This update out of neccessity is a little lengthy, however we feel that you will recognise our need for this when you eventually reach our call for joint action at its conclusion. In this update we will be covering the ever growing risks to buyers and what we can all do jointly to obtain assistance from the EU Parliament.
Government Failure to Act
We delivered our CPAG Report “Cyprus Property Pitfalls – a Time for Action” to the Cyprus Government on January 2nd 2008. The report, which was commissioned by the then Finance Minister Michael Sarris, is a shocking indictment of the scandalous practices of property developers of this country, aided and abetted by many dishonest lawyers and supported by the irresponsible and unethical lending of the banks. The Government have still not had the courtesy to respond to the CPAG Report – nor have they refuted any of the shocking findings, including the mass Immovable Property Tax fraud by developers.
The Cyprus Government is responsible for the lack of regulation and law enforcement in the property sector.
This Government, who along with previous administrations are fully responsible for the lack of regulation and law enforcement in the sector, must now take full blame for any bad publicity regarding Cyprus property as a result of their abject failure to act in the best interests of the people of this country, remembering that many thousands of Cypriots are also caught in the infamous Title Deed Trap.
Even now they are content seemingly to mislead the UK Government and EU Commission regarding possible legislation to address the massive problems here. All this whilst worried buyers, both Cypriot and other EU citizens, agonise about when they will receive their Title Deeds for properties for which they have already paid in full and which are effectively being used by developers to obtain mortgages to fund their business exploits.
Note: As a sign of the times, we also have email evidence to show that one well-known estate agent informed would-be sellers that they will not even take on their properties to market because the developer has a mortgage on the site. This is on top of the difficulty many buyers have in trying to sell without Title Deeds.
Title Deeds Seminar
A massive con trick has been perpetrated over the years by dishonest developers.
At the recent CPAG Seminar on the 26th March attended by 500 buyers, a show of hands established that the vast majority did not have Deeds. A second poll showed that none of these buyers would have bought in Cyprus if they had been informed of the practice of withheld Title Deeds and developer mortgages.
In essence a massive con trick has been perpetrated over the years by the dishonest developers, aided and abetted by the legal fraternity involved in property, financed by unethical banks and allowed by grossly irresponsible Cypriot Governments. It is estimated that 100,000 properties are without Title Deeds and developers have taken out €4 billion of mortgages on the land on which these are constructed.
The Seminar attendees were informed by lawyer Tasos Coucounis, who kindly gave his time for free, of the legal recourses available to buyers to force the transfer of Deeds.
Unfortunately, this takes time and expense due to the antiquated justice system which is widely recognised as unfit for purpose. Moreover, the buyers could in all probability have to pay off the developer’s mortgages and taxes (if they could afford it) to achieve transfer and then be left with more years in court attempting to claim their expenses back from a now long gone developer !
Loss of Property
We are often asked how many buyers have already lost their properties by developer failure to repay their mortgages. This is a difficult question to answer and the following example gives some of the reasons for this.
In 2002, a British couple bought a property on a single plot for CY£45,000 (€76,900) from a Paphos developer and then paid him CY£90,000 (€153,800) to build a villa. In 2007, hearing that the developer was in financial difficulties, they mentioned this to their Paphos lawyer who started legal action to obtain the Title Deeds to the land. At this juncture and to their surprise, they were informed that there was a developer mortgage on the land on which ‘their’ property was built. Nevertheless, they were assured that it was “only around CY£10,000” (€17,000) and that the developer would pay it off – however the developer, who is in financial difficulties, shows no sign of being able to do this.
However, they took it upon themselves to visit the Land Registry to try to ascertain the true facts – only to find out that there was a mortgage of €59,800 against the land. This was taken out just before they bought and they would definitely have refused to go ahead with the purchase if they had been informed of this at the time by their lawyer.
Although the court case drags on and they are paying out legal fees, they are uncertain as to what the status of the case is due to the lack of updates (despite asking) from their lawyer. Not unaturally they are sick with worry over this situation they now find themselves in.
The bank suggested that this retired couple take a loan to pay off the developer’s mortgage.
Recently they visited the lender bank who informed them that the developer (who had around a dozen multiple dwelling sites when he got into difficulties in 2007) has not paid anything off the loan since 2002! They were also informed that the balance has gone from the original €59,800 to a figure of over €85,500 with the added interest.
The bank helpfully suggested that this retired couple may want to take a loan themselves to pay off the developer’s mortgage as the bank could repossess the couple’s home at any time to recover any outstandings!
