Cyprus Property Forum for Buyers, Sellers & Investors

Hi Nigel
Following a title search carried out by my lawyer, I have discovered that, despite my contract of sale stating that there are no mortgages or encumbrances on the land, that the developer does in fact have a mortgage on the land and is also a guarantor on a second mortgage which we assume to be for one of the other residents. These were taken out before our purchase. We purchased in 2007, through an independent ( and highly recommended lawyer) so do not understand why this was not mentioned to us.
It appears the developers mortgage was taken out in 2004. My lawyer now tells me that this would be the original mortgage that the developer would have needed to purchase the land for the complex. She assures me that this is quite normal in Cyprus and that we should'nt worry. (yeh right)
According to her there are 2 completed but as yet unsold and unregistered properties on our complex and that should the developer default on his mortgage the bank would simply sell them off to recover the debt, as they would easily cover the amount of the outstanding mortgage
My question is this, when a title search reveals an existing mortgage, is the figure they quote the original mortgage amount borrowed or is it the balance as of today.
As for the guarantor mortgage, does that mean that the land will have an encumbrance on it till these residents have paid off their entire mortgage.
I,m sorry if this is a bit long winded but it all seems very complicated to explain.
I should perhaps add that the reason I undertook the Title Search was following rumours that the developer may be in a spot of financial trouble though this has not been verified. However, if true, I really need to know what the worst case scenario might be so that I can figure out what to do. Any advice much appreciated.

Hi Chris,

Firstly, it sounds very much to me that your developer is in breach of contract as he has entered into an agreement stating there are no mortgages or encumbrances on the property, when in fact there are. I would call this fraud (but I'm no lawyer).

Your lawyer at the very least is naive - if she took the developer at his word when he said there was no mortgage on the land. Presumably she didn't get the Land Registry to carry out a search?

It is quite common for developers to mortgage the land on which they are building to kick-start the development - but your lawyer should have uncovered the fact that the land was mortgaged. She should have then asked your developer to obtain a 'release' from the bank stating that there was no mortgage on the piece of land on which your property's built (which would have required your developer to repay part of the loan).

If you'd like to send me a PM with the name of the lawyer and the developer, I'd be grateful. It would also help if I could read through your contract - I don't know if you could scan it onto your computer and send it to me?

Regarding the mortgage. I believe the figure the Land Registry has is the amount of the mortgage at the time it was registered with them, not the amount outstanding at the present time. The bank that loaned the money would have this information, but whether they'll tell you how much is another matter.

If the developer were to go bust, then the bank would probably look to recover its money by selling-off the two unsold properties. If the money it received was insufficient to pay off the debt, it would look to recover the balance in other ways - it could pursue the guarantors of the developer's mortgage (I know of two cases where this is happening) or look to the buyers on your development for the balance.

As your developer is the guarantor for someone else on your development, this could only become an issue if those people failed to repay the mortgage and the bank came after the money. In this situation the bank would look to the developer to pay off the outstanding amount - and this could have a knock-on effect on your development (or on another development owned by the developer).

In order for this second mortgage to directly affect you, there needs to be an encumbrance lodged against the title of the land. I'm not sure if this is the case in your situation?

My advice would be to get legal opinion on the breach of contract/fraud issue. You may be able to pursue the developer for damages - and assuming that he isn't having financial difficulties, you may be able to get enough money out of him to pay off the mortgage. But perhaps as a first step, the approach would be for a lawyer to threaten legal action unless your developer obtained a 'release' document from the bank.

Regards,