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[nhowarth]

Hi John,

> For protection you need a clause which PRECLUDES further mortgages.

That's what I said during the discussion - take a listen. AND you MUST HAVE a very hefty penalty if the vendor breaks the agreement. Also bear in mind that it will take a couple of years for the court to hear the case - and what do you do if the owner does nothing - take it through the courts again?

and then the Banks won't lend to the seller

Unfortunately, the banks do not see contracts of sale and don't have a clue what's in them.


There is one issue on Title Deeds that was not mentioned in either program – i.e. the loss of Government revenue.

When a Title Deed is issued to a property buyer, they pay a tax – ‘Property Transfer Fees’ (equivalent to the UK Stamp Duty). It would be very interesting to know how much revenue the Govt is losing & its impact on the Cyprus economy (ie if the Govt had the money could it lower heating fuel prices, increase pensions for the elderly, improve medical facilities, etc, etc).

My guess is that this loss of revenue runs into hundreds of millions of pounds. It would be interesting to hear Land Registry & Ministry of Finance view of the problem.

Cheers,

[dolmadis]

Unfortunately, the banks do not see contracts of sale and don't have a clue what's in them.

The scenario I envisage is where there is a clause in your sale contract (put there by a good independent lawyer) with the vendor that precludes further new mortgages being made to the vendor.

The scenario also envisages that there are no outstanding mortgages PRIOR to the contract for sale.

The vendor goes to a Bank for a new mortgage.

So when the Bank goes to register their new mortgage to the vendor (created AFTER registration of the contract for sale) the Bank discovers that it would rank, would it not, AFTER the encumbrance created by the deposit or registration of the contract?

So whilst the Bank might not read the Contract for Sale, the Land Registry would? And it would tell the Bank?

Unless the Bank's new Mortgage to the Vendor ranks before the Contract for Sale then it is no security at all?

So the Bank would not lend the money because it would prudently make sure that its security was good before it advanced the money.

Or the Land Registry say nothing and the Bank will wake up one day and find that it was unsecured?

[nhowarth]

Hi John,

The scenario I envisage is where there is a clause in your sale contract (put there by a good independent lawyer) with the vendor that precludes further new mortgages being made to the vendor.

That's what I said during the discussion - have you listened to it?

The scenario also envisages that there are no outstanding mortgages PRIOR to the contract for sale.

That makes no difference to the point being discussed

The vendor goes to a Bank for a new mortgage.

So when the Bank goes to register their new mortgage to the vendor (created AFTER registration of the contract for sale) the Bank discovers that it would rank, would it not, AFTER the encumbrance created by the deposit or registration of the contract?

Read the last paragraph of blue text I extracted from the Ministry of Interior' website & posted earlier.

So whilst the Bank might not read the Contract for Sale, the Land Registry would? And it would tell the Bank?

Yes - the bank would know there was a prior claim.

Unless the Bank's new Mortgage to the Vendor ranks before the Contract for Sale then it is no security at all?

No - the security is in the value of the land less the value of the contract of sale deposited by the buyer.

I.e Land Value = 375,000 Contract Value = 150,000. Security = 375,000 - 150,000 = 225,000.

So the Bank would not lend the money because it would prudently make sure that its security was good before it advanced the money.

In the above example, there's 225,000 security

Or the Land Registry say nothing and the Bank will wake up one day and find that it was unsecured?

Banks aren't that stupid.

Cheers,

[dolmadis]

Nigel

Yes, I have listened to the programme and as Rosie said this is a complex matter. Thank you for your patience.

Perhaps you would be kind enough to clarify one or two more points.

What you seem to be saying, if I have understood your reply to my questions correctly, is that is that regardless of the prior encumbrance created by the registration of the contract for sale, and the existence of a clause precluding further mortgages, that the vendor can still mortgage the land to a Bank?

Would the security position of the Bank be different if the Contract for Sale covered both the land and the building or that there were seperate contracts for land and building?

I must have misunderstood.

I found a little nugget of information on a web site as follows;

Assignment of the Sale Contract by the Purchaser By George Coucounis, Lawyer - Legal Consultant

Assigning the rights of the sale contract by a buyer is a safe approach by an individual to be able to acquire property and particularly a house or apartment in Cyprus. With the assignment of the sale contract the buyer secures the required financing or loan for the purchase of a particular property and being the assignor he assigns to the bank all his rights deriving from the sale contract, so as to secure his obligations furthermore. Despite the assignment of his rights the buyer maintains and obtains the possession, use and exploitation of the property he has bought, as well as the right, of reassignment as soon as all his obligations deriving from the assignment are fully met. In this case, the buyer acts basically as the primary debtor and as long as he pays his loan instalments regularly, he enjoys all the rights as the owner of the property - which he can also rent out and get rent from it. The self-contribution, which the banks require from a prospective buyer, in order to grant him financial facilities, varies depending on either his financial situation or credibility. However, these facilities usually reach only 20-30% of the purchase price of a particular property.

