A recent decision by the appeals court may adversely affect thousands of ‘trapped buyers’ who, despite having paid in full for their home or apartment, have not obtained a title deed due to outstanding financial obligations of property developers.
Issued on June 20, the court ruling concerns a case involving Bank of Cyprus as the plaintiff versus the land registry and a property developer. The latter had sold an apartment to a buyer, but the immovable property (land and building) on which the apartment was located was encumbered with a mortgage. Despite this, and based on a 2015 law aimed at helping trapped property buyers, the director of the Paphos land registry had green-lit the transfer of the title deed to the buyer.
The mortgage on the immovable property was held by Bank of Cyprus, which proceeded to challenge the land registry’s decision. The bank filed a case with the district court but lost. Subsequently it took recourse with the appeals court, which in June reversed the district court’s ruling and found in the bank’s favour.
The appeals court found that certain clauses of the 2015 law (but not the entire law) were unconstitutional, as they violate the right to property as well as the right to freely enter into a contract.
It thus determined that the land registry’s prior decision to set aside the mortgage was unlawful, and that the bank still has a claim on the property that must be settled before title is transferred to the buyer.
It’s understood that because the court decision does not void the 2015 law per se, practically it does not impact cases where title deeds have already been transferred to previously trapped buyers. However, it would affect pending cases before district courts, estimated in the several thousands.
In a bid to sort out the trapped property buyers mess, back in 2015 parliament had passed a law granting the land registry the authority to exempt, eliminate, transfer and cancel mortgages and or other encumbrances, depending on the case and under certain conditions.
The law sought to resolve the problems created by the failure to issue title deeds to people who had paid for their property, either because the property was mortgaged by the developer, or the state could not go ahead with the transfer because of outstanding taxes.
Since developers’ land and buildings were counted as assets that need to be offset against their debt to banks, this gave lenders a claim on people’s properties that had been mortgaged by developers.
But the case adjudged by the appeals court now could throw a spanner in the works.
In this particular case, the buyer of the apartment had filed a bill of sale to the Paphos land registry, seeking to obtain a title deed. But the land and building containing the apartment were mortgaged.
As explained to the Cyprus Mail by Maria Karayiannidou, an attorney for the law firm representing Bank of Cyprus, the district court had earlier deemed that the bank failed to transfer the mortgage to another property of the same developer. Having failed to do so, the court reasoned, the bank could not argue that it had suffered financial loss in its arrangement with the developer, and as such it could not challenge the buyer’s filing of an application for a title deed.
But the appeals court subsequently sided with the bank. Crucially, it deemed that whereas a lender has the option to transfer a mortgage to another property of the borrower, it is not obligated to do so.
In this case, the bank argued that the borrower’s (the developer’s) other properties also had a mortgage on them. It calculated that transferring the mortgage to the other properties would not be in its best financial interests. Because a lender is not obligated to transfer a mortgage anyway, the bank argued, it could not be blamed.
The question now is how this latest court judgment affects thousands of other similar cases involving trapped buyers. Presumably the contested clauses of the 2015 law would need to be amended again.
But parliament is currently in recess and will not resume business until September.
