A recent letter published in the Cyprus Mail by Mr Helmuth Porschen, entitled “Paying the price of a developer’s mortgage“, has once again thrown a harsh spotlight on the ongoing scandal of trapped buyers in Cyprus.
Mr Porschen’s question is simple, yet devastating: How can Kedipes threaten to auction his wife’s home over debts owed not by them, but by their property developer?
Unfortunately, his plight is far from unique. Mr Porschen is just one of thousands of innocent purchasers ensnared in a system that has failed them at every turn.
In his case, he is trapped not only by his developer’s unpaid mortgage but also by an incomplete development. Legally, the situation is brutally clear: the bank holds a superior claim because the developer’s mortgage was filed at the Land Registry before Mr Porschen’s contract of sale.
This is an all too familiar and tragic pattern – buyers are left exposed due to developers hiding existing mortgages, buyers receiving poor legal advice, or inadequate due diligence during the purchase process.
Kedipes, the state-owned credit-acquiring company, is one of several entities commonly known as “vulture funds” – organisations that swoop in to extract maximum value from distressed loans, with zero regard for their defenceless human victims.
Possible solutions
Trapped buyer law amendment may help
A recent amendment to the law may, however, offer Mr Porschen a lifeline. A trapped buyer can now request written consent from the party holding the charge – in this case Kepides – to have it lifted or cancelled. Should that consent be withheld without solid justification and the buyer has paid in full, a court order can be pursued to override the refusal.
But here lies yet another grim truth: at Mr Porschen’s age – late seventies – a court battle could take years. If Kedipes refuses to release the charge voluntarily, he could be trapped in legal limbo for the remainder of his life.
Sue his lawyer?
There is, however, another avenue. If his lawyer failed to warn him that the property was already mortgaged when he bought, Mr Porschen may sue for professional negligence. A landmark Supreme Court ruling fifteen years ago ordered a lawyer to pay €120,000 in compensation to clients who suffered losses after being misled over a developer’s unpaid mortgage. The circumstances appear strikingly similar, and Mr Porschen may well have strong grounds for a claim – though again, justice may be years away in the slow-moving Cypriot courts.
Planning violations – the victims have to pay
The issue of the incomplete development is yet another legal quagmire awaiting reform. Under current legislation, if a planning application for, say, 50 houses is approved and the developer builds only 49, none of the completed homes can receive Title Deeds. This bureaucratic absurdity leaves entire communities in limbo, with developers facing no real accountability for failing to complete projects or for committing planning infringements. Why, yet again, must the burden fall on innocent buyers?
For now, Mr Porschen’s best hope is to find competent legal representation. By his own account, his current lawyer “seems not to have any interest in this case and has done nothing so far.” With his home and peace of mind at stake, decisive action is urgently needed.
His story is a stark reminder that Cyprus’ trapped buyer crisis is far from over and continues to extract an unforgivable human cost.
(The UK Foreign, Commonwealth & Development Office (FCDO) publishes a list of English-speaking lawyers who may be able to assist Mr Porschen and others. See Lawyers in Cyprus.)
Dear Nigel,
In the UK, the condition of land and any outstanding mortgage obligations must be declared (by law) at the “point of purchase”.
This was not the case in Cyprus where land was used as security, but the conditions of the mortgage which the Bank facilitated for the Developer DID NOT permit such disclosure “at the “point of purchase” with the Purchaser.
In the case of our complex, the The Developer was forced to collude with the Bank in order to secure funding to purchase development land.
The Purchasers’ conveyancing lawyers (who were engaged after a the Contract of Sale was signed between Developer and Purchaser) were therefore obliged to either work with the Developer and the Bank, or inform the Purchaser that the land was encumbered and the sale should be abandoned.
So, the issue for the remaining 10k trapped buyers face in Cyprus is likely to be one of “constitutionality” and they need to ungently examine the conditions which the Bank imposed on the Developer to confirm that “constitutionality” is an issue.
Law 139 (I) 2015 (more commonly referred to as the “Trapped Buyers Law”) was published in 2015 to address “constitutionality” failings in the conditions which some Cypriot banks imposed on developers wishing to purchase development land for resale and profit.
It (Law 139 (I) 2015) is a procedure for the Department of Lands and Surveys (DLS) to follow which allows the Bank, the Developer and the Purchaser to object to the DLS being allows to by-pass the Bank (where the land remains encumbered), in order that the property titles can be transferred to the Purchaser.
The procedure relating to Law 139 (I) 2015 is not constitutional or unconstitutional, but merely a procedure which allows objections to be raised in Court to determine where objections are raised (generally by the Bank).
