Developers listed on leaked memo of risky loans

Editorial
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17

BANK of Cyprus’ (BoC) total exposure to risky loans could run in the billions, with developers being among the worst corporate customers, according to an internal bank memo leaked by Politis.

The paper published the purported bank memo in its Sunday edition, showing that a series of loans issued originally in the period 2005-2008 were being refinanced into 2011 and beyond, even though it should have become obvious by then that they had turned toxic.

BoC’s non-performing loans – which according to some estimates may be in the region of €6bn – is the single largest threat faced by the lender. There are fears that the bad loans could deplete the bank’s equity after the lender was recapitalised by seizing customers’ deposits.

According to the leaked BoC memo, up until June 2013 the Dolphin Group – part of the Aristo Group of developers – owed the bank €300m. In 2011 Aristo Group’s liabilities had amounted to €198m, and to just €24.5m in January 2006.

An annotation notes that the bank, “swayed by the climate of prevailing economic euphoria, issued substantial loans for large developments without taking into account the possibility of a recession or at least a stagnation in the market…”

The Leptos Group, the leading property developer, surpassed even Aristo: in the summer of this year its liabilities to BoC came to €510m. In 2011 it owed the bank €235m, and in January 2006, €84m.

On Leptos, the memo notes that “despite the group’s problematic transaction performance [inability to service the interest on the loans], the bank continued to increase its loan exposure with the group without ensuring repayment.”

Meanwhile in 2012 Shacolas Group is shown to owe €336m, which was somewhat decreased after the group sold its stake in telecoms provider MTN earlier this year.

The Tsokkos Group (hotels) had pending loans amounting to €230m.

Politis said the memo was requested by the bank’s new leadership, which has pledged to examine all the risky loans one by one.

Staggering array of big business risky loans

Land Registry charges revised

Nigel Howarth
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2
Land Registry charges revised

PUBLISHED in late 2011, the Department of Lands and Surveys ‘Citizen’s Charter’ contains a description of the services the Land Registry provides to the public together with their charges.

Earlier this year the Department revised those charges but these have yet to be published. From the information we have been able to gather to date, here are the most significant Land Registry changes affecting those buying and selling property.

  • Registration (deposit) of a ‘normal’ Contract of Sale – increased from €1.71 to €50.
  • Registration (deposit) of an Assignment Agreement – increased from €1.71 to 0.5% of the sale price declared in the Contract of Sale being assigned or 0.5% of the price declared in the Assignment Agreement, whichever is the higher, up to a maximum of €3,000. The minimum fee for the registration of an Assignment Agreement is €50.00.
  • Copy of a Certificate of Registration (Title Deed) – increased from €0.85 to €10.00.
  • Registration of a Power of Attorney – increased from €1.71 to €20.00.
  • ‘Simple’ Title Search (N50) – increased to €20.00 (more depending on complexity and scope of the search and the information required).
  • Issue of a Certificate of Registration (Title Deed) – increased from €0.85 to €6.00.
  • True copy of a mortgage/loan document – increased from €0.85 to €5.00.
  • Copy of a Contract of Sale €2.00/page up to 20 pages.

(Property Transfer Fees remain unchanged)

Developers seek support for large projects

Editorial
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11

DEVELOPMENT is the key to pulling the country out of the recession, big developers said on Wednesday, following a meeting with President Nicos Anastasiades.

The elimination of obstacles that discourage foreign investors, as well as the need for simplifying procedures, flexibility and speed in matters such as licensing, were discussed at length in the meeting Anastasiades who lent a sympathetic ear, according to the association.

Association chairman Theodoros Aristodemou said he was satisfied with the understanding showed by the president and his readiness to help further development projects.

“Which we all know is a key factor in overcoming the problems we are facing at the moment,” Aristodemou said.

Nautical tourism was also discussed, while the association tabled specific proposals for the creation of golf courses and complex developments, aimed at upgrading the island’s tourist product.

Asked about the liquidity crunch and non-performing loans, Aristodemou said those issues were included in a memo handed to Anastasiades but were not discussed in depth as there was not enough time.

The delegation informed Anastasiades of the initiatives it planned to take in the immediate future.

According to Aristodemou, capital investment for large scale development projects exceeded €8 billion, and their implementation would create over 7,000 new jobs.

