still legal to sell mortgaged property?

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VCY
Posts: 21
Joined: 03 Jul 2017 21:45

still legal to sell mortgaged property?

Post by VCY »

We're thinking to buy a house off-plan. We're living here, so can supervise the construction, and have friends who purchased from the same developer and are happy.

So, the main question is - is it still legal for developers to sell construction on mortgaged land without informing the buyer?

If so, what are the chances that the developer can mortgage the land in a few weeks period between the time we check mortgage status with the Land Registry and submit the contract for Specific Performance? Does it make sense to ask the developer to include a paragraph in the contract that the land shall be free of mortgage?

The developer says the land is not mortgaged.
Nigel Howarth
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Re: still legal to sell mortgaged property?

Post by Nigel Howarth »

Good morning VCY and welcome to the forum.

The Specific Performance law was replaced in 2011 and you can read its provisions at New specific performance law increases safeguards.

The key changes regarding the sale of of mortgaged property are as follows:

A vendor of a property is required to deposit a buyer’s contract of sale at the Land Registry before he encumbers that property with (for example) a mortgage. This is an important change to the law which will now recognises that a buyer has a better right over the property if he has signed a contract of sale as it requires the vendor to deposit that contract before mortgaging the land.

Should a vendor fail to comply with the above he will have committed a criminal offence and will be liable to a prison sentence of up to two years and/or a fine not exceeding €5,000.

In circumstances where a property is sold that is already mortgaged, the buyer may pay a proportion of that mortgage to the mortgagee (usually a bank). The mortgagee is required to accept this – and the buyer’s contract of sale, having been duly lodged at the Land Registry, will take precedence over that mortgage regardless of whether the whole amount of the mortgage has been repaid. Furthermore, the vendor cannot intervene in this arrangement.So if a person purchases a property for (say) €200,000 and it is discovered subsequently that the land is mortgaged for €8,000,000, that person may pay the mortgagee €200,000 (or any smaller sum that is proportionate to the value of the property purchased). So in future, buyers will not be called on to pay the purchase price of the property and the debts of the vendor.


So although it is still legal to sell property constructed on mortgaged land you can pay a proportion of the mortgage to the bank to prevent you becoming 'trapped'.

And you should also engage the services of an independent lawyer to represent your interests throughout the sale. The British HIgh Commission publishes a list of English-speaking lawyers that you can get by clicking here.

Regards,
Nigel Howarth
Independent information & advice for Cyprus property buyers
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VCY
Posts: 21
Joined: 03 Jul 2017 21:45

Re: still legal to sell mortgaged property?

Post by VCY »

Nigel,

First of all thanks for your response. So, the Land Registry shall inform us at the spot when the contract is deposited at the Land Registry? Or a search will still be needed post contract deposit?

As regards to legal advice, this is the second time I'm dealing with property in Cyprus. First time my relatives used advice from an independent lawyer who just took the money, looked at the vendor's contract and said that it was OK. Are you aware of any sample contracts for off-plan property sale? I'd like to do my own research, even if I use a lawyer for this case as well.
Nigel Howarth
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Re: still legal to sell mortgaged property?

Post by Nigel Howarth »

Hi VCY

I suggest you get a search before and after your contract is deposited - total cost €40.00.

Unfortunately many lawyers just take the money and do little (if anything) else. Property developers do have 'standard' contracts - some of them I've seen are very one-sided, contain misleading clauses and give the purchaser limited protection.

Cyprus was supposed to develop legal or contractual standards for property sales contracts as part of its bailout agreement with the troika. But as far as I am aware this did not happen.

Regards,
Nigel Howarth
Independent information & advice for Cyprus property buyers
Contact Nigel Howarth
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