AN AMENDMENT passed by the parliament this week, banning banks from repossessing homes that owners have paid for but have no title deeds because of developer mortgages, has done little to relieve those affected, property experts have warned.
“It is a complete and utter mess,” property advisor Nigel Howarth told the Sunday Mail. “I don’t know if the people in government really understand what is going on.”
On Thursday, parliament voted to indefinitely ban foreclosures on homes whose owners had received no title deeds, even though they may have paid for their homes in full, because the building developers had already taken out loans on those properties which they cannot repay.
Developers’ land and buildings are counted as assets that need to be offset against their debt to banks, which gives lenders a claim on people’s properties that had been mortgaged by developers.
According to the provision, such properties will be exempted provided the buyers paid at least 80 per cent of the sale price or have fully complied with their contractual obligations towards the seller.
AKEL, which had tabled the amendment, said the legislation fully protected thousands of people whose homes or businesses could not now be foreclosed because a developer was insolvent.
But Howarth said that the amendment would actually do very little to remedy a problem that affects an estimated 30,000 home-owners as they still would not be issued their title deeds.
“What parliament achieved is merely stopping the bank from repossessing people’s homes. But what good does that do them if they don’t get the title deeds they paid for?” asked Howarth, pointing out that the issue dates back as far as 1986.
The property advisor added that even if a title deed were issued, it would still be in the name of the developer, not the buyer.
“And the developer cannot transfer that deed if his debt isn’t settled.”
This means that while the property would not be repossessed, owners might end up paying the developer’s debt just so they could get the deed for a property they had already paid for.
Not having a title deed makes selling the property difficult, if not impossible, he said.
“When people come to me looking for property, the first thing I advise them is to go for the ones that have a clean title deed, just so they can be on the safe side and avoid the hassle,” he said.
The banks readily lent to property developers, especially between 2004 and 2008, fuelling an unsustainable frenzy of building activity which roughly tripled prices.
The outdated legal framework enabled property developers to sell on property that was already mortgaged.
Authorities had ignored the title deed problems created by developers’ mortgages for years, despite the protests of mainly foreign buyers. But as the economic crisis got worse and developers tanked, it became obvious that Cyprus had a huge problem on its hands.
Years later, and under pressure from its international lenders, the island must now deal with the sorry state of affairs that authorities effectively allowed to happen with their inaction.
Under the terms of its bailout, Cyprus has set up a task force “on registered, but untitled, land sales contracts” that must prepare a study by the end of May.
The task force is made up by staff from the finance ministry, the Central Bank, the land registry, and the state law office.
After identifying the scale and various aspects of the problem, the task force must prepare an action plan “addressing at least (1) the removal of administrative hurdles for the transfer of title, (2) the provision of tools to encourage the release of encumbrances on properties to facilitate title transfer, and (3) the development of contractual standards for land sales contracts and connected loan and mortgage arrangements.”
This should have been done by October last year.
Included in their tasks would be a financial impact assessment regarding title transfers and lifting encumbrances.
“First we must measure the scale of the problem,” a government official said. That will be followed with “how can we solve it with the least possible effects.”
Resolving the matter will not be an easy feat.
Stavros Papadouris, chairman of the association for the protection of primary residence, said they have received complaints from over 1,000 cases of people who bought flats and houses and have no titles despite paying for them.
“All conditions were there for the system to be exploited,” Papadouris said. “The state did not have any safeguards in place.”
A case in point is the involvement of lawyers.
Before 2011, the land registry did not have to warn buyers of any encumbrances on property they were planning to buy. That was the work of the lawyers who either failed to do their due diligence or, as some allege, were in bed with the developers.
According to a report drafted by the Cyprus Property Action Group (CPAG) and handed to the government in 2007, lawyers were introduced or recommended to clients by property developers, estate agents and other vendors.
“As a result many contracts signed by buyers under the ‘guidance’ of their ‘own’ lawyer are, as they may later find to their cost, heavily in favour of their developers,” the report said.
