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Double selling fraud: the O’Dwyer judgement

Cyprus cannot afford to delay any recovery of its property sector and the many scandals require urgent, radical treatment – not a sticking plaster, an aspirin and a hope that the patient will simply recover naturally.

FOR at least five years, the main complaint by Cyprus property buyers, particularly foreigners, has been non-issuance of Title Deeds. Typically, the developer has taken a prior mortgage on the land, which was either unannounced or deliberately hidden but, in any event, not revealed because of non-existent or negligent searches.

Non-discharged mortgages add to developer foot dragging and bureaucratic delays. Some 130,000 properties are still awaiting their Title Deeds, typically 7-15 years or more.

However, some cases have also involved alleged ‘double selling’ fraud whereby the developer sells a property to Party A, fails to lodge the contract with the Land Registry and then sells it again to Party B (possibly for a higher price) but fails to reimburse Party A. There are also alleged variants of this scam.

The most high profile case involves Mr Conor O’Dwyer who bought a property in Frenaros from Karayiannas developers. O’Dwyer brought a number of legal actions against the developers. One action, a private criminal prosecution for fraud under section 303A of the penal code, received judgement on 20th January 2011.

O’Dwyer had reported his allegations to the Police and the Attorney General who declined to act. He then felt obliged to prosecute both the developers and Michelle McDonald, the second buyer who now occupies the property.

This whole saga has received massive coverage in the English media but scant attention in the Greek language media. However, it would be unwise for anyone to ignore the huge negative implications for property buyers and for Cyprus.

Real protection or a mirage?

For many years, the standard claim by the Cyprus government, developers, lawyers and estate agents has been that a buyer of immovable property is absolutely protected once his sales contract is lodged with the Cyprus Land Registry.

This claim, supported by a precedent Supreme Court ruling, has been their main counter to the avalanche of allegations, criticism, anger and demands for justice from property buyers, largely from foreigners and their MEPs.

Indeed, on 22nd July 2009 the Minister of the Interior Mr Neoclis Sylikiotis issued a lengthy official statement about the Title Deeds scandal, noting that “those allegations are entirely unsustainable”.

He further clarified that “the current system and the existing legislation protects buyers and their ownership status”. He went on: “…..the ownership status of a buyer-owner of immovable property in Cyprus is definitely secured and cannot be challenged, as long as the buyer-owner has submitted the buying-contract to the Department of Lands and Surveys”.

Finally, he emphasized that “….there is something that one must not forget. Nobody and no Authority anywhere can ever challenge the property rights or ownership status of buyers of immovable property within the territory which is under the control of the Republic of Cyprus”.

A few days earlier, in a letter to Graham Watson MEP, Mr Sylikiotis had stated: “……buyers of immovable property are protected, once they deposit the Contract of Sale at the appropriate District Office of the Department of Lands and Surveys according to the Sale of Lands (Specific Performance) Law, Cap 232”.

What possibly could be doubted from such emphatic statements from the Minister himself, backed up a Supreme Court ruling? Well, the judge in the private criminal prosecution brought by O’Dwyer clearly thought otherwise.

The judgement

The defendants were found not guilty of ‘double selling’ fraud. Apparently, the judge decided that the prosecution had failed to prove, as required under criminal law, that the defendants had committed fraud ‘beyond all reasonable doubt’.

In my opinion as a non-lawyer, the prosecution would have had to prove a deliberate intention to permanently deprive the rightful owner of his property.

The judge acknowledged that O’Dwyer was the rightful owner and that he had lodged his sales contract at the Land Registry. She further acknowledged that he had made stage payments as per contract and that the developers had not returned his money, despite having re-sold the property to another person. The fact that the developers apparently have never offered or made any reimbursement of his money appears to demonstrate a deliberate intention to permanently deprive him of the property.

Under civil law, res ipsa loquitur (the thing speaks for itself) and ‘on the balance of probabilities’ would apply.

However, this was a criminal case and the judge felt that intent was not proven beyond all reasonable doubt.

What other logical reason can be put forward for what they did? It cannot have been just an error or forgetfulness, as the matter was brought swiftly to their attention. By eliminating other potential defences such as insanity and intoxication, that just leaves ‘lack of intent’ and the purposefulness with which they went about it strongly suggests intent. After all these years and no hint of a repayment, the intent also looks pretty permanent!

