Cyprus-Forum.com

[dolmadis]

Having read Nigel's post regarding the land registry and the banks having differing records I found this quote on a blog, which strikes me a trifle ironic !!

http://grhomeboy.wordpress.com/2006/11/ ... n-a-cliff/

Litsa Chrysostomou, marketing manager at BuySell Real Estate in Cyprus................................
But Mrs. Chrysostomou and many other real estate experts warn prospective buyers to stay away from Cyprus’s Turkish north. “Properties might be cheaper there but there’s no way to check who the real owners are” because there is no reliable land registry, she said.

[nhowarth]

Hi John,

> They signed unfortunately

If they signed a clause like that, they sound beyond redemption.

Cheers,

[dolmadis]

Hi Nigel

They didn't see it as a problem because the mortgage would be redeemed at the time of issue of the deeds and their lawyer did not explain the position to them.

Hopefully some people will read this thread and be warned.

[dolmadis]

Hi

The concerns about subsequent mortgages after registration of a contract surprised me because I thought that I had looked into this before I purchased property and concluded that there were no problems.

So I wrote and asked a leading lawyer in Cyprus the following question. I have been waiting a few days for a reply.

This is what I asked.

"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?"

REPLY from Legal Consultant (which I have already shared with Nigel.)

"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."

As you know I am not able to reveal the name of the lawyer without his permission but but he has very high standing in this branch of Cyprus Law .

But I understand that he will be publishing an article in the Cyprus Press in the very near future.

I have been asking myself if this lawyer's view makes sense to me and it still does on the following basis;

Your lawyer must always make sure that there is no prior mortgage on land and buildings before you purchase and if there is, then this must be repaid before you do purchase.

My understanding is that the registration of a contract for sale at the Lands Office creates an emcumbrance on both the land and buildings such that if a vendor arranged a subsequent mortgage it ranks behind you and for all intents and purposes it is valueless.

I am not a greek speaker and the only the only official text in English that I have seen is here.

http://www.moi.gov.cy/moi/citizenschart ... enDocument

"The deposit of the contract of sale creates an encumbrance, which expires within six months from the date of the contract of sale or six months from the last date of transfer specified therein. Where only part of the property is sold (a building site or field under division or flat, office or shop under construction) the encumbrance is attached to the whole of the immovable property until the issue of a separate title for the part so sold. This means that the encumbrance created shall thereafter be limited to the part of the property so sold. Until the issue of a separate title, the vendor may transfer his property subject to the contract of sale, which is deemed to be a mortgage on the property so transferred, in the name of the new owner (purchaser). The contract of sale is binding upon the purchaser. The vendor may also choose to mortgage the property. In this case, the contract of sale is deemed to be a prior mortgage (subsisting before the new mortgage)"

"

When this publication speaks of "The vendor may also choose to mortgage the property." then I understand that, as the text says, the encumbrance created by the contract of sale relates only to that part sold in the contract for sale. Any other part of the overall plot which has not been sold, may of course, be mortgaged by the vendor. I believe that this is a normal way of financing a development. So when another part is sold then the mortgage is released so that the contract for sale can be registered and so on.

Just my view - you must check with your own lawyer.

[nhowarth]

Hi John,

Let me assure you that I know buyers in Paphos, Pissouri & Larnaca whose property was mortgaged by the developer AFTER their contract of sale was deposited for Specific Performance at the Land Regstry.

You may also wish to read another opinion that I have received:

1.3. With respect now of having a sale and subsequently the seller / developer mortgages the property, we find, again, that there is a reasonable safeguard to the unsecured buyer. Provided a buyer deposits the contract with the Lands Office within 2 months from the purchase date, this contract/deposit acts as a charge on the property and it is ahead of any mortgage or other charges that follow. So, if for any reason you buy a property and then the developer mortgages the “project” land and for whatever reasons he defects, as a result of which the financiers sell the whole project including the sold property, at least the buyer will get the value of the property back as a first claim ahead of the mortgage. Surely this is not a good situation and looking at it on the other hand, if a developer has a project of 50 units and sells the one and subsequently the developer mortgages the remainder, [but since he has no separate titles he must mortgage the whole project] the way it is suggested by you, is that he must not be able to do so.

1.4. Yes, it is a problem, should you wish to resell your property if it has no title, that is why care is needed both in terms of choice of your agent/developers/solicitor. We know that this is more a theoretical recommendation and it does not solve existing problems. We can say that there is a move now to increase the purchaser’s protection rights, by introducing some form of insurance guarantee etc. We have to wait and see but the solution of a Bank Guarantee is so costly, so as to be ineffective.