One example is that many contracts called for stage payments at certain dates rather than the standard system of other countries for payments to be made on far the project had progressed.
Buyers complained that that even if these stage “payments are contractual on ‘progress’, lawyers do not check that the stage has been completed before asking their clients to pay. As a consequence, buyers arrive in Cyprus to find that progress is not as advised by their lawyer. Indeed, some developers take the ‘stage’ payments and may not do any work at all and then, when found out, simply tell the buyers to ‘take them to court’,” the report said.
AKEL has urged the government to defend the legislation and not to try to annul it since it removed the risk of a blatant injustice against thousands of people. It also lessened the danger of another negative development that could push Cyprus deeper in recession.
@Sonya. I fully concur with Nigel and other commentators.
One thing to be wary of is the relative locations of the developer/vendor and the lawyer you are considering to use. You may well find that a lawyer and the developer/vendor with offices in the same town are either ‘well known’ to each other or maybe even related and this may lead to corruption whereby the lawyer pretends to be acting in your interest but is actually aiding the other party. It is, of course, not a certainty but there is an increased risk and the annals of this website are full of horrible case examples. Not only are some lawyers figuratively ‘in bed’ with the developer but actually in bed with them! It usually involves a female lawyer and a male developer, mainly because most developers are men and a fair number of lawyers are women. I have yet to hear of other sexual combinations in this kind of corruption but never say never!
The problem is that most lawyers present so well as paragons of competence and rectitude – how on earth can one tell if this one is upright and that one a rogue? Forget the Cyprus Bar Association as a source of advice – that body is just a ‘trade union’ for lawyers and is not there to protect the public. The UK High Commission website is one good starting point; the other is to ask long-term British residents which lawyers (if any) they would recommend.
On a lighter note, you are looking to buy in Cyprus at a good time pricewise. Prices are depressed and likely to remain so for some time. The golden rule, as emphasized by others, is demand full, clean title deeds as an absolute pre-condition. Don’t get fobbed off with ‘title deeds will be available’ or ‘all the certificates and requirements are met for title deeds’ or ‘the deeds have only a memo attached on minor issues’. They have either been issued and transferred to the current owner or they have not. The deeds are either clean or they are not.
For the title deeds to be ready to transfer to you will mean almost certainly that you will be looking at resale properties and not brand new – because of the ‘complete and utter mess’ of the system and the many years it still takes to get deeds issued. Bargains galore in the resale market! Don’t let agents tell you otherwise or insist on showing you only new properties. Put your foot down!
Good luck.
@Sonya. The fact that you say an agent has told you that Title Deeds are unnecessary, proves yet again that corruption is still very much the order of the day in Cyprus and is likely to remain so for the foreseeable future as it appears to be an intrinsic characteristic of the culture.
So do please follow Nigel’s advice and engage the services of a truly independent English (or Welsh) lawyer who will steer you through the minefield of risk and nefarious practice that faces everyone looking to buy property in Cyprus, which is what this forum has been all about ever since it was first published.
As a Cyprus tax resident and a Cyprus citizen, I pay Annual Property tax for the flat purchased in 2005, which is my only home in Cyprus; as I recently found out, it was mortgaged by the Developer to the Bank; I paid above 80% of contract price to the Developer by cheques and my Bank confirmed me that the Developer deposited the money at his account with the Bank which gave the Loan. And now I should be responsible and repay the Loan advanced by the Bank to the Developer; to whom I can report this case: to ECB, Troika, any Cyprus Government committee, Association for the protection of primary residence? I would appreciate for the contact details of the relevant authority.
Hi everyone,
I am looking to buy a small place in Cyprus,
Should I look for only Property’s that have Title Deeds advertised ? I’m a bit confused as one agent tells me I don’t really need them – then another person tells me not to touch anything without title deeds.
I’m a bit confused with it all – its my first purchase aboard.