These projects, which are mature enough to be completed in a short amount of time, include golf courses, marinas, health and wellness centres, theme parks, commercial and housing developments, among others.

The troika’s title deeds demands

Dr Alan Waring
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43

title-deed-issuesTHE Title Deeds Scandal has dogged the Cyprus property market for years and remains unresolved.

This column has been obliged to return to this suppurating issue many times over the past 9 years to air not only the failure of successive governments to deal decisively with it but also the incalculable damage to the country’s property sector and Cyprus’s reputation as a safe place for investment of any kind.

Moreover, thousands of innocent property buyers, especially foreigners, have been treated so atrociously that it is hard to imagine anyone buying a property in Cyprus ever again.

The 2012 request by Cyprus for an EU bailout brought a glimmer of hope that finally the Title Deeds Scandal of the backlog of 130,000 still to be issued and transferred would be eradicated.

The Memorandum of Understanding (MoU) from the Troika on the Cyprus bailout includes a requirement for the Cyprus government by quarter 4 of 2014 to ‘eliminate the title deeds issuance backlog to less than 2,000 cases’ that remained pending for more than 1 year. A noble objective indeed, but how realistic is this target and timetable and what stumbling blocks does it gloss over?

Are The Troika Being Naïve?

While theoretically the Land Registry and related offices may be able to become more efficient to achieve the Troika’s issuance target, it is quite another proposition to transfer those deeds issued to developers to their rightful owners – the buyers who have already paid for the property in full.

Many developers took out mortgages on the land and the latter need to be discharged before title deeds can be issued let alone transferred. However, many developers are in severe financial difficulties and are unable to discharge their mortgages.

Further legal complications arise where developers have taken out mortgages without full and proper disclosure to, or agreement by, the individual property buyers many of whom have paid in full.

For many years, Cyprus banks have been reluctant to enforce NPL procedures against such developers and, in some cases, it would appear that banks themselves have conspired with developers against individual property buyers. In some cases (see below), Cyprus banks are pursuing innocent home buyers for the mortgage default debts of the developer instead of pursuing the developer personally and his guarantors.

Multiple ‘class actions’ for mis-selling against Cyprus banks and developers by several groups of aggrieved property buyers numbering at least 450 are also underway in the UK High Court with further large batches preparing their cases.

An informed and influential source confided that recently a Troika official in Cyprus expressed surprise at being told of such matters as hidden developer mortgages, uncooperative near-bankrupt developers, bank recovery procedures against innocent property buyers and the impact of all this on the Troika’s instruction to clear the title deed backlog and, indeed, added that he was sure none of his Troika colleagues knew either! Was he being naïve or disingenuous?

Can we really believe that such Troika officials knew nothing of the developer mortgage quagmire and how it would probably scotch the Troika’s plan? The Troika’s officials are among the elite of their professions and I think we are entitled to assume that they must have known. Well, if they genuinely did not know, now with this public notification in Financial Mirror, Miss Delia Velculescu, IMF Head of the Troika’s Cyprus Mission ([email protected]), and Mr Vincenzo Guzzo, Troika Resident Representative ([email protected]), and their staff cannot plead any such ignorance.

Cases of Extortion by Cyprus Banks

The Troika are reported to have indicated that in seeking to drastically reduce the massive NPL mountain in Cyprus (reported by the CBC as being some €15.5 billion), they are not in favour of seizure of primary residences for debt recovery. That may well be their intellectual preference but, as is clear from a number of on-going cases, some banks appear to be thumbing their nose at the Troika on this matter.

In at least three high profile cases so far, Cyprus banks have not been shy in pursuing for recovery not the developer who took out the loans and mortgages and their guarantors but the home buyers individually, most of whom had already paid for their properties in full and had never had a loan of their own on the property or indeed been party to any of their developer’s mortgages. Their only ‘crime’ was to still be waiting for the developer to hand over the Title Deeds.

Case 1: The A&G Froiber Collapse

On 18 September 2009, A&G Property Wise Development Ltd operating under the Froiber brand collapsed and went into liquidation. A large number of home buyers who had already paid in full had still not received their title deeds.

It was then reported that such buyers received from various banks including USB threatening letters stating that they would not receive their title deeds unless and until they contributed a ‘symbolic’ amount of €8,000 per apartment towards the outstanding debt of the liquidated developer. In addition, the letters demanded a larger sum to help pay off the developer’s tax liabilities to the Inland Revenue.

