Bank Guarantee

[Vah]

Hi, I hope someone can help.

I discussed the issue of the risks in buying Mortgaged property in Cyprus with No Title Deeds with a Developer when I was told that a Bank Guarantee can be issued to reassure me.

I must admit I did not understand what the Bank Guarantee would cover ie the consideration; we did have some langauge problems.

Does anyone know if this is normal, what the Guarantee may potentially guarantee?

Cheers.

[Nigel Howarth]

Hi Vah and welcome to the forum,

When acquiring a property through a mortgage facility with a Cyprus bank, the bank will require a number of securities.

In the case of the bank of Cyprus, these are:

• 1) Assignment of the rights of the sales contract, deposited at the Cyprus Land Registry, duly signed and stamped.
  
  2) Developer’s guarantee for the period until the issuance of title deed. The property will then be mortgaged in favour of the Bank until full settlement of the facility.
  
  3) Personal guarantee of customer’s spouse (if applicable).
  
  4) Assignment of customer’s Life Insurance policy covering loan amount and period.
  
  5) Assignment of fire policy insurance over the immovable property in the Bank’s favour.

I expect that all of the Banks here require something similar.

A Bank Guarantee will provide you with added protection, but the cost is usually very high due to the risks involved - 1.8% per annum of the amount guaranteed throughout the guarantee period. Considering that the average time to issue Title Deeds is around 12 years, you will end up paying considerably more for the property than you expected.

If the property is mortgaged, I suggest you find something else to buy that isn't - do not touch it with a 10 foot bargepole. Alternatively, instruct your lawyer (I hope you have an independent one) to ask the developer to get a 'mortgage release' from the bank stating that the the bank has no claims on the property.

If you are duped into buying a property that is already mortgaged and the developer goes belly up, you face the very real threat of the bank applying to the Land Registry to auction the property. At least with a Bank Guarantee you should be able to get your money back - but you will not get back any capital appreciation the property may have made.

The easiest and safest thing for you is to get yourself a property that already has its Title Deeds and which is not subject to a mortgage.

There's an article in my magazine - although it's more than 3 years old, it is still valid. You can read it at http://www.news.cyprus-property-buyers. ... ty/id=0084

Regards,

[Vah]

Nigel,

Thank you for your comprehensive reply.

This particular apartment is said not to be mortgaged - however, one never knows if the developer may borrow against it in the future if the title deeds are held by the Bank.

On my part I won't need a mortgage and think I will insist on a property with Title Deeds; If I can find one!!

Cheers for now.

[Nigel Howarth]

Hi Vah,

I came across this information about Bank Guarantees from a lawyer's website:

• A bank guarantee is a guarantee issued by a bank in favour of the buyer. Very simply stated the bank guarantee says that in the event the developer is not in a position to issue a separate title deed within X years, then the bank will pay the buyer the amount stated in the guarantee. In this way the buyer is sure that if the seller goes bankrupt or does not comply with the permits and cannot issue titles, he will at least get all or some of his money back, depending on the amount of the guarantee.
  
  The problem with bank guarantees is twofold: First the question arises who pays the bank charges. Banks charge 1.8% per year as bank charges on the amount guaranteed. If the bank guarantee will be valid for 2 or 3 years then this is an additional cost. Secondly many developers – especially young companies - refuse to give a bank guarantee because this in practice means that they will have to “lock” their money in the bank for the amount of the bank guarantee. In addition they will be exposed in case for some reason there is delay in the issuance of title deeds and a buyer cashes a bank guarantee. It should be noted that cashing a bank guarantee does not mean that a buyer loses his property. A bank guarantee is an additional safeguard.
  
  Two or three years ago developers were more willing to give bank guarantees. At the moment, however, due to high demand they have no reason to do so.
  
  As a matter of practice , for example, for contracts of sale made in Nicosia developers agree to bear the costs of a bank guarantee after 2 years from the date of the contract because (usually) title deeds are ready within 24 months from delivery of the property. In Paralimni, on the other hand, are different and there is a lot of delay so developers do not want to bear any costs because they know that a title cannot be issued within 2 years. It usually takes between 5 – 7 years.

This is a little out of date - demand has evaporated.

The lawyer also has this to say about buying mortgaged property:

• The worst scenario, however, occurs where the developer has a mortgage over the land – usually in favour of a bank - for a loan. In this case, which happens all the time, the developer has to repay the loan in full before the bank lifts the mortgage and title deeds are issued. If the developer has financial problems or even worse he goes into liquidation the whole thing may end in a nightmare. Why? Because the bank has a priority over everyone else on the land and building and consequently may sell it to a third party or not release the mortgage. So the buyers remain totally exposed and there have been cases that buyers had to pay twice the value of their property by repaying the developer’s loan to the bank, in order to free the property.

It's quite easy to check if the land is mortgaged - by getting the Land Registry to do a 'title search'. You can get the N.50 form requesting this information from my website (complete with English translation) at http://www.cyprus-property-buyers.com/f ... search.pdf

If someone claims a property is not mortgaged - ask them to show you the N.50 search results from the Land Registry.

Regards,

[Vah]

Nigel,
Thank you for your research on the Issue of Bank Guarantees.

The whole situation in Cyprus seems ridiculous to me. Seemingly, it has reached a point where a buyer has to do a search at the Land Registry to determine whether there is a mortgage on the property with Title Deeds.