However, just as disturbing, and contrary to the precedent Supreme Court ruling, the judge also stated that lodging of a sales contract at the Land Registry does not automatically confer protection against ‘double selling’: “the fact they (plaintiffs) submitted a sales contract to the Land Registry did not mean they automatically and in perpetuity have become the ‘owners’ (as they mean it) of the residence.”

This judgment thus cancels the standard claim by government, developers, lawyers and agents that buyers are absolutely protected.

An appeal is being lodged with the Supreme Court and so the judge’s reasoning would be examined and evaluated formally when the appeal is heard.

The implications

Nevertheless, regardless of the final verdict on appeal, immense and irreversible damage has already been inflicted internationally by this and other cases on the Cyprus property market and the general reputation of Cyprus.

O’Dwyer alone is engaged in several other cases against his developers. They have already been found guilty of assaulting O’Dwyer in two separate cases and a civil claim for damages against them is still pending.

The Cyprus Property Scandal is not just about Title Deeds but the totality of factors that influence potential new buyers. Many existing foreign buyers report that they now feel terrified and their ‘Cyprus dream’ has been shattered. Potential new buyers simply strike Cyprus off their prospect list when they see earlier buyers being treated so badly.

Cyprus courts have no juries but millions of media and Internet users around the world, including potential new buyers of Cyprus properties, have become the proxy jury in the O’Dwyer cases and all the other horror stories they read or hear about. With yet more TV exposés imminent in the UK, there seems no end in sight to Cyprus’s property market woes.

Decent developers, lawyers and estate agents that I know (yes, they do exist) are exasperated and fearful of the obvious negative long-term impact on an already flat market. No sizeable developer can rely solely on domestic sales but what foreigner will buy here now?

The Cyprus economy also cannot afford to delay any recovery of its property sector. Prior to the downgrading of Cyprus’s financial ratings by Moodys, S&P and Fitch in recent weeks, Moody’s had cited Cyprus’s ailing property sector as a factor “as it remains a risk area with weak demand and unclear growth prospects”.

This deep self-inflicted wound requires urgent, radical treatment – not a sticking plaster, an aspirin and a hope that the patient will simply recover naturally. However, on Cyprus’s past record of inaction on these matters, the prognosis looks decidedly bleak.

Dr Alan Waring is an international risk management consultant with extensive experience in Europe, Asia and the Middle East with industrial, commercial and governmental clients. He is a Fellow of the Institute of Risk Management and is a founding member of the IRM Cyprus Regional Group. Contact info@dralanwaring-riskconsultants.com.

©2011 Alan Waring

(This article first appeared in the Financial Mirror)

Readers' comments

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  • out of the frying pan into the fire says:

    It takes ten (10) satisfied customers to tell one other person, they are happy. It takes one dissatisfied customer to tell ten (10) people they are very unhappy.

    Sorting out the title deeds is only part of the problem. Lawyers, developers, estate agents, the property market are all part of the same corrupt problem.

    And people who get too greedy get nothing.

    Which is what they are going to get. Nothing.

  • Mike C says:

    @Denton – I agree. This is very true with the new generation. Very greedy kids. Never had it so good and never had to struggle.

    They will eventually have their parents inheritance to add to their easy wealth but as you say, nothing lasts forever and hard times will hit them one day.

    I for one, no longer want to be contributing to the new greed of Cypriot wealth. Stuff them all.

    My investments and pension stay in the UK !

  • Denton Mackrell says:

    @Mike C. A further thought. Your description of likely behaviour and attitude fits v well with the older generation especially 65+. Many of them are graduates of the University of Hard Knocks and have had to hunker down many times before. I know many such individuals and respect their resilience.

    However, the younger Cypriots are very different and few will have ever experienced really hard times. Indeed, there has never been a property crash here, for example, unlike UK in 1990-1996, and those 35 or younger have known only good times. They expect a very high living standard and quick gratification of material wants. They live on credit.

    My older Cypriot friends constantly lament that their children and grandchildren are not prepared for adversity. Much of the family land has already been sold off so the traditional leg-up or inheritance is shrinking fast.

  • Denton Mackrell says:

    @Mike C. You are probably right, depressingly so. There must be a Greek expression for ‘duckers and divers’. Anyone know what it is?

  • James JH Lockhart says:

    Denton, mike others thanks for the input, I think the reality is hitting us all that the Ruling Cypriots care very little over the issues.

    I remember Alan Waring writing in one off his articles, It appears to be the powers to be do not understand right from wrong.

