Re: Mortgage on land

[Laura]

Hi Nigel

When we were purchasing our property I had our lawyer conduct the usual searches. He discovered that the developer had taken out a mortgage on the land which the developer assured us via e-mail (which I still have) that the mortgage would be repaid by clients purchasing the properties by completion. This all sounded perfectly reasonable and not unheard of in the UK. It is often the way projects are funded. It should not present a problem. However, the developer has not repaid the mortgage and has taken out two additional mortgages which will not affect us financially but, will of course prevent us getting our title dees. Is an e-mail suffient proof? Would be able to use this in a court of law should it prove necessary?

[Nigel Howarth]

Hi Laura

I'm sorry to say that this type of situation crops up too often. If the land was mortgaged before you bought the bank's claim on the property takes precedence over your claim to ownership. I'm afraid that in this situation, if the developer went bust and the bank came after its money, it could sell your property to recover the debt.

What your lawyer should have done was (a) to advise you and (b) asked the developer to get a mortgage release from the bank that loaned him the money. The mortgage release would have ensured your property was not mortgaged when your contract of sale was deposited at the Land Registry.

The first thing you need to do is to look through your contract of sale. If it contains a clause stating that the property will be free of a mortgage at the time of delivery, then I believe the court would find the developer in breach of contract - and you could claim damages.

If there isn't such a clause in your contract, the you'll need to take legal advice on how best to proceed. I'm not sure whether an e-mail from the developer would be admissible.

If your lawyer didn't advise you of the problem and didn't include a clause in your contract stating that the property would be free of a mortgage when you took delivery, you should find an independent one to represent your interests.

(Louise Zambartas, who occasionally pops in here is on the list of lawyers published by the British High Commission in Nicosia. I suggest you have a word with her. It would be best to email her directly rather than asking in the legal section).

Regards,

[Laura]

Hi Nigel

Please see below a couple of extracts from our contract. You will note from the extracts that we should have received our title deeds two years after completion. It is now nearly four years after completion.

Any other expenses or fees or dues or taxes in respect of, or imposed or charged on the property sold until the date of delivery of the possession to the Purchasers will be burdened exclusively buy the Vendor. The Purchasers bear no responsibility and they are not in any way liable in respect of any obligations, outstanding charges, dues, and and property dues, fees and taxes regarding the said Property until the date of delivery of the possession to the Purchasers except the stamp duties.

The Vendor hereby undertake to cause or create no delay in applying for a separate title deed and further undertakes to do all is necessary so that the separate title deed for the property hereby sold may be issued and the Vendor also undertake to remove all encumbrances, if any which might otherwise prevent or delay a separate title deed being issued. Nevertheless, the Vendor take the responsibility of issuing the separate title on the name of the Purchasers within two years after the completion of the set property.

The Vendor has not removed the first mortgage and has now taken out two additional mortgages on the land which does of course delay applying for a separate title deed. Therefore, the Vendor/Developer must be in breach of the contract? The contract also states Nevertheless, the Vendor take the responsibility of issuing the separate title on the name of the Purchasers within two years after the completion of the set property. Which has not happened possibly in part due to the mortgages and the fact that we do not as yet have a certificate of final approval.

I would be grateful for any help or advise, thank you.

[Nigel Howarth]

Any other expenses or fees or dues or taxes in respect of, or imposed or charged on the property sold until the date of delivery of the possession to the Purchasers will be burdened exclusively buy the Vendor. The Purchasers bear no responsibility and they are not in any way liable in respect of any obligations, outstanding charges, dues, and and property dues, fees and taxes regarding the said Property until the date of delivery of the possession to the Purchasers except the stamp duties.

This means that you were not liable to pay any property taxes, etc, until you took delivery of the property. But now that you have taken delivery, you are liable to pay them.

The Vendor hereby undertake to cause or create no delay in applying for a separate title deed and further undertakes to do all is necessary so that the separate title deed for the property hereby sold may be issued and the Vendor also undertake to remove all encumbrances, if any which might otherwise prevent or delay a separate title deed being issued. Nevertheless, the Vendor takes the responsibility of issuing the separate title on the name of the Purchasers within two years after the completion of the set property.

You’ll need a lawyer to give you the legal interpretation of this (unfortunately, it may appear to mean one thing to you and I, but the legal interpretation could well be different).

This is my interpretation.

The phrase:

“the Vendor takes the responsibility of issuing the separate title on the name of the Purchasers within two years after the completion of the set property.”

Is not the same as saying:

“the Vendor undertakes to issue the separate title on the name of the Purchasers within two years after the completion of the set property.”

This is because it’s not the developer who issues the Title Deeds, it’s the Land Registry. And the developer cannot be held responsible for things that he cannot control (i.e. local and central government departments).

So I would have expected the developer to have submitted the applications that would enable the Planning Authority and the Land Registry to progress matters.

This is how it works:

Firstly, the developer has to seek a ‘Certificate of Final Approval’ from the Municipality/District Office/Town Planning Department. Assuming there are no problems, this can take 6 – 18 months.

