case of foreign buyers.

Due to the inefficiencies of the system, if this had been a real danger, the market would have been heavily discounted, which is not the case.”

However, the economist also drew attention to the fact that, “as developers have mushroomed, with sometimes over-ambitious growth strategies, the situation can develop into a serious problem.”

Nevertheless, there are certain legal safeguards for buyers, mainly concerning the developers and in certain cases the authorities and the purchasers.

Coucounis explained that when a developer failed to issue Title Deeds on time – whether through neglect or deliberately – “the law provides for a remedy to place [him] under the observance of the court until he issues the deeds”.

He added that this procedure is available to all purchasers who have deposited their sale contract at the Land Registry and are waiting for years for the developer to issue separate Title Deeds.

“Through this procedure, many issues can be resolved, including those regarding the existence of any mortgages upon the land, since the obliged developer will have to repay them,” he explained.

“Even if the property was mortgaged at the time of the purchase and the purchaser secured a waiver from the bank, he is again protected.

However, the buyer is not protected when he purchases a mortgaged property, without obtaining a waiver from the bank, even if he deposits his sale contract at the Land Registry.

In this case, the purchaser may be asked to deliver the property back to the receiver or to the person who will buy his property if sold at public auction. The original buyer is considered an unsecured creditor and if the developer has no other assets or the proceeds from the sale of his property in public auction are not enough to cover the secured loans, the original buyer remains empty handed.

There have been cases of developers who went bankrupt and the purchasers who legally protected their rights did not suffer any consequences. However, the others faced serious problems and they were forced to deliver back the possession of their property. It should be noted that this happened in very few cases and in particular when the developer was a limited company,” explained the lawyer.

Nowadays, because of the involvement of many non-professional developers in the real estate market who have also over-borrowed money, “inevitably this phenomenon may be observed more frequently”.

Some of those who have invested in real estate through bank loans will not be able to repay, forcing the banks to try and recover their money.

“The banks, when they lend money, ask for security by way of a mortgage over the land and the sale contract is assigned to them. The banks cannot immediately get possession of the property, unless the purchaser offers it to them,” stated Coucounis.

He added that what happens in practice is the purchaser puts the property on the market for sale in order to pay off his loan.

“There may be cases of purchasers who do not co-operate and the bank will have no alternative than to exercise their rights through the agreements signed in order to get possession of the property and to proceed further to sell it at public auction.”

However, the banks cannot get possession of the property without a court order. The same happens for the sale of the property at public auction.

Any procedure followed by the bank will inevitably be notified to the buyer who has the right to defend himself, thus ensuring transparency in the proceedings for the sale of his property at its value.

“Even when a bank obtains an order for the sale of a property of a debtor at auction, the bank will apply to the Land Registry to define the market value of the property and the time and place of the auction. Again, the purchaser is notified and it is up to him to take steps for his protection or to participate. The procedure followed ensures that the property will be sold at its forced market value,” said Coucounis.

Platis praised a Central Bank measure last July whereby banks were ordered to cut the credit ceiling to 60 per cent of the value of the property, from 70 per cent for individuals buying for a second time. For first-time house buyers, the credit ceiling would stay at 80 per cent, because it is the property speculators that need to be slowed down. The smaller developers would also be affected by the new credit threshold as they would now require more cash to build, for example, a block of flats.

“In this way there would be less debt in the development market, reducing the possibility of bankruptcies, especially for smaller developers,” he said.

This measure was, however, only temporary. “It seems that political pressure originating from developers has reversed this measure and we are now back to where we were,” Platis said.

Copyright © Cyprus Mail 2008

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