LAST MONTH parliament passed a bill, indefinitely banning repossession of houses whose owners have no title deeds, even though they may have paid for them in full, as 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.
Tens of thousands have been left without title deeds as a result.
A clause in the main foreclosures law exempts this category of properties from repossession until April 30. 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.
In March MPs amended the duration of the exemption, making it indefinite. The President refused to sign the bill into law and sent it back to parliament, arguing that it was unconstitutional and created ‘a general and permanent shield’, not for vulnerable groups, but a number of sellers and land developers.
But as property advisor Nigel Howarth earlier told the Mail, the amendment passed by the parties simply prohibits foreclosures, without addressing the key problem for the thousands of home owners trapped without title deeds.
He explained that even if a title deed were issued, it would still be in the name of the developer, not the buyer. And since the developer with an outstanding debt cannot transfer the deed, this means that whereas 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.
“Developers are being lumped together with buyers. A way around this muddle might be a new amendment, somehow separating the developers’ liabilities from the buyers, but it won’t be easy,” Howarth said.
That’s because many developers tended to take home buyers’ cash, and rather than using the money to pay off their own loans on that specific property or land, they financed other developments, which likewise came into the red, spreading the malaise.
After the President’s refusal to sign the bill, interior minister Socrates Hasikos said the government was preparing new legislation to comprehensively deal with the issue.
Under the current system, where an apartment block has 10 flats, of which nine have been sold and paid for, the block as a whole is still held in mortgage due to the developer’s debt, and title deeds cannot be issued to any of the buyers.
But, Hasikos said by way of example, with the new law being drafted by the government, if a developer’s outstanding loan is €100,000 and the value of the flat that has not been fully paid for covers the developer’s mortgage, then the other nine flats are released from the encumbrance and title deeds issued to their buyers.
But this too is no fix, says Howarth. First, the value of the remaining flat in the block may be insufficient to cover the mortgage on that development.
A way around it might be for banks to transfer that mortgage onto another building project of the same developer. However this wouldn’t work either if the apartments in the other project are unsold, said Howarth, since the banks would have no guaranteed revenue stream.
The property expert stressed also that an indefinite ban on repossessing this category of properties helps no one, including the banks.
What’s more, it’s doubtful whether Cyprus’ international creditors will release the next bailout tranche as long as banks here are prevented from recovering loans gone bad.
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.
This should have been done by October last year. [Editor’s comment: An earlier MoU called for this study to be completed by the end of June last year].
To get MPs to withdraw the indefinite repossessions ban on these properties, the interior minister has asked them to extend the exemption to June 30 instead.
This Friday, the House plenary votes on the President’s referral of the bill. Should the House reject the President’s referral; the matter will be settled by the Supreme Court.
So far, the ruling DISY party is alone in seeking to have indefinite ban withdrawn. For the President’s referral to be upheld, they will need the votes of DIKO and the European Party. The latter has stated it will back the President, but only if it receives satisfactory assurances from the government that the matter will be regulated.
DIKO’s stance is still touch-and-go. MP Angelos Votsis told the Mail yesterday that they may decide to re-table a previous amendment of theirs, which sought to extend until the end of the year the repossession freeze on homes without title deeds.
DISY may go along with that or a similar proposal, to prevent the matter from being decided at the Supreme Court, where the President could lose, in which case the indefinite ban would take effect.
A great deal of horse-trading is expected ahead of the House plenary, which will also be voting on the insolvency framework, again linked to property foreclosures.
If the banks move then the first action would be to repo the developers assets. Would this not mean therefore the bank would have to revalue the affected properties and write them down.
These properties will have already seen decreases in the order of 35% over the last 4/5 years but the loans to developers will have increased, as interest will likely have been capitalised. Part finished projects will have a very low value indeed.
This may well men that the current loan books are written down, reducing the banks paper capital. A massive right down is an issue as this could lead to banks then failing stress tests and perhaps they themselves may need to find additional capital.
I am a layman in such things but this seems possible.
Nigel, have you a view on the EUs likely position on this. Those who have paid should own, should they not? Any recourse to the ECJ of is this purely a domestic problem?
@Mr C on 2015/04/20 at 8:38 am – One of the principal objectives of the of the Foreclosures law (which has now been passed) is to enable the banks to put pressure on ‘strategic defaulters’ (those who can pay their loans but who are refusing to do so) to cough up. As it could take many years to recover collateral, the new law should enable this to be achieved in a matter of weeks.
This new law is one of the conditions in the MoU agreed between Cyprus and the troika of international lenders.
It will not be necessary to write-down the value of developers’ assets providing the debt is less than the value of the assets.
Nigel
Can someone clarify a small point for me. The owners have paid for their properties. Their deeds have been handed to the various Banks as security for a loan.
However, collateral used to secure a loan has to have a value at least equal to the amount you want to borrow.
In the case in hand, the deeds held by the Banks were, in reality, stolen from their rightful owners, and then used in the course of a deliberately planned fraud. The only difference was that, in this case, this blatant disregard for the rule of law was condoned by the previous Administration, whose understanding of the rule of Law could be written on one side of a piece of A4 paper.
The question is, which part of the entire fiasco do I not understand………..?