For whatever reason, the Court (of first instance) is failing to examine evidence relating to “constitutionality”, where an objection has been raised by the Bank.
It is likely Contracts of Sale for the thousands of “trapped buyers” are constitutionally flawed (through a failure of disclosure) in that they DID NOT , at the “point of purchase”, incorporate a waiver (to demonstrate that the land was encumbered and set the obligations of the Bank, the Developer and the Purchaser so that the property titles could pass freely on completion) as a consequence of mortgage conditions imposed on the Developer by the Bank (and which the Bank had already deposited at DLS), and to which the law gives priority over Purchasers’ Contracts of Sale.
The preamble of the new “trapped buyers” law N.110 (I) 2025, makes reference to the need to balance the constitutional rights of all parties involved in a sales contract, namely both the bona fide buyer (the Purchaser) and the seller (the Developer as mortgagee) and the mortgagor (the Bank), in a way that does not nullify the core of the constitutional rights of either party.
Going forward therefore, the Court (of first instance) MUST fully examine ALL evidence at its disposal to ensure “constitutionality” is determined in an unbiased and timely manner.
Dear Nigel,
I fully agree, and sympathize with Mr Helmuth Porschen. Many owners on our complex face a similar dilemma.
There appears to be a catastrophic failure of the Court of First Instance (and indeed some purchaser’s lawyers) to examine the “constitutionality” of mortgage conditions which Cypriot banks imposed on developers in order to secure the purchase of development land for re-sale and profit.
On our complex, the mortgage conditions which the Mortgagor (the Bank) facilitated for the Mortgagee (the Developer) in order for the Developer to purchase land amongst others:-
Encumbered the Purchaser if the mortgage was not repaid by the Developer;
Required the Developer to seek approval from the Bank for EACH “off plan” sale of developed properties before that sale could proceed;
Did not allow the Developer to encumber the land in any way.
Again on our complex, the Bank deposited the mortgage (circa December 2005), which it facilitated for the Developer BEFORE original purchasers signed a Contract of Sale with the Developer.
Consequently, purchasers (circa January 2006 and thereafter) DID NOT freely enter into a Contract of Sale, which despite the land being encumbered “at the point of purchase”, the mortgage conditions DID NOT permit the Developer, as Mortgagee, to incorporate a waiver (a document which confirms the land is encumbered by a mortgage, and explains the obligations of the Bank, the Developer and the Purchaser in order that the property titles pass freely on completion) because the Bank did not permit the Developer to encumber the land in any way.
ALL original purchasers Contracts of Sale DID NOT stipulate an account into which contractual purchase payments were to be made, so paid the Developer which the Bank approved because the conditions of the mortgage arrangement (between Bank and Developer) required this approval before any sale could proceed.
The law, at that time (circa 2006/7) give priority to the Developer’s mortgage over the Purchaser’s Contract of Sale (because this was deposited first) and DID NOT protect the ALL purchasers on our complex, as a consequence of actions by the Bank in the mortgage conditions which it (the Bank) had previously imposed on the Developer, as a condition of the development land purchase.
Article 26.1 of the Constitution of Cyprus 1960 is clear and states that: “Every person has the right to enter freely into any contract subject to such conditions, limitations or restrictions as are laid down by the general principles of the law of contract. A law shall provide for the prevention of exploitation by persons who are commanding economic power”.
In Cyprus, why does it take so long for evidence to be adjudged in an unbiased and timely manner by the Courts of First Instance where a breach of the “constitutionality” of the Purchaser’s rights, as a consequence of the actions of the Bank (ie the mortgage conditions imposed on the Developer) which created a situation which the Purchaser is NOT protected by law (because the law gives priority to the Developer’s mortgage because was deposited PRIOR to the Purchaser’s Contract of Sale.
Hi John, In Cyprus (and the UK for that matter) charges against a property remain in place until that charge is cleared. In Cyprus if you buy a property that is is mortgage, that mortgage remains in place until the mortgage is repaid. Hence, you remain ‘trapped’ and cannot get the deed.
In the UK, although the same principle applies, the mechanism is different if you buy a mortgaged house.
In the UK, the buyer’s solicitor handles paying off the vendor’s mortgage from the sale proceeds, replacing it with the buyer’s own new mortgage (or cash), with the key being that the seller’s mortgage is settled at completion so the buyer gets a clear title to the property. It’s a standard part of conveyancing, where your solicitor ensures the old mortgage is discharged before transferring ownership and your new mortgage funds (or cash) are used to complete the purchase.