@Sonya on 2015/03/23 at 3:43 pm – As I have said in the article, “When people come to me looking for property, the first thing I advise them is to go for the ones that have a clean title deed, just so they can be on the safe side and avoid the hassle,â€Â
You should also engage the services of an independent lawyer. A good starting point is the list of English-speaking lawyers provided by the British High Commission in Nicosia.
And get a copy of my free guide to buying property in Cyprus.
Tell me about it, our lawyer was literally in bed with our developer and we were definitely ill advised. When approaching the developer about our Title Deeds – which we probably can no longer afford – we are repeatedly told the Land Registry are well on with them, even though we were told by the Land Registry itself they were ready many months ago, subject to the developers proving freedom from mortgage. Enough said ..
How the Banks allowed the Developers to sell the properties which were mortgaged…
@Yulia on 2015/03/23 at 2:31 pm – Why did the banks allow developers to sell mortgaged properties? Because there was no law preventing them from doing so.
Hopefully the lunatics in charge of the asylum will remedy this if they want the island’s property market to recover.
Yes Mr Scruffy, I think that you are right to say that a Specific Performance charge should have precedence over any charges registered SUBSEQUENTLY.
However, the charges associated with Developer loans often pre-date a buyers Contract of Sale.
Further for the reasons that have been well rehearsed, the enforcement of Specific Performance is certainly against the Developer and is very difficult in practice. There may have been some laudable successful cases, but they are as rare as hens’ teeth.
Nigel Howarth’s Cyprus Mail article is, I am sure very apposite, as one would expect from someone so experienced and well informed.
I also think it might be the case that the dubious assurances given by the political parties would only apply to primary residencies.
I am sure that Nigel would be able to tell us whether this were so or not.
This splendid article from Sunday’s Cyprus Mail tells it exactly the way it is. In particular, the description of sales contracts which call for stage payments to be based on future calendar dates, rather than on percentages of completion of construction, enable developers to receive full payment without lifting a single brick.
I know of at least one sales contract that was thrown back at the lawyer by the purchaser for this very reason, only to discover later that the lawyer was in fact the developer’s girl-friend and literally “in bed with the developer” as alluded to in this article. Such is the level of dishonesty in Cyprus and hence so capably depicted by Ray Clark in his comments below.
@Nigel – Thanks for that clarification. The bottom line is that you can be successful in court re tax memos.
@Johnny Cyprus
As I understand the present property laws, a purchaser is not responsible for any encumbrance that is registered on a property “after” the purchaser has deposited his contract.
The problem is that the LR cannot issue deeds until these memos are paid or lifted by a court.
I know that there has been successes in court already and that cases, in such circumstances as I describe, the result has been that the LR were instructed to issue deeds to the rightful owner.
As I understand it, it is not the developer you are taking to court it is the LR.
Perhaps Nigel can elaborate.
@scruffy on 2015/03/23 at 10:01 am – You sue the vendor for Specific Performance (not the Land Registry).
In a recent successful case the judge instructed the Land Registry to transfer title, it instructed the Director of the Department of Inland Revenue to issue all documents required to transfer the property title, and it awarded costs to the plaintiff.
So the plaintiff (buyer) did not have to pay any of the tax owed by the developer or pay any costs. An excellent outcome!
As things stand right now Cyprus cannot be relied upon to deliver a resolution of any sort that will deliver clean title deeds to property buyers.
Even a strong dose of KITA administered from without is no guarantee that buyers who presently do not have their title deeds will ever receive them. As a consequence buyers caught in the title deed trap should help themselves and seek their own resolutions where possible.
One approach would be for buyers to first exhaust Cypriot legal remedies and then pursue legal claims against the state of Cyprus in the European courts.
It is difficult to imagine that the EU legal system would permit those who have already paid for their properties in full to be legally obliged by the Cypriot system to pay developers’ mortgage, tax or any other debts in order to obtain title deeds.
