Defaulting on a loan

Questions about selling property
Tasmaniandevil
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Joined: 11 Mar 2011 16:43

Defaulting on a loan

Post by Tasmaniandevil » 15 Mar 2011 16:52

Hi Nigel, I am new to the forum. The Q & A's and general info appears to be very informative.

I bought a 1 bed apartment in Paphos in 2007 from a major developer. I borrowed £50000 (70%), from Bank of Cyprus. The loan is in Swiss francs, therefore, I, like so many others on your forum, have been caught out by a weak sterling. I initially made the repayments from my savings, but they have now dried up. For the past year, I have been making the repayments from my salary, however, they have been increasing steadily every month (£535 last month) - this cannot be sustained for much longer.

I now feel like 'walking away' from this and feel that any further money spent on it will be like pouring money down the drain. I've resigned myself to the fact that I will have lost over £30000 (deposit + payments to date) on the venture, however, my concern now is that I could, possibly, stand to lose another £30000. Let me explain - today I owe BoC £70000, I hand back the keys & 'walk away'. BoC auction the property and realise, say £40000 - they will then come after me for the £30000 shortfall.

Recently, I carefully read through my loan agreement and thought that I had been 'thrown a lifeline'. It contains a 'guarantee for a specific amount' - that is, the developer guarantees the loan in the event of my defaulting. The 'lifeline' was soon replaced by 'the weight around my neck', as I couldn't possibly conceive of the developer paying thousands to the bank; that's not the business they're in (namely, making as much money as possible)! It also states that "the guarantee shall be terminated upon the issuance of the title deeds". I am aware that it can take several years for the deeds to be issued. However, I considered how events would probably play out - the developer, upon finding himself in this predicament, would probably get somebody down to the Land Registry pronto, speed up the process, jump the queue (possibly involving back-handers), whatever, but somehow manage to get the title deeds. He then tells the bank that the deeds have been issued and therefore, he is no longer liable.

I should mention that I've had the property on the market (through the developer) for about 3 years - i haven't had any enquiries. It's on at about £70000 (what I paid for it).

In your opinion, do you think that I should be slightly optimistic regarding the guarantee or are my hopes likely to be dashed. I would welcome your and members advice/comments on my situation. Thank you very much.

Mike (UK).



Nigel Howarth
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Re: Defaulting on a loan

Post by Nigel Howarth » 15 Mar 2011 18:32

Hello Mike and welcome to the forum,

The developer has acted as your guarantor with the bank. The reason for this is that the value of the property you purchased could not be used as collateral for your loan and so the developer has acted as your guarantor. However, the bank will not allow your developer to act as your guarantor unless it has first claim on the property. In the event of everything going pear-shaped, the bank can recover some or all of its money by auctioning the property to recover the debt.

If you fail to maintain your mortgage repayments, the bank may pursue you. Some people in the UK have already been contacted by a debt collection agency employed by a bank in Cyprus to recover its money. However, these debt collectors cannot enter your property or seize any of your possessions, they can just pursue you for payment.

The next stage could be that the Bank takes you to court in Cyprus and may succeed in getting a judgement against you. The bank can then apply to an English court to have that judgement enforced (and note that you will not be able to defend an enforcement order).

As for what you can do. Some people believe that they have been mis-sold mortgages because they were not advised of the risks associated with CHF mortgages and currency fluctuations (you need to read through the documentation you received with the mortgage). If you believe that the property or the mortgage was mis-sold, then you need to seek legal advice.

If, having taken legal opinion on the matter, mis-selling does not apply, you need to find a way out of your situation. I published an article 'Help - I can't pay the mortgage' at http://www.news.cyprus-property-buyers. ... /id=001361

I'm afraid that you are being overoptimistic about the guarantee - it will not protect you unfortunately.

Regards,


Nigel Howarth
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Tasmaniandevil
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Re: Defaulting on a loan

Post by Tasmaniandevil » 09 Apr 2011 19:18

Thank you for your reply Nigel. I have read many of the topics on this forum & other Cyprus related forums and it seems that the issue of 'developer guarantees' crops up all too frequently. I'm sure that there are many others who, like myself, a man of reasonable intelligence, find it difficult to understand this phenomenan! May I refer you to para. 1 in your reply to my post:
"the developer has acted as your guarantor with the bank" - well, (& without wishing to sound flippant), who else would it be, but the bank; after all, it was them who lent me the money?
"the value of the property could not be used as collateral for your loan" - why not, as far as I know, when you take out a mortgage in the UK, it is secured against the property itself; why should Cyprus be any different?
"the bank will not allow your developer to act as guarantor unless it has first claim on the property" - as far as I can see from my loan agreement, the bank does have a first claim on the property; the developer has been paid in full, 30% from me, 70% loan. I have taken delivery, therefore, I would have thought it unlikely that the developer has any claim on it?
I have also seen the following on one of the forums, which, I believe was posted by yourself Nigel - "The mortgage is not 'fully guaranteed' by your developer - he acted as guarantor for your mortgage - that's different. What exactly does this mean? Either they are guaranteeing the loan or they're not! If it's not the loan, then what is the developer guaranteeing? This is just semantics in action. If they're not guaranteeing the loan, then it seems to me that the 'guarantee' isn't worth the paper it's written on.
Would welcome your comments in general and in particular to the 3 extracts from para. 1 above.
Many thanks,
Mike



