Is it really as bad as it sounds?

[pafos105]

Hello Nigel,
I have recently stumbled on to your site - if only I had seen it three years ago!!

My husband purchased a 3 bed apartment off plan in Kato Paphos for 230,000 Euros in 2008, we have paid a deposit and the sizable mortgage for 2.5 years, we have only managed to let the property for a total of 7 weeks in this time. My understanding is that it will also have dropped in price significantly partly due to it’s over inflated price in the first instance.

We are actually coming to Cyprus in a couple of weeks and I was hoping to get the ball rolling on selling the property and releasing us from what appears to me to be a very bad investment.
Having read your wonderful guide to buying property and looked at the forum messages my understanding is this...

The ‘developer approved’ lawyer involved in the original sale may have been crooked, we may not even have bought the property??!
The developer may have mortgaged the land and we could be guarantors for this and liable for this debt should the company go bust
We may not get our title deeds for up to 24 years and without them we cannot prove ownership of the property and therefore have no rights on it
No one else can get a mortgage on our property unless it has its title deeds
If the title deeds do miraculously become available, we will be liable for Immovable Property Tax and we will have to pay a Property Transfer Fee within 6 months of 11565 Euros (according to the government’s ready reckoner) Not paying this on time could cause lengthy legal costs.
The market is flooded with new property aimed at the foreign investors and locals will not be interested in holiday let type accommodation – i.e. there is no resale market.
Do I actually have any options open at all – can I just hand back the keys and walk away?? Who would be the best people to talk to while we are in Paphos in August - estate agents, the bank, a lawyer, locals, you? Many thanks

[Nigel Howarth]

Hi paphos105 and welcome to the property forum,

Firstly, let me assure you that you are not the only one with this problem. Many people have bought property only to discover that they have made a decision that they later regret.

Regarding your lawyer - he should have deposited your contact of sale at the Land Registry. This is easy to check as the copy he should have given you will have been rubber-stamped by the Land Registry. If you do not have a copy of your contract, what you need to do is ask your lawyer for a copy when you're in Cyprus. What is more likely is that the terms and conditions in the contract will be very one-sided in favour of the developer.

Not all developers mortgage the land on which they are building and this is something you can check out while you're in Cyprus. You'll find a guide on how to do this at http://www.news.cyprus-property-buyers. ... /id=004888 (the Guide to obtaining a Title search is near the bottom of the article).

Regarding your rights - if your contract of sale has been deposited at the Land Registry, you have the 'right to own' the property.

If you find someone to purchase the property, they may be able to get a mortgage on it providing that the developer agrees to act as their guarantor - what they can't do is just walk into a bank and get a mortgage by themselves. But one of the problems now due to the fall in values is that there may be insufficient equity in the development for the bank to loan the money.

Renting a 3-bed property to tourists can be difficult. The majority of holidaymakers look for studio, one bed or two bed accommodation. You would be better to rent it long-term. (Also, it is actually illegal to rent to tourists without a licence from the Cyprus Tourism Organisation).

Your best bet is to either hang on in there and rent it long-term until the market improves or to offer the property for sale at a sensible price.

Handing over the keys is not an option. It is possible that the bank could come after you in the UK. But how likely this is is difficult to say.

I'm on holiday myself at the moment so I'll not be able to discuss this with you next month.

If you would like to send me a 'PM' with you contact details and telephone, I'll give you a call and we can discuss.

Regards,

[davo]

I too have a very similar if not worse experience to you.
We bought 3 years ago in Paphos from Leptos Estates.
We paid 108,000 CYP putting down a deposit of around £30,000.
The exchange rate at the time meant we had an apartment costing 190,000 Euros.
We wanted to use the Swiss franc for mortgage but advice from Mosaic mortgage brokers (who have since gone bust)
was to use the Euro instead, as that was due to be the currency in Cyprus in Jan the following year.
We took their advice and the mortgage we took out was for 132,000 Euros (which was £85,000- this has now risen
after 2 years deferment to 153,000 Euros which is now £145,000)