It is also clear that the buyers on this particular developer’s other sites (e.g a 14 dwelling site with a €683,000 mortgage) could be at risk, as could be many others, due to the ingrained secrecy in this industry coupled with the emerging practices of the Cypriot banks in allowing these unserviced debts to escalate.
Ethics and Cypriot Banks
Unethical banks can make a fortune by simply selling off the paid for property at any time to recover their debts – leaving the buyers homeless.
This sad story, amongst others, illustrates that the lending banks in Cyprus in the short term do not really care if the developers do not service their debts (for over 7 years in this case!) as the lender bank is secure in the knowledge that the buyers may have to pay off the developer’s loan to obtain Title Deeds. In the meantime these unethical banks can make a fortune (at little risk) and can simply sell off the paid for property at any time to recover their debts – leaving the buyers homeless!
That a bank can give a mortgage to a developer against the value of the land on which properties are built and then effectively hold the innocent parties (the buyers) responsible for the payment of the borrower’s debts in the event of default just beggars believe in any just or civilised country, especially an EU member state!
Moreover, within this whole cover-up situation there could be a ticking time bomb – and if the market does not recover any time soon, with no new buyers to pick up the bank repossessions, are these developer loans potentially banking toxic assets?
What’s Happening Elsewhere ?
We read with interest that according to a recent OPP (Overseas Property Professionals) magazine article, that due to the collapse in property values the Irish Government are taking on “€80 to 90 billion” of developer mortgages on developments in Ireland and overseas in order to protect their own domestic banking system. The article did not mention toxic assets but nevertheless this is clearly the case with these developer mortgages and therefore the need to remove them from the banking system.
CPAG also notes with great interest that the European Parliament recently froze hundreds of millions of Euros in EU payments to Spain as a result of illegal and other practices in that country perpetrated against property buyers (please click to see the BBC article).
This was largely as a result of buyers petitioning the European Parliament through the official appeals channels open to all EU citizens (official EU Petition Summary).
Please see also EU citizens Fundamental Rights, especially the rights (Article 17) to property (click here) .
Thanks largely to the lobbying of many CPAG supporters, we now have regular contact with UK MEP’s within the European Parliament who are more than willing to champion our cause. Quite naturally at the moment their main preoccupation is associated with electioneering for the forthcoming European elections and we wish them every success in being re-elected.
Nevertheless, in the meantime we invite you to assist us in attempting to emulate the buyers in Spain in the use of the Petitions process via the on-line Petitions procedure. Even if you are fortunate enough to now have Title Deeds, we believe that you too have a Fundamental Right (Article 44 ) to petition the European Union about these rights being denied to you in the past and we hope you will support this effort.
Petition the European Union Parliament!
Please click on the following link (petitions form) and fill in the form either in your own words which is preferable, or you may wish to cut and paste the suggested text below. Please also be at liberty to change this in any way you wish to reflect your own sentiments. You can also write direct to the Petitions Committee by post. *** Please note do not fill in the box “Name of the Association” as CPAG will be doing a more comprehensive input as part of our petition to the EU Parliament.
I wish to petition the European Union Parliament regarding Article 17 (Property) and Article 38 (Consumer Protection) which are denied to property buyers in Cyprus by the practices of developers withholding Title Deeds to properties in order to take out mortgages on the land on which these are constructed. There is no legal obligation for the developer to inform the potential buyer of the presence of a mortgage when they are buying, nor is there any legal obligation for the buyer’s own lawyer to search for any mortgages. As a result buyers are unwittingly caught in this risky predicament. Whilst in this trap most are also routinely defrauded and otherwise financially exploited by developers under the threat of Title Deeds not being transferred. In the situation where there is a mortgage and the developer defaults on the mortgage the lending bank has the first priority on the land and all the properties on that land.
In this situation the lender bank has the right to sell the properties of the buyers to recover any debts of the original borrower and the buyers can lose their homes, which seems grossly at odds with Article 17.
It is sad, and it certainly gives no one at CPAG any satisfaction, that after nearly 2 years of lobbying Government we now have to resort to these other channels of appeal due to the failure of the Cyprus Government to act in the best interest of the people, both Cypriot nationals and the tens of thousands of foreign buyers who have done so much to support the economy over the years.
We now need your individual support to make this appeal to the EU Parliament as powerful as we can – don’t leave it to others – please act now !
Cyprus Property Action Group