  • Denton Mackrell says:

    @Mike C and James. I believe the EU Presidency is only for 6 months, as it’s a rotating post. It’s more symbolic – Buggins’ turn – than anything. However, it is still galling prospect and no doubt there will be much whooping and yelling to the effect that it ‘proves’ that RoC is both credible and a credit to the EU.

    As one v big Cypriot businessman keeps telling me, ‘Politics is a dirty business’. I can’t see anything positive coming out of it on the Title Deeds etc issue – to them it’s a non-issue.

  • Mike C says:

    @Denton – Whilst I want to agree with you, I really can’t see the Cypriots allowing the banks to swallow their dosh.

    A few Cypriots have American, UK & Australia citizenships. Money will be spread all over the place Denton (including under the mattress).

    They don’t care about Moody’s or Fitch. They probably think they are types of European birds. Russian millionaires were using black money anyway. Cypriots have flash cars, land and nice houses with no debts. You can’t take that away from them – never.

    Many Cypriots have their own trade as well as a daytime job for pocket money. They can and will fall back on their tradesman’s job. Doing what they did before the big boom.

    They are harder than you and me and know how to survive better than us English (nice) folk !

  • Mike C says:

    @James – OMG..

    Cyprus Presidency of the EU !!

    Do you know what will really happen if the have a Big Fat Presidency seat?

    Annan Plan will be used as toilet paper and the Title Deed problem will be brushed under the carpet.

    Any non-Cypriot who complains will not stand a chance at anything – worse than it it now.

    Turkey will not back down..Never. They are too big. Army too big. Land too big. Population too big. They have plenty of natural resources and can produce enough food to feed the whole of Europe – cheaply.

    Little Cyprus is like the school wimp, asking for Europe to fight it’s play ground bully.

    The corruption will be massive if they ever get a Presidency seat. Especially a left-wing representative!

  • Denton Mackrell says:

    @Mike C. What you say reflects a lot of what I see. However, I think it’s only half the story. Cyprus has the problem of being ‘asset rich and earnings poor’. If it were a corporation and failed to correct this condition, it would soon be in deep doo-doo. I believe I’m correct in saying that yields from Cyprus property rentals are the lowest in the EU, for example. The problem has also been cited by Cyprus stock market analysts re Cyprus listed companies – good assets but poor performance. The weakness has been reflected in the downgrading by Moody’s, Fitch etc.

    Having dosh in the bank is great but its protection against powerful economic forces is often illusory viz Iceland, Northern Rock, all the Russian millionaires who became vapourware overnight.

    Cypriots imagine they are doing alright getting 4.0-4.6% on deposits while no other EU state is offering more than about 2.5% max (usually much less). These incredible rates from the Cyprus banks are just that – incredible – and cannot last.

    If they imagine they are invincible financially, they are deluding themselves. When the doo-doo hits the fan, they won’t have 30 minutes to get their money out. Unless the overall problem is addressed now, the crunch will come much earlier than 20-30 years.

  • James JH Lockhart says:

    @Mike thanks suspect you are right the minority who made the money have it salted away and could not care less about the country. They got the right people in place to block any attempt to make the market honest.

    My own feeling is our MEPs to table a motion suspending the Cypriot presidency of the EU, til they take effective measures.

    I think also by now the EU realize they made a huge mistake with letting Cyprus in. They should only have accepted them if they had agreed the Annan plan.

  • Mike C says:

    James – ‘will they change’ – NO

    Can a leopard change its spots?

    Since 1974, the Cypriots have made so much money either abroad or in Cyprus, they can sit back very comfortably thank you.

    Cyprus has more millionaires per capita than anywhere else in Europe and there are so many Cypriots who have over £100k in the bank and no mortgage on their main home.

    Their economy will shrink. Tourism will shrink by natural causes anyway and the housing market will shrink as it’s doing all over the world…But Cypriots will still have CASH-IN-THE-BANK.

    Their children will receive ‘refugee’ compensation and when they get married they receive large sums of wedding gift money from hundreds of guests….tax free of course.

    Lets not forget the North-South divide…compensation will be on its way no doubt !

    Maybe in 20 or 30 years time, the Cypriots will be hard up, but for now they are laughing all the way to the bank.

  • James JH Lockhart says:

    A very good article, again and again people are stressing the need for effective control on the property market.

    So will they change ?

  • Costas Apacket says:

    Good article.

    The Cypriots seem to be shooting themselves in the foot if they think that either inaction or constantly dodging the truth in property matters is the right course of action to take.

    Things will get worse before they get better.

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