At the same time the price of the apartment has dropped from 195,000 Euros to around 120,000 we are told
(estimate from Fitzgeralds estate agents)
We are in massive negative equity, dont have any sign of any deeds, cant afford to pay for them anyway,
and have mortgage repayments of over 600 Euros a month - the rates have been increased by bank of Cyprus by
over 1% last year without any explanation.
The first year we had 20 weeks of holiday lets, but then almost none the following year, and after advice we got
a long term tenant.
However, they are only paying 370 euros a month, and the mortgage (interest only 600 Euros at present but set
to change to repayment and will be in excess of 1000 euros a month) is far more. Then there are the 100 euros
a month service charges.
Obviously we cannot carry on like this. We dont have funds to get the deeds (6500 Euros we are told) and would not
be able to get them yet anyway, so cannot sell it ourselves. Fitzgeralds also told us that the law had changed
on these, and that now they are avaialable after 5 years and you are forced to buy them there and then rather
than as you require them as it was in the past

Bank of Cyprus have been very unhelpful - they will not give us any payment breaks, insist on us paying off
arrears that we didnt know we had (because they hadnt told us about the rate rise) and will not lower the rates
and are saying we will have to switch to repayment soon at over 1000 a month.

My main questions would be as follows:

Should we try to get Leptos to sell it for us? - but what happens when we are selling at a loss and have no money
to pay their very high sales commission?

Should we approach the bank and suggest a deficiency sale and find out what the terms are?
If we did, how would our credit rating in the UK be affected? and given a possible overall loss of 50,000 Euros
after fees are included, how much would they be expecting us to pay them back each month? - obviously we dont have
much, otherwise we would continue to pay the mortgage and would not be looking to ditch the place and lose
our 30,000 Deposit.

Would it be worth our while to use that vulture company and pay them 500 quid and just dump the place?
However the way I read their terms they sell to the new person (or transfer) for the "value of the outstanding
mortgage" -
but ours would be 153,000 euros and the place is only worth at best 125,000 now so surely the new "buyer" would
be paying well over the odds, so would it be a possibility anyway?

I have contacted an IVA (Individual Voluntary Arrangement with creditors) company over here and they assure me that
we could include any debts from cyprus property in a UK based IVA, and we would really not have very much to pay
them over the 5 years term - maybe £200 a month!!
Taking out an IVA is obviously a terrible thing to have to do, and we would not get any credit of any form for at
least 6 years...and as I am nearly 50 years old that is not a good thing - we may be looking to take out a mortgage
for a residential property in the next couple of years, but would not be able to.

I am really open to any suggestions right now, do you have some for me?

One person did actually tell me to just "do one" and just not pay, and ignore everything, and that there was not a
lot that they could do about it if I did, but I am not so sure about that approach!!

Please help!!
thanks

[pafos105]

Hi Davo,

I am sure Nigel will respond to your questions, but I wanted to tell you where we have got to since my last post. My main worry is the massive sums of money we are paying to Alpha Bank - over the last two years they have had over £25,000 from us (interest only) - like you the payment almost doubles after 5 years to start tackling the actual amount we borrowed.

Luckily we have benefited from the housing market in the UK over the last 10 years and have sufficient equity in our home to be able to borrow the full amount to pay off the Cyprus mortgage, we will need to extend the term of our current mortgage by 5 years to keep the repayments manageable. Although we avoided this in the first instance to try to keep the debt separate, we now realise that we would have to sell our home in any event if we could not pay the Cyprus mortgage as they Cypriot authorities would seek us out here anyway. By moving to an English mortgage we will not be affected by the Euro exchange rate, the % interest will come right down from 5% to 1.6% meaning that we will pay less each month and start reducing the loan immediately. It is also much easier to talk to the English banks and we feel that they are more likely to work in our interest. Finally it will mean that we don't have to pay to transfer money every couple of months.

The other benefit of doing this is that we can then make a decision on what to do with the Cyprus property without feeling pressured by the amount of money we are haemorrhaging each month.
When we visit Cyprus next month we will be taking to a number of people to help us decide what to do. At the minute we are thinking of continuing to try for holiday lets but we may look at long term rentals too. We have been advised that 3 bed properties are less attractive to long term lets as they are expensive also it is more likely to attract a family with lots of children meaning the wear and tear is greater.

Not sure if this is any help at all to you, but it might give you some ideas! Good Luck!