Cheers,

[dolmadis]

Hi Nigel

Let me assure you that I know buyers in Paphos, Pissouri & Larnaca whose property was mortgaged by the developer AFTER their contract of sale was deposited for Specific Performance at the Land Regstry.

If a vendor takes out a mortgage subsequent to registration of a contract then if it presented for registration then I would expect the Lands Office to register it but it ranks behind the contract for sale. At the moment, based on the advice received, I cannot see any value in the second charge.

My last post, and the advice given, is responding to your earlier one in which you said ;

"So you can buy mortgaged property, pay the developer in full for it and take posession - then the developer can take out a further mortgage - it's all perfectly legal!

I would be very interested to know how many properties are affected by this - and it's very obvious to see why some property developers are 'reluctant' to proceed with getting Title Deeds issued.

What happens in reality when you sell the property is that you can recover what you paid for it, but any profit goes to paying off the developers mortgage - clever eh?

With regard to the following advice;

1.3. With respect now of having a sale and subsequently the seller / developer mortgages the property, we find, again, that there is a reasonable safeguard to the unsecured buyer. Provided a buyer deposits the contract with the Lands Office within 2 months from the purchase date, this contract/deposit acts as a charge on the property and it is ahead of any mortgage or other charges that follow. So, if for any reason you buy a property and then the developer mortgages the “project” land and for whatever reasons he defects, as a result of which the financiers sell the whole project including the sold property, at least the buyer will get the value of the property back as a first claim ahead of the mortgage. Surely this is not a good situation and looking at it on the other hand, if a developer has a project of 50 units and sells the one and subsequently the developer mortgages the remainder, [but since he has no separate titles he must mortgage the whole project] the way it is suggested by you, is that he must not be able to do so.

1.4. Yes, it is a problem, should you wish to resell your property if it has no title, that is why care is needed both in terms of choice of your agent/developers/solicitor. We know that this is more a theoretical recommendation and it does not solve existing problems. We can say that there is a move now to increase the purchaser’s protection rights, by introducing some form of insurance guarantee etc. We have to wait and see but the solution of a Bank Guarantee is so costly, so as to be ineffective.

This suggests that the prior encumbrance created by a registration of a contract could be put behind a subsequent mortgage.

It is interesting to note what the lawyer says and I have not heard of this scenario actually happening in practice. Indeed there is a reference to "We know that this is more a theoretical recommendation".

I would expect there to have been a prior Court Order to enable the Bank Mortgagee to sell the only "sold" property over the prior encumbrance created by the registration of the contract.

I would imagine that the argument would be along the lines that this would be in the owners best interests?

On the other hand a Court might not be persuaded to order the cancellation of the encumbrance?

Personally I think that a Court would not be persuaded to change the law.

[nhowarth]

Hi John,

Where a mortgage is taken out after a Contract of Sale has been deposited, the Contract of Sale takes preference.

> I have not heard of this scenario actually happening in practice.

As I said in a previous post, I know buyers in Paphos, Pissouri & Larnaca whose property was mortgaged by the developer after their contract of sale was deposited - and I suspect there may be more.

The reference to "We know that this is more a theoretical recommendation". refers to the the statement where he agrees there's problem - "Yes, it is a problem, should you wish to resell your property if it has no title, that is why care is needed both in terms of choice of your agent/developers/solicitor." It's a theoretical recommendation because, as he says "it does not solve existing problems"

Regards,

[dolmadis]

The scenario I have not heard of actually happening in practice is "as a result of which the financiers sell the whole project including the sold property" there being 50 units of which only one is sold.

Accepting that you have evidence of vendors taking out mortgages on parts of a property that are already protected by the registration of a contract for sale and the leading lawyer I consulted is correct then why are the vendors taking out mortgages after registration of a contract for sale?

It makes no sense because as the lawyer implies they have no value.

Do you think that the lawyer I consulted is correct or not in your opinion?

[nhowarth]

Of course they have a value John!

If you are unwilling or incapable of believing me, take a look at Louise Zambartas' postings at: http://www.cyprusliving.netfirms.com//p ... php?t=4324

I'm sorry if you can't make sense of it.

Cheers,

[dolmadis]

You are ridiculing me, Nigel, by saying that I am "incapable".

You have not answered the question "Do you think that the lawyer I consulted is correct or not in your opinion?"

I can't see anything in that thread on another board where Louise says or implies that mortgages subsequent to the registration of a contract of sale have value.

I'll stick by this lawyer who is about to publish in the Cyprus Press.

"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."

Has Louise Zambartas given her view on this opinion? I have asked her for her view on the CyprusLiving board where she runs a legal section.