@Mike on 2015/04/17 at 11:48 pm – Firstly, the people who have paid for properties do not own them until they have paid the Property Transfer Fees – the local equivalent to the UK’s Stamp Duty Land Tax (SDLT).
The Title Deeds (assuming they’ve been issued) have not been handed to the banks. When the Title Deeds to a property are issued they are in the name of the owner (i.e. the developer) and become available for transfer when any superior claims (such as a developer’s mortgage) have been cleared – in some cases the banks are prepared to issue their purchasers with a waiver that effectively removes any claim the bank may have on the property.
The issue is that developers, lawyers and banks withheld information about any superior claims from those who bought property due to corruption, incompetence, whatever. As a consequence people ended up buying properties encumbered by developers mortgage and sometimes other claims. Hence the problem.
The vote on the five bills comprising the insolvency framework has been delayed until tomorrow (Saturday).
Earlier today protestors gathered outside parliament some of whom were holding up signs urging MPs not to pass the bill, but the police has closed nearby roads and set up barricades to block them.
The delay was announced by the speaker, Yiannakis Omirou, about 15 minutes ago.
“There are no titles” and Troika will not get themselves in this mess. They will give the money whether they like it or not, if they don’t give the cash Cyprus will threaten to leave the EU just like Greece done a few weeks ago.
Come on do you really think Troika care about you not having a title? Or any British MP?
Get real, best thing for all to do without titles is to demonstrate internationally. Tell your worst enemies not to buy here in Cyprus.
I do hope Troika are watching the antics of ‘our leaders’ and are laughing their heads off; ‘cos if they’re not, they’ll be crying. And let’s stop calling them ‘artful ways’, they’re not; they’re unethical, immoral, devious, self serving and sly and go far beyond anything that’s acceptable. Even Al Capone set up soup kitchens for the needy; this lot would charge you for standing in line!!
@Pete on 2015/04/17 at 2:04 pm – Interesting comment in the Cyprus Weekly:
“As lecturer in economic history at the European University of Cyprus, Dr Alexandros Apostolides notes, the current legislative framework [on foreclosures] only benefits MPs as most of them are either real-estate developers or lawyers.”
No surprises there!
Unfortunately the situation you outline Nigel cannot happen until the banks significantly restructure their books – which they steadfastly & obstinately refuse to do. It’s not just a problem in the Republic either – it’s ALL OVER THE WORLD.
Corruption in banking is the 10 000 tonne elephant in Times Square.
What does it take? Everyone to remove 80-90% of their money out of them – stop taking out loans – and a new financial services channel is set up to hold people’s gold & silver reserves instead and everyone lives in caravan parks for a few years until they get the message. Maybe – just maybe – then we would see the end of this C.D.O/ derivative / short-selling / hedge fund investing / computer algorithm calculating / non-safeguarded casino banking nonsense that has blown up the entire world’s economies – and everyone’s lives with them.
DEBT is enslavement. We – the population – are the banks SLAVES. Sorry – but unless you possess no debt and a decent private income – you are a slave. Banks wants slaves. They don’t give a toss if you’ve paid for your house – you are not important to them. It’s like tobacco companies don’t want to know about people who’ve given up smoking – they need to ‘recruit’ more smokers to keep the factories turning out cigarettes!
Whilst MoU clause 1.25 in section ‘C’ remains active, I can’t see how the Cyprus Authorities expect to get any further tranches of bail-out funding from the Troika if they continue to prevaricate on this issue of foreclosure legislation. The MoU is very specific in this respect but, hey, this is just Cyprus being Cyprus.
@Stuart on 2015/04/17 at 9:11 am – I have it on good authority that even if MPs pass the law on Friday, Cyprus will not receive the next tranche of the bailout.
The agreed text of the laws will have to be assessed by the troika to see if it conforms to the MoU – and the troika will then prepare a report for the Eurogroup who will decide whether or not to release the next bailout tranche.
I guess that will take a week or two.
It is well enough that people of the nation do not know our banking and monetary system for, if they did, I believe there would be a revolution before tomorrow morning.
Henry Ford.
The Banks want their cake and eat it. They allowed these loans [mortgage] to developers with their eyes open, knowing full well that purchasers had paid for their properties. I once unknowingly purchased a `hot` computer but was not held responsible and had it confiscated as `I purchased in good faith` said Police.
The Banks should take their loss with dignity but their greed and deceit will prevent this ever happening. Just try selling a car to two different people and pocketing the cash you would soon be wearing metal bracelets.
Nigel,
In you wise opinion how can this situation be sorted? I go from deep depression to hysterical disbelief on a daily basis when I read how self centred and selfish are the politicians entrusted to manage this once lovely island. All I want is the title deeds and to therefore legally is to own the property I have paid for in full. Is this too much to expect?
@Pippa on 2015/04/16 at 3:53 pm – How can this situation be sorted?
What’s needed is politicians who want to restore the credibility of the island’s property market by introducing retrospective laws to protect those who have been duped by lawyers, developers and banks.
A first step would be ensuring that those who have paid for their home will not lose it or their right to dispose of it however they wish – and will not be hassled by the banks to repay their developer’s debts. Ten minutes later Title Deeds must be available for transfer as soon as a property is delivered to its purchaser.