Nigel, do you have any warning bells for us? We are assuming that the Alpha bank will realease us from the mortgage with just admin charges, the Cypriot way does seem to involve large sums of money being paid out at every opportunity! have we missed anything?

Thanks, Helen

[Nigel Howarth]

Hi davo and welcome to the forum,

Many people are in a similar position to yourselves - the fall in the value of Sterling against the Euro + the fall in property values + the Cyprus banks increasing their margins have all taken their toll and increased mortgage repayments dramatically.

I feel that Mosaic gave you good advice regarding your EUR mortgage - people who took out CHF mortgages have been hit even harder than yourself.

Although the best solution would be for you to hang on in there until the market and Sterling improves, this may not be possible. If you cannot make ends meet with your tenant paying €370/month, then your only solutions are to raise the additional capital somehow, reschedule your mortgage, or to somehow to get rid of the place.

Getting rid of the place now, whether it is through Leptos or a vulture fund company will mean that you are going to lose money; the question is which approach involves the least cost. I'm afraid that this is something that you will need to work out based on the costs you are likely to incur. Speak with Leptos and the VF companies - and an accountant to work out your least cost exit route. Until you have spoken with these people and have a clear idea of the various options and costs, I don't believe that anyone can advise you of the best solution to your problem.

It would be very unwise to try and bury your head in the sand and try to walk away. There is a possibility that the bank would pursue you in the UK. If they get a court judgement in Cyprus against you they can apply to have that judgement recognised by a UK court.

I have sent you a PM with the name and contact details of a company in Paralimni that may be able to help you reschedule your mortgage - and as for looking to take out a mortgage for a residential property in the next couple of years, forget it until you have resolved your current predicament - you could find yourself in an even deeper hole.

In case you missed the link I published earlier about dealing with mortgage problems, you'll find the article at http://www.news.cyprus-property-buyers. ... /id=001361

Regards,

[Nigel Howarth]

Hi Helen

I don't know what (if any) early settlement fees Alpha will charge you - if you take a look through your mortgage agreement, it may have some information. If not, contact the bank and ask them - they have offices in London.

Forget holiday lets, the market's dead. You need to go for long-term rentals; yes, the wear and tear might be greater if you get a family with children, but at least you will be getting a regular income. (And it's also illegal to rent to holidaymakers for less than 30 days unless you get a licence from the Cyprus Tourism Organisation).

Regards,

[pafos105]

Davo,
One other thing I meant to say was that I recommend you read Nigels article on Vulture Companies - I found a link on one of the other threads. From what I understand they happily take your 500 Euros but do not guarantee that a buyer will be found. If they do find someone ready to take on a massive interest payment for a property in negative equity (?! unlikely?) then the mortgage remains in your name so you can't simply walk away from it all. Not sure what would happens if the new buyer decided to stop payment as you are the one named on the documentation. Certainly this sounded a very high risk option to me, guaranteed to lose you money, the question is how much!

Thanks Nigel for your feedback, we are talking to a couple of estate agents when we come over to find out the best options - sounds like 3 bed properties are a problem whether its for long term or holiday rentals!

[Pantheman]

Obviously we cannot carry on like this. We dont have funds to get the deeds (6500 Euros we are told) and would not
be able to get them yet anyway, so cannot sell it ourselves. Fitzgeralds also told us that the law had changed
on these, and that now they are avaialable after 5 years and you are forced to buy them there and then rather
than as you require them as it was in the past
Bank of Cyprus have been very unhelpful - they will not give us any payment breaks, insist on us paying off
arrears that we didnt know we had (because they hadnt told us about the rate rise) and will not lower the rates
and are saying we will have to switch to repayment soon at over 1000 a month.

Dear Davo,

sorry to hear of your predicament, but I wanted to pick you up on a couple of issues.

Just because you have no title deeds, it does not mean you cannot sell it yourself. The real problem you will face is if the sale price is less thank the bank loan as well as any cancellation charges from the developer, the bank may not release it unless you come up with the difference.

What Fitzgerald has said, if I read this correctly, is utter rubbish. The transfer fees were always payable by the owner when they were ready for transfer, at no time were they just given. You were always going to have to pay this money. Your only upside is that it has been deferred until the deeds are available for transfer.