Allegations also emerged that in some instances the banks, after the individual apartments had been paid for and unbeknown to the buyers, had issued further loans to the developer with charges against these properties as collateral.

The final outcome of this case is not yet known. However, quite apart from the outrageous pursuit of innocent property buyers instead of the developer, questions inevitably arise as to how the banks could have issued further loans to the developer against properties that had already been sold and without informing and obtaining prior agreement from the buyers.

Case 2: The Liasides Collapse

In December 2011, Alpha Bank sought legal permission to auction eight plots of land that it had repossessed from the bankrupt developer Mr Yiannis Liasides.

When he ceased trading in 2007, buyers had acquired from him some 230 properties across 14 sites but had not received their title deeds. It is understood that while some buyers had taken out home construction loans, a significant proportion of buyers had taken out no loans at all on their property.

Evidence has emerged that the developer took out mortgages on a number of the properties just before buyers signed their contracts and unbeknown to them. This may have occurred after the buyers’ lawyers had done standard searches at the Land Registry to identify encumbrances.

It is unclear whether or not the buyers’ lawyers were aware of these late mortgages prior to contract but, if they were, it is apparent that they failed to tell their clients or advise them against signing their contracts.

It now emerges that the developer’s main bank Alpha Bank is, as did the banks in the A&G Froiber case, demanding via its receivers that all the buyers contribute to paying all the developer’s debts and tax liabilities otherwise their homes will be sold.

Daniel Hannan MEP raised the specific case of Alpha Bank’s conduct in the Liasides liquidation in the European Parliament on 30 October 2013 (written question E-012350-13) and asked: ‘Could the Commission please confirm that this extortion by the banks is in direct conflict with the terms of the MoU?’ Delia and Vincenzo, please note.

Case 3: The SNK Collapse

The collapse of Larnaca-based SNK developers (SNK Venus Homes and SNK Exclusive Properties) is following the same path as Liasides and A&G Froiber. It is reported that liquidators acting for the Bank of Cyprus and possibly the liquidated Cyprus Popular bank are starting enforcement procedures against SNK home buyers to recover the developer’s debts. The debts plus liquidator fees will amount to at least €15,000 to €20,000 per household plus a contribution to SNK’s unpaid taxes totalling some €540,000.

Conclusion

In pursuing home buyers for recovery of the developer’s debts and tax liabilities (instead of the actual debtor and his guarantors), it looks like the banks regard them as a softer target with possible property assets overseas that could be liquidated at full value rather than trying to sell the Cyprus properties at knock-down prices in the highly depressed Cyprus market.

The dubious legality, not to say moral degeneracy, of the banks’ behaviour demands serious public scrutiny and accountability. Delia and Vincenzo should impose the Troika’s moral compass on the Cyprus banks and insist on an Irish style NAMA solution. Just tell them to accept a discounted debt buy-out and stop pursuing innocent buyers, or else Cyprus will forfeit its next bailout tranche. And why the deafening silence from the CBC Governor and the Finance Minister?

About the Author

Dr Alan Waring is an international risk management consultant with extensive experience in Europe, Asia and the Middle East with industrial, commercial and governmental clients. His latest book *Corporate Risk and Governance is at www.gowerpublishing.com/isbn/9781409448365. Contact [email protected].

©2013 Alan Waring

First published in the Financial Mirror

Property sales hampered by inertia and bureaucracy

Nigel Howarth
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7

THE CRASH in property sales is not only attributable to the recession, record levels of unemployment and the unresolved Title Deed problems.

A good friend – a registered estate agent in the free areas of Famagusta – has been in touch to explain that she has no shortage of willing buyers and her company’s problem is getting sales to completion.

The company currently has 28 property sales where deposits have been paid but all efforts to move 21 of these forward are being hampered by inertia and bureaucracy:

Seven of the properties have title deeds – not a problem you would think – but tax clearance by the Inland Revenue is taking weeks, (the longest is now 6 weeks) as the Tax office staff are engaged in the collection of Immovable Property Tax.

These seven sales will result in a minimum of €25,000 revenue in Property Transfer Fees for the government (assuming the Land Registry does not inflate the properties’ market values) – and this figure does not include Stamp Duty and other fees.