‘Nothing ventured, nothing gained’. KD.
It may be of interest to note that even if title is available and if there is a contract of sale offered to land registry they will not accept it for specific performance if there are vendors taxes outstanding and the buyer may be unaware of the fact for years wallowing in the belief the title is being prepared – it was not – it happened to me.
What I find surprising is that the tax authorities / lawyers / banks and Land Registry can cross reference to establish each other to establish if all fees and dues have been paid by the vendor before considering the release of title deeds but they cannot cross reference, allegedly, to establish if developers owe taxes, have loans outstanding, have already sold the property etc. If that is not institutionalised fraud, deceit, criminal collusion I don’t know what is.
I got mine sorted, not in a way I am proud of or what I would want to instil in my children and grandchildren but when needs must….
I must add however that staff at Limassol Land registry were sympathetic, very helpful and generally a credit to their department. I appreciate others have conflicting views but that was mine.
Frankly I astounded that there can still be people out there whom might actually contemplate buying a house in Cyprus. A complete waste of money and probably one of the worst investments (short of loaning money to Greece) one could do.
The level of corruption that was responsible for the ongoing deeds fiasco is a result of very low Cypriot morality and totally inept governmental control.
Having based the islands economy on foreign money, this country has systematically sucked every potential source of revenue dry. Tourism, property investment, overseas business registration and EU loans. Now working on off-shore gas & oil deposits, and laying the facilities of war wide open to the Russians.
God help you Cyprus – a nation that has lost its strong character and traditions by prostituting itself to the highest bidder.
This is nothing short of criminal neglect.
The Specific Performance provisions within a contract of sale stated the buyers right to sue the developer and force him to provide the deeds to the property, if they had not been supplied within an unspecified time-scale after effective completion.
If the developer went bust before providing the deeds, the buyer would have no apparent remedy under these provisions.
In practice the developer could always hide behind the unspecified time-scale of Specific Performance and rely on the impracticality of issuing deeds as long as a development was incomplete and covered with a blanket security for loan capital.
So even with a Specific Performance clause, a buyer without title deeds would be in a difficult position. Nobody with any sense these days should buy a property without clean title deeds. So the ‘owner’ would be stuck with an encumbered property and reliant on some sort of legislation to provide a remedy.
On the face of it, individual title deeds in the name of the developer would just make it easier for the property to be seized by the bank and sold on to a third party.
Effective legislation has not been forthcoming. Foreclosure action has been temporarily stalled, in so far as it affects primary residencies.
Of course the developers Lawyers will not negotiate with buyer in this situation; they are expecting the government to change the rules of the game.
It is indeed ‘a complete and utter mess’.
Whilst I agree that this legislation does not go far enough, and understand how frustrating that is, I do not think its effect should be underestimated.
I don’t think that people, including experts, understand how ruthless the banks are when they have the law on their side.
I am in a property that is on land already foreclosed on by the bank.
The outstanding developer loan is not huge.
I have lost count how many times the banks have been told by the ECB, Troika and the government to restructure loans, negotiate with the individual buyers, make attempts to negotiate a solution etc etc.
What have they done? Absolutely nothing. They will not even speak to us personally, our lawyers, even the liquidator struggles to communicate with them.
The only sense that us the buyers can make of this is that, because the outstanding developer loan is not large, it is becoming clear that the bank have no intention of negotiating with us.
Why would they? They can sell the land tomorrow for 10 times the amount owed and make a lot of money and the purchaser would be picking up a bargain given the amount of properties on that land.
THERE IS NO OTHER EXPLANATION FOR THEIR BEHAVIOUR.
For us then, this legislation is a Godsend.
If this is passed, then at the very least, the banks will be forced to make a genuine effort to resolve issues, get off their high horses and realise they are not invincible.
As far as memos and tax issues are concerned I am confident that the “specific performance” laws would cover this as most contracts will have been deposited long before these memos came into being.