Cyprus Property, Mortgages, Land, Title Deeds and Banks
I am pleased to be able to explain in detail the relationship between Cyprus Property, Mortgages, Land, Title Deeds and Banks.
Are these mortgages scams? It is important that each instance is considered seperately. Some instances may be scams, taking advantage of a system which can be manipulated to facilitate fraud. But, in Cyprus, we are dealing with a country that has a unique history which can help explain that this is not a necessarily a systematic scam perpetrated by a country against its own and other people of the world.
The Cyprus Informer has already reported on the articles of Professor Dr. Andonis Vassiliades & Maria Chimonides both of The Law Office & Research Centre in Larnaca. (http://www.girltalk.pcs-net.com/b2/cyprus-property-no-title-deeds-no-purchase/)
Vassiliades & Chimonides suggest that there is an historical reason for the title deeds problem. The Turkish Invasion of 1974 caused one third of the population to be displaced from the then Occupied North of Cyprus. It is claimed that the Cyprus Government adopted “a more relaxed approach to housing” in order that those displaced could have new homes in the South. Unfortunately this has led to “the authorities turning a Nelson eye to continuous and blatant violations of building laws and regulations”.
There is a very real need for the Government of the Republic of Cyprus to address these systematic issues ands change the law to remove loopholes for the dishonest and make sure that property buyers in Cyprus get legal ownership from the moment that the full purchase price has been paid. If the Cyprus Government does not then it will become the property pariah of Europe.
But Title Deeds are pivotal to developers credit in the Cyprus Property Market. If they have to issue these to purchasers they will have to pay back the banks. And if even pre sale mortgages rank after the purchaser then even more credit is reduced as banks want their loans back.
As The Cyprus Informer has said before the Cyprus Government cannot just tinker with property law. It must address how the credit generated by mortgaging title deeds can be replaced. If it does not do so then the Cyprus Banking System will crash and burn and the Cyprus Property Market will be destroyed. Clearly this will not be allowed to happen but the systemic changes are so enormous we do not believe that this will happen quickly. (http://www.girltalk.pcs-net.com/b2/cyprus-property-bubble/)
In the meantime property buyers in Cyprus must be fully aware of the risks they take and what steps they can take to manage or avoid risks. And those who cry “Scam” in every article or television programme need to be aware of and present the wider view of the problem. The Cyprus Problem is much more than the Turkish Invasion by War in 1974 and the continued illegal occupation. It has caused many of the other problems in Cyprus including The Cyprus Property Deeds Problem .
So what is the position that arises from these mortgages?
I wanted to fully understand some statements that had been published on the internet about a problem that some property buyers had experienced with mortgages being put on properties by a bank and developer after sale.I put the following questions in good faith to an experienced, respected, leading Cyprus Property Lawyer who had appeared in the Cyprus Supreme Court on a prominent property issue because I was concerned about what had already been published.
“I have heard about vendors of land selling a property, the buyer registering the contract of sale and yet the vendor can mortgage the land again.”
“Furthermore that in respect of the sale proceeds in the future that any gain over the original purchase price would be utilised in repaying the subsequent mortgage taken out by the vendor.”
“Is that true?”.
The Lawyer replied as follows;
“I have looked into and studied your query and please find herein below my reply.”
“The purchaser who has deposited his sale contract with the District Land Office, has nothing to worry about if thereafter the land will be mortgaged by the Vendor.”
“The sale contract has priority over the mortgage. Consequently the proceeds from the future sale of the property will not be used for the repayment of the subsequent mortgage.”
I passed this information on in good faith to the internet to help inform the subject. And since then there has been some additional input from two other Lawyers. I made sure that this information was also published alongside the original advice.
So, Is it Legal in certain circumstances as I said?
Yes, and I have the statements from Cyprus Lawyers which substantiate this.
Not my words but those of Lawyers.
Mrs Jeanette Truscott is a British lawyer who practices in Paphos as part of the Vlamis Law Office who spoke at a recent meeting of the Peyia Community Association. In response to a question Jeanette confirmed “that it was NOT illegal for developers to mortgage land that they had already sold to individual customers.”
Louise Zambartas – Lawyer. This does happen and it is legal. Your Contract of sale should have prohibited it! However, your rights were there first and take priority over the banks. Louise Zambartas went on to say, the developer remains the registered legal owner of the land and so he can mortgage it after selling the houses to individuals. However any mortgage over the land after you have deposited your contracts at the Land Registry takes affect behind your contract, i.e the bank’s rights would be second in the line to your rights. For this reason, most banks would not be interested in granting further loans and insist on the developer having his finance in place BEFORE he starts selling the properties and contracts are deposited.
Are there any difficulties selling before the issue of Title Deeds?
Yes, says Louise Zambartas which is contrary to the first opinion that I obtained. HOWEVER, where a potential buyer is considering whether to take on a property where there is no Title Deed and mortgages or memos have been lodged since the first contract was deposited, then I have to say I would warn that buyer off because HE WILL have a claim behind the mortgages and memos owing to the new and later date of his contract. The only way forward would be for the bank to release the new buyer from the mortgages. Louise Zambartas also wrote, Banks will sometimes agree to this if asked to by the buyer’s lawyer.
Should a Bank release the mortgage anyway?
Yes. Consider this. The District Lands Office receives notice of a mortgage for development of the overall, unsplit plot, subsequent to the registration of some contracts for sale for properties on the development. But because it is unsplit the Registry can only put this on the whole plot? Well, I would like to think that the Registry would note an exclusion for the contracts for sale that have already been registered. Perhaps they do not? Or if they do when you do a Search they do not note this on the Search Result? Hence there is a subsequent mortgage noted? A mistake which should be resolveable unless an unscrupulous Bank has deliberately not excluded properties already sold from the mortgage. An unscrupulous Bank because it will not release the mortgage when it is obvious that it does not apply to property already sold.
Can Title Deeds (Certificate of Registration) still be issued?
Yes, in which case the property can be sold once the Certificate of Registration is issued. Louise Zambartas says, where we have a development of apartments for example, and the developer has filed a new mortgage on the land after the contracts of sale have been deposited, my view is that this should not stop the issuance of the separate title deeds to the flats and these SHOULD NOT have the mortgage registered against them. If the land registry refuses to issue the separate title deeds because of the mortgage (it is my view that they would be wholly wrong to do this in any event), then the buyer must use his claim for specific performance and go to court.
Summary
Three legal opinions all adding to understanding of the position but with one having an apparently different view on the position on selling in this situation without Title Deeds. But regardless of which you accept, the situation is still resolveable if the Bank involved acts scruplulously, honestly and releases the mortgage so that the sale can proceed without requiring any of the sale proceeds. And if the Bank will not release the mortgage then the original purchaser must use his/her claim for Specific Performance and go to Court. The position there is, as the Lawyer’s opinion directly above, that Title Deeds will be issued ignoring the mortgage and the Court could also deal with the extinction of the mortgage at the same time. I understand that actions for Specific Performance can be heard with a minimum of formality and quicker than many other civil actions which can take up to 5 years to resolve in Court.
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