Five of the properties have memos lodged against them by the Inland Revenue Department. Their developers have been negotiating with the Inland Revenue for more than 18 months to reach agreement to pay an amount per property.

If the Inland Revenue and the developers can reach an agreement, the developers are willing to release the share of the land. But the Inland Revenue keeps moving the goalposts so effectively these properties are unsaleable.

Their sale would result in a further €23,000 Property Transfer Fees plus approximately €12,000 in tax revenue from the developers.

Eight properties are burdened by pre-existing developer mortgages to either Bank of Cyprus or Ex-Laiki Bank. In every one of these cases the bank has agreed that the developers owe nothing on these projects yet they refuse to issue waivers as a waiver was not issued to the first owner.

This is an absolute travesty and in the longest running case, the lawyers, developers and our office have been fighting with the bank to issue the waivers for nine months!

We have another couple who have now been waiting over 4 months who have a severely disabled son and they need the money to obtain care for him.

These sales would result in Assignment fees of minimum €7,000 plus Stamp Duties in excess of €2,000 euro.

In a further three of these sales the projects have received their Final Certificate so the Bank will have to release the properties on issuance of their Title Deeds – or will they?!?

One 12-year old property has no planning permission. The buyer is fully aware of this and the developer has been very open about their efforts to secure the permit and it will be granted soon.

The remaining seven properties are clear and should (hopefully) move to completion in a reasonable timeframe.

She concludes that “A buyer in Famagusta needs to be extremely patient!!”

Court rules in favour of Swiss Franc loan victim

Nigel Howarth
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2

THE MONTENEGRIN appeal court ruled against the Hypo bank in a case where it cancelled the Swiss Franc loan agreement with one of its clients and is suing that client for the return of the loan.

The appeal court said that the bank has no right to use two different mechanisms to protect their capital; the bank cannot use the currency clause and the variable interest rate at the same time.

The court concluded that the bank was speculative, and gained more profit than the initial principle contract. The ruling said that the CHF had strengthened 38% against the Euro and therefore the bank and the client are not in equal contractual positions, because the bank made a disproportionate gain:

ATTORNEY of Consumer Protection Center (CEZAP),  ?alasan Dragomir, who represents a group of Swiss Franc clients in cases against Hypo Alpe Adria Bank (HAAB), said that the latest decision of the High Court in Podgorica in a case sheds a different light on transactions conducted by the bank.

Until recently all cases in which the prosecutor was Hypo Alpe Adria bank nothing was certain. By inertia, in the mortgage loans cases, the bank cancelled the contract, and the first courts had ruled that the clients are obligated to return the debt amount that was created using the foreign currency clause and variable interest rate, says ?alasan. He points out that now for the first time the High Court (the appeal court) in this  case has overturned the verdict of the first court and sent the case back for retrial. And what is more important is that the High court stated some legal opinion and position in this case. The High court stated:

“It was noted that the value of the Swiss Franc rose against the Euro after the transfer of loan funds to the date of filing the law suit by 34.88 per cent and, on the day of writing the findings to 38.89 percent. The banks cannot use two or more protective measures to preserve the value of and that the agreed interest income represents the bank invested capital and the cost of risk assumed by the bank’s placement of its capital. In this case, it would follow that the bank gained profit from the contractual interest and from application of CHF indexation, and the first trial court should bear in mind that legal protection cannot be given to parties in contractual obligations that brought a disproportionate gain“ said ?alasan.

According to ?alasan Dragomir , the High Court in Podgorica partially exposed the speculative actions of the bank and ordered retrial and that the  financial experts should state the amount of profit the bank gained by variable interest rate and by application of CHF indexation, and compare this to normal income, for such loan amount (without indexation and with normal interest).  Then the court, in this matter, will be able to make a proper and lawful decision, on whether the parties are in an obvious discrepancy.

“It will be interesting to hear how the bank will explain the latest verdict of the High Court , considering that their previous statements inconsistent with this opinion and statements of the bank were fully refuted and meaningless when it comes to the validity of contracts on home loans” concluded ?alasan.

Editor’s comment

I am grateful to Ivana Leventic for bringing the decision of the Montenegrin High Court to my attention and for translating the original article – CEZAP: Viši sud razotkrio špekulativne radnje HAAB.

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