Cyprus-Forum.com

[nhowarth]

In a word no.

Here are the reasons:

> 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.

Let's take this a bit further - what happens when you get your Title Deeds and you then want to sell the property with the mortgage still in place - I suggest you ask your lawyer.

> 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.

Ask you lawyer what happens if the financial institution that loaned the money successfully applies to the court for a 'memo'.

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

You can infer whatever you wish from my posting John - I just made a statement of fact.

Regards,

[dolmadis]

Thank you for answering the question and stating your reasons why you think that the leading lawyer is incorrect.

I'll wait for Louise Zambartas, a lawyer, to answer your questions over on her Section on the CyprusLiving board where they are also posted.

You can also ask these questions of the leading lawyer when his letter is published in the Cyprus Press in the way of a reply.

[nhowarth]

Also John,

See Lana's posting at: http://www.cyprus-forum.com/viewtopic.php?p=99454

It's on the second page

Cheers,

[dolmadis]

Let us just wait and see what the lawyers have to say about the position now that it has been laid bare.

Publication by the leading lawyer publicly in the Cyprus Press will allow all authorities on the subject to give their views and considered opinions.

[dolmadis]

Louise Zambartas, Lawyer, who runs the Legal Section on CyprusLiving has come back asking what questions she should focus on. I have posted that over there but share this here too.

Issue

Mortgage by vendor registered on land AFTER registration of contract for sale

Contributions by lawyers

Louise, you said this in thread http://www.cyprusliving.netfirms.com//p ... 374eaa60b8

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.

This means, if the developer were to go bust, the bank could claim off owners who deposited their contracts after you, but not off you. Does this help?

Furthermore, in the Cyprus Law book by Neocleous it is stated “A prospective purchaser should always, before entering into a contract for the purchase of immovable property, conduct a search at the Land Registry to make sure that the property to be purchased is free from any encumbrances, charges or burdens. No such burdens may affect the right of specific performance after the contract has been deposited with the Land Registry.”

I consulted a lawyer and he said this:

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.

Another members lawyer has said this;

The legal system in Cyprus is generally based on common law and our legislation is, to a large extent, modelled on the respective English

legislation. However, in the field of Immovable Property, Cyprus legislation and the legal system in general is considerably different than the one applied in the UK.

First of all, the protection of ownership is safeguarded by the provisions of the Constitution, the ultimate Law of Cyprus, which establishes the equality of all persons and the respect for human rights , including the right to ownership, without discrimination.

According to Cyprus Law, Cypriots, as well as foreigners can enjoy all rights relating to ownership of their property without any interference either from the State or individuals.

One can wonder about the safeguards of a transaction between a seller and a purchaser, especially when the purchaser is not allowed to transfer the acquired property into his/her name , sometimes for a long period of time after payment of the consideration, as in the case of a foreigner purchaser awaiting for the several formalities to be completed.

According to the provisions of Specific Performance Law, the purchaser of immovable property may secure the transfer of the acquired property on to his/her name by depositing a duly signed and stamped copy of the contract at the Land Registry within (2) two months from the signing of the contract.

By depositing the contract to the Land Registry, the purchaser prevents the owner from transferring the property elsewhere or charging it for as long as the contract is valid and legally effective. Note that no burdens , charges or encumbrances can affect the right of specific performance after the contract has been deposited with the Land Registry.

Depositing a copy of the contract to the Land Registry gives the purchaser the right to seek 'specific performance' of the terms and conditions of the contract and thus to register the property on to his/her name, even though the owner may not be willing to accomodate such procedures.

Evidence

Nigel Howarth says that he has evidence from a number of people that vendors have registered mortgages on land and property that is already subject to an encumbrance created by the deposit and registration of a contract for sale in respect of that land and buildings.

You have already said "This does happen and it is legal."

Discussion

This is my understanding based on the legal opinions above;

For the purchasers protection the Land Registry in Cyprus provides a simple and effective legal instrument called “specific performance”. As soon as the Contract of Sale is signed and a deposit paid, then the Contract of Sale is registered and stamped at the District Land Registry Office, your Solicitor will do this for you.

This procedure then protects the purchaser’s ownership rights until the Title Deeds are finally issued and transferred into the purchaser’s name. The Contract of Sale is in the hands of the Land Registry and cannot be withdrawn by anyone, and therefore the property is legally registered in law as unequivocally belonging to the purchaser, it cannot be leased, sold, transferred or mortgaged without the consent of the purchaser – only the purchaser can alter the property status.

Questions

If the vendor is not permitted to create a mortgage then how is that act legal?

Why does the District Lands Office accept the mortgage from the mortgagee and register it?

If, notwithstanding the above questions, it is accepted that a subsequent mortgage ranks AFTER the contract for sale, what value does the subsequent mortgage have?

Further Questions;

Nigel Howarth asked the following questions:

> 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.

Let's take this a bit further - what happens when you get your Title Deeds and you then want to sell the property - I suggest you ask your lawyer.

> 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.

Ask you lawyer what happens if the financial institution that loaned the money successfully applies to the court for a 'memo'.

