A RECENT on-line mini-poll conducted by this magazine revealed that more than 90% of our readers who voted want the Cyprus Government to ban the sale of mortgaged property.
Property buyers in Cyprus are continually being deceived into buying property built on mortgaged land and may be left at the mercy of the banks if the mortgagor (the person who borrowed the money) defaults.
- Developers often mortgaged the land on which they are building to help finance their development projects. Should the developer go bust, those who have bought properties built on that land will be faced with paying off those mortgages. If a buyer is unable to pay off the mortgage, the bank can repossess their property and auction it to recover the developer’s debt.
- There are further complications in Cyprus arising from the ??????? ??? ??????????? (antiparochi system). This is an arrangement between a landowner and a developer in which the landowner provides land to the developer in exchange for a number of properties being built on his land. The landowner may also have mortgaged his land to the bank, and if the bank forecloses on the loan for any reason it can seize the land and auction it to recover the debt. And once again, those who have bought property on that land face the very real threat of losing their homes is they do not pay off the landowner’s debt.
- There are even further complications. Even though property buyers may have paid for their properties in full, developers and land owners can continue to borrow money against land they have mortgaged by rescheduling and extending their existing loans without the agreement or even the knowledge of those property buyers.
All of these ‘scams’ are permitted under the Island’s antiquated property laws. And there is no way a property buyer can force a developer or landowner to pay off their mortgage. There may be recourse through the courts, but this could take many, many years.
MANY buyers have been granted mortgages to buy homes by the bank that loaned the developer or the landowner the money in the first place. This is a win-win situation for the banks!
- They receive mortgage payments from developers and landowners.
- They receive mortgage payments from property buyers.
- If developers, landowners or property buyers fail to repay their mortgages, the bank has all their mortgage repayments to date plus it can seize and auction the assets of the party in default to recover its debt!
In July last year a senior banking source told the Cyprus Mail “We have been prudent in our lending” – I think that was something of an understatement!
Furthermore, the banks appear to be under no legal or moral obligation to advise possible mortgagors of existing loans on property they are buying. And banks refuse to provide details of any existing loans on properties bought by those to whom they have granted mortgages. (However, I am certain that if a buyer offered to repay a defaulting developer’s or landowner’s loan that the bank would be more forthcoming with this information).
(A number of buyers who have discovered that their property has been built on mortgaged land, have approached various banks offering to repay the developer’s/landowner’s mortgage. But the banks have refused their generous offers telling them that they need the approval of the mortgagor.)
Once again, their lack of transparency and refusal to divulge this vital information seems to be permitted under the Island’s antiquated laws.