The best thing to do would be to walk into the bank and tell them flat out that you cannot pay the extortionate amounts they keep increasing and if they want the property to take it back. That will sure get them thinking. After all, what will they do with hundreds of proprties they can't sell. Again this is just a threat, what you actally do is another thing, but from what I have seen, many banks will push you until you do fight back.

Only today, I had my renewal house insurance from the BoC. it was a whooping €903, sod that I thought! So I went in and told my manager not to renew it, it was too expensive. Low and behold they immediately reduced it to €600! Well, I went for it, as it was alot more reasonable. The point is, if you say and do nothing you will continue to get scr*wed over (sorry nige).

If you engage an agent to sell it on your behalf, you will be paying around 5% + VAT. Why not put up a sign of your own with your number and see what comes. The biggest problem for you as I see it is the sale price. Since you have already shown your hand, any agent would be concerned about getting paid and may not wish to act for you.

Good luck whith whatever you decide to do.

Pan

[davo]

hello all and thanks for the replies.
Helen - unfortunately we no longer own a house in the uk, we are renting and so have no means to borrow money.
We have contacted Maxim who arrange remortgages on foreign property from the UK as a base. They have not provided a solution as yet. Even if they did we could probably not afford it for much longer anyway, and I dont know how much it may cost to get out of the mortgage with Bank of Cyprus either.

Nigel/Pan - I wasnt saying that they used to give the deeds for free, what I was saying was that you used to only have to pay for them when you wanted to sell or complete your mortgage. Now you are forced to pay for them as soon as they are available apparently.
Fitzgeralds told me that I am unlikely to see my apartment reaching the price I originally paid for it (190,000 Euros) for more than ten years as any recovery will be painfully slow and the market is flooded and no-one wants to buy.
Helen mentioned that if you use the vulture company you dont actually clear you mortgage and you are still responsible if the new buyer decides not to pay. Is that correct? if it is then why would anyone go with them - surely it is far too big a risk? from what I read on your article on the subject you said the property was transferred to the buyer for the cost of the outstanding mortgage. I didnt see the bit about not clearing your mortgage and responsibilities? - also will they take over when the loan outstanding is really more expensive than the apartment is worth? If not then there is no point contacting them.
I am in almost weekly contact with the bank of cyprus and have had a go at them because they actually tracked down my wifes work number and rang her at work to demand payment. They apologised and backed down a little when I went mental. However they are not budging re payment breaks or lower rates or anything. I am as I say likely to ask them what the terms are for a deficiency sale - because I believe if you make an arrangement such as that then your credit rating is not badly affected, but have no proof of that - will know more when I ask the terms.
I am going to contact Leptos and see what they can suggest.

Pan - re insurance - BoC tried to stitch me up like a kipper - they insisted that we were not insured even thoigh we were, took out insurance on our behakf and deducted the money fron our account making us 360 euros overdrawn. That is so currupt its untrue and would be illegal in most of Europe I would have thought. Once again I went mad and had some heated email exchanges because I was using Intasure (who cost 130 a year for better cover) but they would not accept it until I actually got Intasure to fax BoC the policy and send a copy recorded delivery because they said they never got the fax!! I did win in the end though, and tey refunded the 400 euros they had taken from me (less some costs of course)

Nigel - I have not received any personal mail from you? or am I mistaken about what you meant by PM ?

[davo]

Nigel - figured out what PM meant. Thanks for the leads, have contacted both the lady re mortgages and the CEO of the vulture company - mainly to sound him out re the mortgage remaining in my name - can tsee how they releve yo uof the burden and someone else buys/transfers it to their name if the mortgage is still a factor for the original purchaser.
Await his reply.

[Nigel Howarth]

Hi davo,

Title Deeds are a certificate of ownership - like a motor vehicle's registration document. And until you have paid the Property Transfer Fees (equivalent of the UK Stamp Duty on property purchases) you are not considered to be the legal owner of the property. This results in several problems - you can't sell, you can't use the property as collateral for a loan, you can't release equity, in some circumstances the developer can raise a mortgage against the property without your knowledge, etc, etc.

