This headline really caught my eye and thank goodness it is not happening here in Panama. It seems that the banks in Europe are finding any way possible to raise funds as the crisis there deepens.

A bank in Cyprus looks set to repossess around 250 people, including overseas owners, who “bought” property on a piece of land mortgaged to a bankrupt developer.

The story threatens to realise the fear held by many professionals working in Cyprus that banks will begin to repossess owners who have perfect payment records and credit history but unfortunately purchased land without title deeds that were in fact still owned by the bank due to outstanding mortgages owed by the property developer.

According to the Cyprus Property Action Group (CPAG) Alpha Bank filed applications to the Cypriot Land Registry to auction eight plots that were mortgaged to bankrupt property developer Yiannis Liasides.

Liasides ceased trading in 2007 without paying off Alpha Bank, leaving around 250 people in 14 plots who bought properties from him without title deeds. Now the bank has moved in on eight of the 14 after the official receiver faced opposition from residents and former Liasides directors.

Government U-turn

CPAG leader Denis O’Hare believes the government has made a u-turn on its assurances to protect buyers’ rights

“All along the Ministry of Interior has been saying that once a certificate of sale is lodged with the land registry, the buyer is protected. We can now see this myth of protection has been scotched by this action of Alpha Bank,” he added: “All reassurances to Europe about buyer protection have been shown hollow.”

Acting interior ministry permanent secretary Andreas Assiotis has stated that the the land and buildings in this case should be considered as a normal asset to offset against the liabilities of Liasides.

“The Ministry of interior tried to make it possible for these to be dealt with separately, but the new legislation does not affect existing contracts,” Assiotis said

What next?

What happens next depends on the land registry, which can either approve or decline Alpha’s application, and whichever they choose could prove to be a pivotal moment in the Cyprus property market.

With an estimated €6 billion in mortgages in Cyprus a landmark auction could see other cash-strapped banks following suit, leading to potentially thousands of the 100,000 or so property owners – 30,000 or so foreign buyers – without title deeds facing repossession.

Comment

The Cypriot authorities face a tough decision on whose financial interests to protect. It can protect creditors (who have a stronger political influence) or home owners who bought without adequate legal protection (who have a strong influence of the press and perceptions of the country).

Their decision has serious implications for the future of the overseas property market in Cyprus.