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Re: Defaulting on a loan

Post by Nigel Howarth » 09 Apr 2011 19:52

Hi Mike,

The reason for all the complexity is that the property does not exist in the legal sense because no Title Deed has been issued for it and therefore, it cannot be used as collateral for the loan.

So your developer has to act as your mortgage guarantor with the bank. But for the bank to allow your developer to act as your guarantor, it needs to ensure that he has sufficient assets should you fail to repay your mortgage. It therefore requires the developer to mortgage the land on which he is building - and this provides the bank with the necessary assurance that it can recover its money if you default on your mortgage.

"Fully guaranteed" has a different meaning - E.g. You buy a property that is fully guaranteed for two years. If anything goes wrong with the property within two years, it is repaired under the guarantee.

Where the developer acts as a guarantor, he is agreeing to repay the mortgage that someone else owes if they cannot pay it back themselves.

I suggest that you download a copy of my book from http://www.news.cyprus-property-buyers. ... dments.pdf - this explains the mechanics of developer mortgages, etc.

Regards,


Nigel Howarth
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Tasmaniandevil
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Re: Defaulting on a loan

Post by Tasmaniandevil » 19 Dec 2011 18:07

Hi Nigel, hope you are well. An update; I ceased making monthly payments to the Bank in February 2011, citing a reduction in income due to illness. This was entirely true, however, I think I would have done it had I not become ill and still in receipt of my usual monthly salary. The Bank have been patient with me for the past few months, however, I have now received a letter from the developer advising that, due to my non-payment of the loan for the past 9 months, the apartment would now be put under 'forced sale' conditions - the Bank have obviously been in touch with them). The developer has also e-mailed me a Power of Attorney stating "in order to expedite the sale of the property and refund to me any amount left after the bank have been repaid (I love their optimism!), less 5% tax", please sign & return. I haven't done so yet & they (the developer) have been on the phone chasing it. They have said that they understand I don't want anything more to do with the apartment & if I return the POA, than this will relieve me of any further responsibility.
I would love to know what your thoughts are on this. My big worry was that when it's sold, if it realises less than what is owing to them (almost a certainty), then the Bank would come after me for the shortfall. Is there any possibility that the Developer guarantee is kicking in here or am I being niaive? Many thanks, Mike.



Pantheman
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Re: Defaulting on a loan

Post by Pantheman » 20 Dec 2011 10:24

Tasmaniandevil wrote:Hi Nigel, hope you are well. An update; I ceased making monthly payments to the Bank in February 2011, citing a reduction in income due to illness. This was entirely true, however, I think I would have done it had I not become ill and still in receipt of my usual monthly salary. The Bank have been patient with me for the past few months, however, I have now received a letter from the developer advising that, due to my non-payment of the loan for the past 9 months, the apartment would now be put under 'forced sale' conditions - the Bank have obviously been in touch with them). The developer has also e-mailed me a Power of Attorney stating "in order to expedite the sale of the property and refund to me any amount left after the bank have been repaid (I love their optimism!), less 5% tax", please sign & return. I haven't done so yet & they (the developer) have been on the phone chasing it. They have said that they understand I don't want anything more to do with the apartment & if I return the POA, than this will relieve me of any further responsibility.
I would love to know what your thoughts are on this. My big worry was that when it's sold, if it realises less than what is owing to them (almost a certainty), then the Bank would come after me for the shortfall. Is there any possibility that the Developer guarantee is kicking in here or am I being niaive? Many thanks, Mike.
Hi Mike,

Sorry to hear about your case. Do not beleive the developer when he says that. You should speak to the bank yourself, have them send you in writing that if you sign it over then ALL your liabilities will be wiped.
Alternatively, just ask the developer to take it back and release you.

Good Luck.


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Re: Defaulting on a loan

Post by Nigel Howarth » 20 Dec 2011 10:57

Hi Mike,

I go along with Pan - you need to discuss this matter with the bank.

Regards,


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Tasmaniandevil
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Re: Defaulting on a loan

Post by Tasmaniandevil » 30 Jan 2012 18:03

Hi Nigel. I was wondering, do you have any information on property auctions in Cyprus. In the past, when the bank repossessed a property here in the UK, it was very common for them to put it in to auction in order to get the best price - I imagine it is still happening to this day. Presumably, with the situation in Cyprus, some misfortunate souls (as this forum would bear out), have reached the end of the line, ceased making payments & handed the keys back to their bank. Therefore, my question is, what does the bank then do with the property? I would imagine they put them in to auction, and, if so, would be grateful if you could provide any info (venue, frequency etc). Thank you.