So if the land can still be mortgaged by a vendor then it would seem to follow that any Bank lending to a buyer of a property under an assignment of the contract for sale might only get the security value of the building rather than the building and the land?

That could amount to a serious economic impact because would that leave Banks in a precarious poistion having to make sizeable provisions?

[nhowarth]

Hi John,

> What you seem to be saying, if I have understood your reply to my questions correctly, is that is that regardless of the prior encumbrance created by the registration of the contract for sale, and the existence of a clause precluding further mortgages, that the vendor can still mortgage the land to a Bank?

In a word - yes. (that's why it's essential to have a stiff penalty clause if the vendor breaches).

> Would the security position of the Bank be different if the Contract for Sale covered both the land and the building or that there were seperate contracts for land and building?

That's something you'll need to ask the bank. Remember that this can only happen before Title's transferred to your name. When people buy off-plan the only thing on the Title Deed is the land. The dwelling is added at a later date, after the dwelling(s) have been inspected and approved and the land divided enabling a Title Deed to be issued for each division - at the same time, the Land Registry will include the property on the Title Deed for each of the subdivisions.

If you have a separate contract for building a dwelling, that contract is not deposited at the Land Registry - because there's no point. The bank would therefore have no knowledge of it.

I've seen George's article - it was n the Mail on Sunday & I've I posted it on my Blog.

> So if the land can still be mortgaged by a vendor then it would seem to follow that any Bank lending to a buyer of a property under an assignment of the contract for sale might only get the security value of the building rather than the building and the land?

Banks and other financial institutions will not loan money to individual buyers if the Title to the property they wish to buy is not available. (That's not to say that developers and banks don't have 'arrangements').

> That could amount to a serious economic impact because would that leave Banks in a precarious poistion having to make sizeable provisions?

Quite - and this may account for some of the levelling off we've seen recently in property prices as the Central Bank increases its grip in preparation for adoption of Euro.

Regards,

[dolmadis]

Thanks for the opportunity to discuss this in depth, Nigel.

It sets out quite clearly the very real risks of purchasing either a resale or off plan without having the title to the land transferred to you concurrently with your purchase.

As you correctly suggest, a clause precluding further mortgages on the land does not provide significant protection, if it only provides some financial recompense by way of a penalty - can you set it high enough? And can you actually recover by way of liquidated damages?

I hope this thread goes a long way to warning people of the situation and that the developer community and the legal community wakes up to the reality that no one should ethically or legally be asking customers/clients to take this risk without explaining it to them first.

[nhowarth]

Hi John,

I received a further piece of information about the Paphos Land Registry from a lawyer:

I have been reading with interest your sections about encumbrances searches.

I know I am one of very few lawyers to do these and I have run into a problem with this at Paphos.

As you know Paphos land registry is rather slow. If you apply for an official search, the written results take 6 to 9 months! No good at all when you have 30 days to exchange contracts.

I have also discovered that developers can get searches more quickly and I thought, great solution, until I also found out that the developer can ask for a search with does not have mortgages or memos on it! I have one of these, it looks like a full search in every way but it’s not.

Scary!

What do you think of that!

If the damn Land Registry can't tell you whether a property's mortgaged, who the hell can!

Regards,

[dolmadis]

Hi Nigel,

The seperate charge by those lawyers who will do a search for a client wanting to make pre-negotiation/pre-contract enquiries is CYP80 !!

We know that the Paphos Planning Dept is in backlog and now you have learnt that so is the Land Registry. This gives purchasers and their advisers no chance of finding out what they need to know, especially under grace periods.

As for the developers getting ahead in the queue, this is no great surprise having seen some in action at both the Planning Dept and the Land Registry.

As for not checking on prior mortgages, I saw one developer come a cropper as he bought land and discovered with a shock he had to pay off the mortgage as well. Nevertheless he was quick off the mark to get a personal guarantee from the vendor backed by a mortgage over the vendor's personal home to secure eventual repayment !!

I do hope that developers are not procuring these quick searches without encumbrances for their customers.......but I don't mind if they fool each other !!

[nhowarth]

Hi John,

Here's another spanner in the works. I've just been scanning though the 2004 Govt Audit report. It seems the records held by the banks regarding mortgages differ from those held by the Land Registry!

Maybe it would be easier if you just kissed your wallet goodbye

Cheers,

[dolmadis]

Hi Nigel

Disturbing news indeed. Let me just recap.

So either you or your lawyer does a search which can take 9 months to get a search result and it can be clear. But a bank can come long later and say we have either a prior or subsequent mortgage on the land?

Well that is more than a spanner. More like an earthquake !!