Further Discussion

When either you or your representative goes to the District Lands Office to have the land and property transferred by the vendor into your name (and apply for the issue of a Certificate of Registration, "title deeds) , the District Lands Office will check to see if there is a mortgage on the property. If there is then you are required to sign and consent to the transfer of the mortgage to you.

(V) TRANSFER OF MORTGAGED IMMOVABLE PROPERTY
Property which is mortgaged may be transferred under the following conditions:

1) That there is no term in the Mortgage Agreement that forbids transfer.

2) The Transferee declares in writing, in the relevant column of the form (N270) of declaration of transfer, that he has been informed of the existence of the mortgage encumbrancing the immovable property being transferred and of all the particulars.

3) There must be a transfer of all the immovable property encumbranced by the mortgage, if this includes more than one property. The transfer of a share in the mortgaged property or properties is permitted. The transfer is also permitted of the mortgaged property or properties to more than one beneficiary

4) The immovable property must not be encumbranced with another encumbrance and there must not a prohibition preventing the registered owner from transferring. There is an exception in the case where the immovable property is encumbranced with the deposition of a contract of sale of part of the property. In this case, the contract of sale is deemed to stand in the place of a mortgage.

5) The transfer of immovable property to a mortgage on the basis of the above is not permitted if there is a right of option. If at the same time as the transfer the written consent of the registered joint owner is produced that he does not wish to exercise the right of option, then the transfer is permitted. Right of option is the right granted to a registered joint owner of immovable property to acquire the portion of his co owner which is being transferred to a third party by sale. The exercise of the option is performed by the depositing at the competent Land Registry Office, within the stated time limit, the sale price and the rights of registration of the immovable property which is transferred.

So you or your representative would be informed of the mortgage which had been created subsequent to the registration of the contact for sale and you would refuse to have it transferred to you.

If redemption or removal of the mortgage by the mortgagee did not occur then in my opinion you would apply to the Court under Specific Performance for removal so that the "title deeds" would be issued to you.

Memos

Registration of memorandum (memo)

Civil Procedure Law, Articles 53-62

Where a Court has issued a judgment in favour of a creditor ordering the other party to the proceedings (judgment debtor) to pay a specified amount of money to the judgment creditor, the creditor may register a charge with the Department of Lands & Surveys against any immovable property registered in the name of the debtor as security for the recovery of the judgment debt.

The encumbrance created upon registration of a judgment is called "memo" (from the Latin term "memorandum").

A memorandum is registered upon deposit of a certified copy of the Court’s judgment with the Lands Office of the District where the debtor’s properties are situated.

Even though your contract has been deposited for ‘Specific Performance’, a court judgement can still be registered against the Title as security for the recovery of a debt even if that debt is not related to the property you have bought. If the vendor is in financial difficulties, creditors can apply to a court and, if successful, the court’s judgement can be registered with the District Lands’ Office in the form of an encumbrance known as a memo.

How can a memo get a prior ranking over the encumbrance created by a registration of a contract for sale? I don't think it can.

Remember this said by a lawyer above

First of all, the protection of ownership is safeguarded by the provisions of the Constitution, the ultimate Law of Cyprus, which establishes the equality of all persons and the respect for human rights , including the right to ownership, without discrimination.

According to Cyprus Law, Cypriots, as well as foreigners can enjoy all rights relating to ownership of their property without any interference either from the State or individuals.

But if there are monies unpaid under the contract for sale then the Memo can direct these through the courts to creditors.

If there were no monies due under the Contract for Sale then you would apply to the Court for the Memo to be lifted quoting the law about specific performance and the principled maxims quoted above.

Louise, I hope that sets out the questions and I look forward to your opinion on the questions asked.

Regards

[dolmadis]

Louise Zambartas has not yet replied over on CL probably given her busy practice. But I hoped that she would be familiar with this matter and be able to put many minds at peace before the Christmas Holiday break.

From my personal point of view I am content that the advice received from two lawyers already is sufficent to conclude that mortgages registered after the registration of a contract for sale rank after the contract for sale. Furthermore they have no claim to the equity, or profit if you like, representing the difference between the original purchase price and the sale price.

If the position were to be to the contrary then I have no doubt that this issue would have been made rather public much earlier. I made my first study of risks in purchasing property in Cyprus as early as 2000 and this has not surfaced in any trawls up to now.

But Nigel Howarth says that he has evidence of a number on instances where subsequent mortgages have been registered after registration of the contract for sale. Indeed you have said that this is legal.

Might I suggest how this might have occurred and yet no one still need be concerned as stated by another lawyer?

"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.

What I think may be happening here is that the District Lands Office is receiving 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, I grant you, and worrying at first but resolveable and of no consequence?

I may have this totally wrong because I am speculating and more importantly dabbling in law as an amateur. And the other lawyers may be wrong. If that is the case then the Cyprus property sales and development market should be boycotted by every prospective purchaser.

[dolmadis]

Here is the advice from Louise Zambartas from the CL Board

Sorry for the delay; I have been doing some digging and making some enquiries. While I am familiar with this subject, as you will know from my previous postings, there are some novel points raised by Nigel in this chain and I wanted to know some specifics of the cases Nigel had encountered so I could see if there was any reason for what had happened.