After receiving a ‘Certificate of Final Approval’, and assuming you’ve bought on a development, a ‘Division Permit’ is needed to subdivide the land into individual plots. This can take six months.

Once a Division Permit has been issued, a Certificate of Approval of the Division Permit is required. This can also take six months.

Once a Certificate of Approval of the Division Permit has been issued, an application is made to the District Lands' Office for the registration of the property & issue of Title Deeds. Depending on difficulties & complications, this can take anything from 12 - 30 months.

Now the mortgages the developer has on the land will not delay the issue of Title Deeds. However, in order to transfer Title to your names, he will have to repay the mortgage. If he fails to do this, then he will be in breach of contract.

Your lawyer has done an abysmal job of protecting your interests!

Regards,

[Laura]

Hi Nigel

Thank you for your reply.

It is difficult to know what to do next. Who CAN you trust?

[Laura]

Hi Nigel

I cannot understand why the developer cannot be held in breach of contract when he has taken out additional mortgages on the land which will, as I understand it, prevent him applying for separate title; which according to our contract he has agreed to do within two years of completion.

"The Vendor hereby undertake to cause or create no delay in applying for a separate title deed and further undertakes to do all is necessary so that the separate title deed for the property hereby sold may be issued and the Vendor also undertake to remove all encumbrances, if any which might otherwise prevent or delay a separate title deed being issued.”

As yet we do not even have a Certificate of Final Approval and I do not think that the developer has even sort this therefore; the process has not been started thus far which surely also constitutes a delay.

[Nigel Howarth]

Hi Laura,

At the moment, the mortgages your developer has on the land is not delaying the issue of the Title Deed.

They will only become a delaying factor after the Certificate of Final Approval and the Certificate of Approval of the Division Permit have been issued and the Land Registry has issued the Title Deeds.

The Land Registry will issue the Title Deeds in the name of the developer who will then pay off the mortgage, thereby making them available to be transferred into your name. If the developer doesn't pay off the mortgage when the Title Deeds are available, he will be in breach of contract I believe.

You will not see the Certificate of Final Approval or the other documents - and I suggest you ask the developer to see how far he has got with paperwork. It could be that he's already submitted it and is waiting on the Planning Authority to carry out the inspection.

If you want legal opinion, the British High Commission in Nicosia publishes a list of lawyers who may be able to help. Louise Zambartas, an English lawyer with a firm in Limassol, is one of those on the list (I can send you the complete list if you wish). Louise occasionally looks in here, but I know she's a busy lady and it will probably be quicker if you contact her directly through her website.

Regards,

[Laura]

Hi Nigel

Thank you so much for your explanation: it all makes sense. I had been told that while there were mortgages on the land we would not be able to get our title deeds however, now having read your explanation this is not exactly true for as you say the developer will have the title deeds issued in his name; he should then pay of the mortgages which will allow for the transfer of the title deeds into our names.

I am in the process of compiling a letter to send to the developer asking to be informed of his progress thus far in regard to him being able to transfer the title deeds into our names. I am sure that there is still some way to go before we get our title deeds however, it would be reassuring to know that the process had at least been started.

Our main worry would be if the developer became bankrupt or did not pay of the mortgages for another reason. The mortgages will of course probably make it difficult for anyone to sell their property prior to the title deeds being transfered into their names.

Thank you again. I will pass on what you have written to the other property owners on our development.

[Nigel Howarth]

You're welcome Laura,

Unfortunately, it can take a very long time to issue Title Deeds. Planning infringements by the developer and buyers (who make changes to the property), bureaucratic delays in the Land Registry and local government departments, and mortgages that the developers fail to repay.

As you point out, the most worrying aspect is unpaid mortgages. If the developer doesn't make the repayments, what happens in some cases is that every six months the banks add the unpaid repayments to the capital sum owed. If this happens, the amount outstanding can soon build up.

Also, if the developer becomes bankrupt, the bank has first claim on the property and it can sell the property to recover the debt. This could leave the buyer in a very difficult situation of having to hand back the property to the bank even though they may have paid for it in full.

As you may be aware, the Cyprus Property Action Group (CPAG) and the Cyprus Land & Property Owners Association (KSIA) are pressing the Government protect those buyers who have been duped into buying mortgaged property.

Regards,

[avanapa]

Hi Nigel, may I just clarify something regarding your post to Laura. You say in your post that a developer's unpaid mortgage will have interest added by the bank and can soon build up.
I put this question to Louise in the "legal section" of the Eastern Forum (July 30th). Her reply would indicate that this not in fact the case.



Louise' reply:
"The bank can only claim the amount of the mortgage which it registered at the land registry; it can not add on interest and claim more than the amount they registered the charge for. Usually, the bank will accept an offer from the buyers in this type of situation"

[Nigel Howarth]

Thanks Chris

It will be interesting to know how the bank would go about claiming the unpaid amount. I guess they'd need to go back to the developer?

There was a situation in Larnaca some time ago where a builder went bust and the people who bought the apartments decided to club together and pay off the loan. As well as the outstanding mortgage, they had to pay the tax owned by the developer before the Inland Revenue would issue a tax clearance certificate.

Hopefully this situation will not arise.

Regards,