If a UK solicitor fails to repay a client’s mortgage during a property purchase (e.g., by misusing funds or neglecting to pay off the old lender), the solicitor faces severe professional consequences, including being sued for professional negligence, being struck off the roll of solicitors, facing disciplinary action from the Legal Ombudsman, and potentially criminal charges, while their client can recover losses via the Solicitors Regulation Authority (SRA) Compensation Fund or by suing the solicitor directly for damages, as seen in cases where clients lost money due to solicitor errors.
Maybe Cyprus should consider introducing a similar system to that in the UK. If it did, I wonder how may lawyers would soon be out of work?
Dear Nigel,
In the UK, the condition of land and any outstanding mortgage obligations must be declared (by law) at the “point of purchase”.
This was not the case in Cyprus where land was used as security, but the conditions of the mortgage which the Bank facilitated for the Developer DID NOT permit such disclosure “at the “point of purchase” with the Purchaser.
In the case of our complex, the The Developer was forced to collude with the Bank in order to secure funding to purchase development land.
The Purchasers’ conveyancing lawyers (who were engaged after a the Contract of Sale was signed between Developer and Purchaser) were therefore obliged to either work with the Developer and the Bank, or inform the Purchaser that the land was encumbered and the sale should be abandoned.
So, the issue for the remaining 10k trapped buyers face in Cyprus is likely to be one of “constitutionality” and they need to ungently examine the conditions which the Bank imposed on the Developer to confirm that “constitutionality” is an issue.
Law 139 (I) 2015 (more commonly referred to as the “Trapped Buyers Law”) was published in 2015 to address “constitutionality” failings in the conditions which some Cypriot banks imposed on developers wishing to purchase development land for resale and profit.
It (Law 139 (I) 2015) is a procedure for the Department of Lands and Surveys (DLS) to follow which allows the Bank, the Developer and the Purchaser to object to the DLS being allows to by-pass the Bank (where the land remains encumbered), in order that the property titles can be transferred to the Purchaser.
The procedure relating to Law 139 (I) 2015 is not constitutional or unconstitutional, but merely a procedure which allows objections to be raised in Court to determine where objections are raised (generally by the Bank).
For whatever reason, the Court (of first instance) is failing to examine evidence relating to “constitutionality”, where an objection has been raised by the Bank.
It is likely Contracts of Sale for the thousands of “trapped buyers” are constitutionally flawed (through a failure of disclosure) in that they DID NOT , at the “point of purchase”, incorporate a waiver (to demonstrate that the land was encumbered and set the obligations of the Bank, the Developer and the Purchaser so that the property titles could pass freely on completion) as a consequence of mortgage conditions imposed on the Developer by the Bank (and which the Bank had already deposited at DLS), and to which the law gives priority over Purchasers’ Contracts of Sale.
The preamble of the new “trapped buyers” law N.110 (I) 2025, makes reference to the need to balance the constitutional rights of all parties involved in a sales contract, namely both the bona fide buyer (the Purchaser) and the seller (the Developer as mortgagee) and the mortgagor (the Bank), in a way that does not nullify the core of the constitutional rights of either party.
Going forward therefore, the Court (of first instance) MUST fully examine ALL evidence at its disposal to ensure “constitutionality” is determined in an unbiased and timely manner.
There was a change in the law in December 2023 requiring the vendor (seller) of the property to include a Search Certificate in the contract of sale, which must be dated no more than five working days before the contract was signed.
Furthermore, if the property is encumbered by a mortgage or an earlier contract, the Land Registry will only accept the deposit of the contract of sale for that property if it is accompanied by written declarations from the mortgagor(s) (typically a bank) and vendor(s), of which the buyer must have been informed in writing.
Over the years I’ve been sent many contracts and one worthless clause in many stood out, typically:
The Vendor undertakes to transfer the Property hereby sold to the Purchasers free of any mortgages, encumbrances and impediments whatsoever as soon as separate title deeds are issued by the Land Registry. This resulted in many people believing that the property was mortgage-free when they bought it.
Yesterday I received another contract for comment. This one had a clause:
The Vendor shall within 15 working days from the signing of this Agreement provide the Purchaser with “Type A” written undertaking from Bank of Cyprus Public Company Limited (hereinafter referred to as the “Waiver”), in essence therein confirming that once the Purchase Price is paid in full and the separate title deed for the Property is issued, they will release the Property from the said mortgages and consent to its transfer in the name of the Purchaser subject, if applicable, to the Purchaser. (This contract included the required Title Search.)
The Vendor must think people are stupid!