In the UK, Title to the property is transferred to your name in a matter of days - in Cyprus I know people who have been waiting more than 20 years.

The market is saturated at the moment and finding a buyer may prove difficult. Although Estate Agents fees are around 5%, many of the developers pay estate agents 15% commission on the sale of new property. As you may appreciate it is difficult to find Estate Agents who deal in resales.

I don't know how the 'vulture funds' work - it's best to contact one of them and get the information from the horses mouth.

As for insurance, don't use the bank!!! A woman contacted me some time ago - she & her husband took a mortgage and bought a property using the bank and its insurance. Two years later her husband passed away. The bank told her that her husband wasn't insured even though she and her husband had been paying premiums on both their lives. The bank said that it had 'made a mistake'.

Also, if you do use an estate agent to sell, please check the contract before you sign it - preferably get a lawyer to check it over. See http://www.news.cyprus-property-buyers. ... /id=002313

Regards,

[Pantheman]

This results in several problems - you can't sell, you can't use the property as collateral for a loan, you can't release equity, in some circumstances the developer can raise a mortgage against the property without your knowledge, etc, etc.

There is an inaccuracy here Nigel, you can sell your property even without title deeds.

The market is saturated at the moment and finding a buyer may prove difficult. Although Estate Agents fees are around 5%, many of the developers pay estate agents 15% commission on the sale of new property. As you may appreciate it is difficult to find Estate Agents who deal in resales.

Nigel, I have to disagree with you here also. All agents undertake resales and especially now that the bottom has fallen out of the off plan market.

Just call into your nearest Agents office and discuss their terms. Just don't sign any exclusive agreements.

Hope this helps

[davo]

well, I am running out of options...
See reply from Sarah at the consulting firm you recommended...
and bear in mind that it certainly is to do with the exchange rate - difference of opinion with her there I'm afraid - if the euro was still at the saem exchange rate as wehn we bought we would eb paying 390 GBP a month - but we are paying over 600. Similarly when it goes to repayment we will be paying over a thousand and would have been paying around 600.

What are people doing when they are in my situation? - they must be doing something - are they all getting repossessed by the bank/property company or what? - or are they running away?
Surprise surprise I have had no reply fro mthe boss of the vulture company, so doubt that is an option either.
I am desperate - what should I do?

here is Sarahs response...


Thank you very much for your email and apologies for the delay in replying.
Unfortunately I do not have any good news for you. It is impossible to obtain an interest only long term loan in Cyprus now (as it was then) and the deal you have is the best they will offer. I am guessing that you signed the loan agreement fully aware of the payment schedule? Or perhaps you gave a power of attorney and never saw the loan documents? I do know that Bank of Cyprus will allow you two missed payments each year and can only suggest that you request this “payment holiday” option each year.



No other Bank will wish to remortgage you given the equity situation I am afraid. You should be aware that the negative equity situation is nothing to do with the Sterling/Euro exchange rate however, it is all due to borrowing 80% of the original purchase price with interest added over a two year period. Therefore at the end you would have owed somewhere around 90% of the purchase price. That together with the fact that you bought at the peak has left you (and many others) in a negative equity situation.



Have your financial circumstances changed since you purchased the property as the assessment would have been done to ensure you could afford the loan payments once you reverted to capital and interest? Do you have the property rented out? That may be a way to reduce your financial burden but other than that I am sorry but I am unable to assist you.



If you would like to talk it through on the phone, you can call me any time on the mobile number below. I will not charge you for my time.



I look forward to hearing from you at your convenience.

[Nigel Howarth]

Hi davo,

I think you should be taking professional advice on how to move things forward. I suggest you visit your local Citizens Advice Bureau (head office 020 7833 2181) and they should be able to put you in touch with someone who can give you advice on how to manage your financial situation.

I know there are approaches you can take such as individual voluntary arrangements, debt management plans, and bankruptcy petitions, but I have know knowledge or experience of these and you will need specialist advice on how to move things forward.

Leptos may be willing to take the property off your hands or you may find someone willing to buy at a discounted price, but you may still have some charges to pay to the bank. Perhaps other famliy members could help out?

Maybe someone else on the forum will have some further advice to offer.

Regards,