Last time I bought a house in the UK I was newly wed in my twenties; a long time ago. I instructed a local Solicitor to carry out the conveyancing while all I had to worry about was how long my honeymoon would last!

I will buy an apartment in Larnaca only with Title Deeds (if any) and will use the Solicitors in Larnaca listed by the Uk High Commission. If its easy I might do the initail search for any charges on the property myself.

Nigel: I believe that on your website you published a long list of procedures and 'things to do' when buying in Cyprus. Any chance of the link please?

Vah

[Vah]

Nigel,

'In this way the buyer is sure that if the seller goes bankrupt or does not comply with the permits and cannot issue titles, he will at least get all or some of his money back, depending on the amount of the guarantee.'

There is no option really but to have the Bank Guarantee for the full purchase price and expiring in say, 3-4 years before which the Title Deeds should be issued. The cost of the Guarantee at 1.8% should be borne by the developer. Utopia.

Vah

[Nigel Howarth]

Hi Vah,

Many lawyers in Cyprus do not bother to check with the Land Registry - they are under no legal obligation to do so. The same is true in the UK, but if a lawyer failed to advise you correctly you could take the matter to the English Bar Association and/or claim on their professional indemnity insurance.

There are a number of articles in my magazine about things to do and things to avoid in my magazine. Check out http://www.news.cyprus-property-buyers. ... -zambartas

And you can get my free top-tips guide http://content.yudu.com/Library/A18128/ ... Tips-Guide (where you can download the offline version).

Regarding the Bank Guarantee (assuming you can get one). I suggest you take it out for the period stated in your contract of sale. So if your contract says the developer will deliver the deeds in five years, you should take out the insurance for five years.

Regards,

[Vah]

Nigel,

Brilliant link; I now need to read all your Top 10s1

Cheers for now.

vah

[Vah]

Nigel,

'When it comes to finding a lawyer, the best thing people can do is:
Use one whose office is in a different town to where they're thinking of buying.'

I was going to use a Larnaca based Lawyer from the UK High Commission list as I am going to buy from Larnaca.

Logic does not seem to be appropriate in Cyprus. How disappointing!

Vah

[Nigel Howarth]

Vah,

If you use a lawyer on the British High Commission's list - you shouldn't have any problems. I have met the lawyer from Larnaca on a number of occasions and he spoke at a seminar organised by the Cyprus Property Action Group in Paphos.

Regards,

[Vah]

Nigel,

I need a Lawyer and some reassurance from a helpful website forum.

I have found a new build apartment, the last one in the block to be sold, with NO mortgage (according to the Developer) nor Title Deeds, as yet. I need a good independent Lawyer but, as I understand it, I need a Bank Guarantee which states that I can make a claim under the Guarantee if I don't get my Title Deeds in say, 5 years.

I am concerned if during the 5 year wait the Developer Mortgages the property, but then does it matter as I will have a Bank Guarantee?

Are there any more critical issues I should be considering.

Vah

[Nigel Howarth]

Hi Vah,

You'll find a link to the British High Commission's list of lawyers a bit earlier. Your lawyer needs to check that there is no mortgages on the property - this involves getting the Land Registry to carry out a Title Search.

That search will identify if there are any mortgages.

In certain circumstances, the developer may be able to take out a mortgage using unsold land as collateral. This will not affect you as your contract will have been deposited at the Land Registry before the developers mortgage and therefore takes precedence over that mortgage.

But if you sell before the Title Deeds are issued, your contract will be withdrawn from the Land Registry and will be replaced with that of your buyers. So although any mortgage taken out by the developer after you have bought will not affect you, it will affect anyone who buys the apartment should you sell it before the Title Deeds are issued.

A Bank Guarantee will provide you with an added degree of protection.

Regards,

[Vah]

Nigel,

Found an apartment, title deeds imminent otherwise no deal; but there is signicant evidence of damp all round the block. There are 8 residence and the apartment is on the top floor.

Should the damp be a deal stopper?

Any comments woould be appreciated, the developer on this 4 year apartment is sending an engineer round to see the extent of the problem for the management committee who should have been on top of the problem.

Cheers.

Vah

[Nigel Howarth]

Vah,

There are many shoddily built properties here - without any form of damp proofing. Builders cut corners to keep their costs down and maximise profit and such problems only become apparent after a few years.

As well as the damp, musty smell and unsightly mould growth, damp can exacerbate health problems and can eventually weaken the structural integrity of the building.

A friend of mine who rents here has just moved out of a house because of the damp - all the landlord did was to paint over the damp patches every year!

If the damp is coming through the ceiling, the roof needs to be properly damp-proofed. This is relatively easy as there are several damp-proofing treatments available - but it is something that needs to be done regularly. It needs to be done when the roof is dry - otherwise you end up locking the damp in the concrete.

The Management Committee should have done something about this before it became a problem.

It is up to you whether you buy - personally I'd look for something else that had been properly built in the first place.

Regards,

[Vah]

Nigel,

Your informative comments are once again.

The damp is at the base of the block of 8 flats so it will not affect the inside of the apartment which is a penthouse.

If I get confirmation that the management committee will proceed to cure the problem I will be happy, but will they????

I understand this is a common problem in Cyprus. I understand also that it is not dangerous re the structure!!!!

Vah