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Re: Defaulting on a loan

Post by Nigel Howarth » 30 Jan 2012 20:19

Hi Mike,

I don't have any information on property auctions - there is a report on one held on Sunday in my Cyprus Property News at http://www.news.cyprus-property-buyers. ... /id=005520 - that one was held in a cafe!!

Regards,


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Tasmaniandevil
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Re: Defaulting on a loan

Post by Tasmaniandevil » 02 Mar 2012 17:44

Hi Nigel,

Further to the above, the developer offered to contact me re: my situation and, I took them up on their offer. One of their chaps phoned me this morning in order to discuss a way forward and to consider my options. Here is a brief summary of His comments - I owe the bank 88000 euros - the £50K that I've put in so far should be considered as lost - my goal now should be to minimise losses - the apt has been on for the past 3 years at an asking price of 90000 euros, but that is unrealistic - a suggested asking price should now be 70-75000 euros - by signing the POA, this will allow them to sell it & then negotiate with the bank to accept an amount lower than the 88000 as well as waiving legal & other expenses. He added that I have nothing to lose by letting them try to sell it, as by doing nothing, which is what is happening at the moment, then sooner or later the bank will repossess and my situation will become worse. When that happens, they will just sell it for whatever they can get whereas we will almost certainly get a better price. Also, if the latter were to happen, I would end up on a credit 'blacklist' which is in operation EU wide, including, more pertinently, here in the UK!
Over the past 5 months, I have been contacted by three different staff members from this developer, encouraging me to sign & return the POA. Being the sceptic that I am, I wondered if they were looking to profit from my situation.
In your opinion, do you think that I am doing the developers a disservice or could it be that they genuinely have my best interests at heart?

Regards,
Mike



Spondoolies
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Re: Defaulting on a loan

Post by Spondoolies » 02 Mar 2012 20:13

Sorry about your situation but I would be wary of signing a POA for the reasons oulined in your message as it does not appear to guarantee that you are absolved of any losses going forward, it merely authorises your developer to sell at whatever price he wants (not at a price you want).



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Re: Defaulting on a loan

Post by Nigel Howarth » 02 Mar 2012 21:40

Hi Tasmaniandevil

I agree with Spondoolies - I would be very wary of signing anything that did not provide a guaranteed way out. And the developer will have already made money out of you

Have you spoken with the bank? They may be able to offer you options until the situation improves.

Regards,


Nigel Howarth
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Tasmaniandevil
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Re: Defaulting on a loan

Post by Tasmaniandevil » 20 Mar 2012 15:56

Hi all,

(1) Regarding the POA; I asked the developer why couldn't I provide them with another 'Option Agreement', (Nigel, I'm sure you're familiar with these), as this gives them permission to sell the apt on my behalf - indeed, this was how I had it on the market for the past 4 years - it was just simply renewed every year. The reason they have given is that any buyer is likely to require a loan & in order to replace my contact with the Land Registry, they would need a POA in order to do that. I'm not expecting or hopeful of 'a way out' from the bank, in other words, whatever happens, whether it's repossessed or the developer sells it (at a lower price suggested by them), either way, I'm stuffed as there's going to be a shortfall! So, I can't really see what I've got to lose by signing the POA and just let them 'get on with it'. Anybody like to comment?
(2) I've also asked the developer when my title deeds were likely to be available; answer, 6-8 months. Apart from the fact that I believe it's much easier to sell a property that has it's deeds, is there any other benefit to be gained by having them ie. if I can manage to hang on a bit longer before the bank forces a move?
Many thanks in advance to all.



andyp
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Re: Defaulting on a loan

Post by andyp » 20 Mar 2012 21:45

Tas.

I do not think the developer will EVER have your best interest at heart and will be under no pressure to push for a sale.

Assuming you can assign your contract and there is no developer's mortgage on your property, as I understand the new laws you do not need your developer's permission and if I was you I would be looking for a good Agent to Act on your behalf.

I would guess the developer will be looking to get a high price for the property and will hold out as long as it takes meantime your debt keeps rising.

My opinion is forget about the developer unless your contract says otherwise and get a good agent. Do not give your developer a POA.

Good luck.

Andy.



Tasmaniandevil
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Re: Defaulting on a loan

Post by Tasmaniandevil » 25 Sep 2012 14:57

Hi Nigel, the last reply on this topic (AndyP), mentioned that I should consider getting myself a good agent. This did occur to me when my predicament arose a few years ago - the reason I didn't was that it was going to cost money, would be a bit of a punt, with no guarantee of a sale. As far as I can recall from my visits to Cyprus, if you put a property on the market, you pay the agent's fees upfront (unlike in the UK, where they are taken from the sale proceeds). Is that still how it is today in Cyprus? Many thanks.



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