By way of background, I have dug out the relevant Law in Greek dealing with this and translated it. It is CAP 232. Article 7 states that by depositing a Contract of Sale at the Land Registry the deposition acts as an encumbrance and that it is independent of any encumbrances that are deposited after the deposition of the Contract of Sale. It prevails over the later registration of any encumbrance and the immovable property which is referred to in the sale of Contract can be registered into the name of the purchaser as stated in Article 4 of the same Law.

Regarding whether a creditor can claim to take the mortgaged property from the Vendor, he can do so except the part of the property that is included in the deposited Contract of Sale. The Court will order this part to be transferred to the Purchaser as the Contract of Sale prevails over the later registration of mortgages and memos, etc.

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. Banks will sometimes agree to this if asked to by the buyer’s lawyer. This is not a solution with court judgments however, why would the creditor agree to release the new buyer? There is nothing in it for him.

Furthermore, re-mortgaging and memos are evidence of financial difficulties. If the developer goes bust and Title Deeds have not been issued, it is a mess. One that can be sorted out, but nevertheless it all becomes very slow and messy. Under English Law specific performance takes priority over other creditors claims in an insolvency situation. While it is likely that this would also be the legal stance adopted here, there is no definitive case law on the subject and the courts in Cyprus are not compelled to follow English Law.

In summary, in normal circumstances the deposited contract definitely prevails over any later registration of any mortgage or memo etc. The buyers are entitled to have their title deeds issued in their names and to go to court for an order for specific performance if this is denied.

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.

So, how can we have cases where the owners seem to have a problem because of mortgages registered after the deposition of their contract of sale? I can think of a variety of possible reasons for this. Most of which are based around the fact that the buyer does not fully understand specific performance and thus loses his right to claim this.

The right to claim specific performance does not last for ever; this is clear from the postings above. If the buyer does not take up his Title Deeds when he could and should have done, he may lose the right to then claim for specific performance in court. Without that right, the buyer will have a problem in forcing the issuance of his separate Title Deed.

A common reason for not being ready to take the title deeds is delay in making the application for a permit to buy the property, formerly from the Council of Ministers. If the permit is obtained AFTER the period when the buyers were allowed by Law to require the Court to order specific performance, they are too late and therefore lose their right to enforce the registration of the property into their names. Nigel thinks this is probably the explanation for one of the cases he knows of, there was a delay and Title Deeds had been ready for issuance for some considerable time, but not taken up.

It is also possible that buyers might think that specific performance is a remedy granted by the Land Registry and they ask them to do it. Specific performance can only be granted by the courts.

Another thought is that the purchasers may have agreed to remove the deposited contracts, whether they realized that was what they were doing or not!

Finally, encumbrances searches are in Greek and are open to being misconstrued. For example, on a development, the search will show the developers mortgages taken out over the land but also all the buyers mortgages taken out to buy their individual; properties. I do wonder whether it is these mortgages that are causing some of the confusion here?

Without knowing more about particular incidents where this has happened, I do not think I can help further as I am really only speculating!

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[nhowarth]

Just to closedown this point, here is an extract from the dialogue on another Internet forum. The complete discussion can be read at: http://easterncyprus.com/viewtopic.php?t=6562

The legal opinion provided by an independent lawyer based in Limassol.

Question

Can you confirm or otherwise for me please. Can a developer re-mortgage land that he's built on. I live on a development of 19 houses. All the houses have been sold and the first owners moved in nearly 2 years ago, I moved in 18 months ago. Some houses have been sold on where people decided not to stay in Cyprus. None of us yet have title deeds. Is the developer able to re-mortgage the land without us knowing?

Legal Opinion

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 banks 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.

Question

Interesting answer, but if all the contracts have been deposited and the developer had a mortgage on the land what could the banks possible take if he defaulted ? Seems strange to be able to mortgage that which in effect is not yours ???

Legal Opinion

If the developer does not pay the bank, the loan stays in place and the land stays encumbered. In order to take clean title the buyers would have to group together to pay off the loan.

Regards,

[dolmadis]

In closing this thread I think that members might also wish to consider this position.

What happens if you wish to sell your property without title deeds where a mortgage is registered after you have registered your contract for purchase at the Land Registry for Specific Performance?

The existing contract would have to be cancelled and a new one arranged between the developer and your purchaser.

But then the mortgage arranged by the developer would rank ahead of the new purchaser. So the new purchaser pulls out.

OUTCOME: You cannot sell unless the mortgage on your property is repaid or released.

In order to get your title deeds you would have to pay off the loan.

[nhowarth]

Obviously your leading lawyer, who you quoted copiously in earlier messages, is either a complete d*ckh**d or doesn't exist!

According to you he said: "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."

I see that you were very, very careful not to name him. In fact you said:

"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 "

So what's the truth - were you trying to wind me up by making the whole thing up it up or did you talk to a d*ckh**d of a lawyer??

If he does exist, I urge that you name him - at least I'll have another name to put in my little black book!

Cheers,