By Elias Hazou
Commercial lenders could be exposed to land developers’ loans if a bill releasing homes from developers’ mortgages is passed as is, a representative of the banks told MPs on Monday.
The bill in question, approved by the cabinet this month, covers thousands of people who paid for their home but could not get a title deed either because the property was mortgaged by the developer, or the state could not go ahead with the transfer because of outstanding taxes.
The bill grants the head of the land registry department the authority to exempt, eliminate, transfer and cancel mortgages and or other encumbrances, depending on the case and under certain conditions.
Developers’ land and buildings are counted as assets that need to be offset against their debt to banks, giving lenders a claim on people’s properties that had been mortgaged by developers.
Thousands have been left without deeds as a result.
Under the new bill, in order for a ‘trapped’ property to be eligible for release, the sale price must have been paid in full by the buyer. In case of an outstanding amount, the buyer can deposit it in a special temporary account managed by the land registry director.
The director will have the power to transfer mortgages to other property belonging to the vendor. If no such property is available, the director can transfer the encumbrances on individuals who guaranteed the seller’s obligations.
But Demetra Valianti Plati, of the Association of Cyprus Banks, warned that transferring developers’ mortgages onto other properties or guarantors would likely leave the banks wanting for collateral.
For example, lenders would be left exposed where the guarantors did not have commensurate property of their own.
It would be difficult to identify an alternate property that gives the bank similar coverage, Plati said.
She also questioned how the land registry can determine whether the alternate property is of a similar value to be put up as collateral.
Interior minister Socrates Hasikos panned commercial banks for their past practices, saying they ought to have monitored developers to ensure that sales made by them went toward paying down their loans.
Often, developers used proceeds from sales in one project to start a new project.
While conceding the point, Plati argued there was no way banks could track every single sale made by developers, “not unless we were posted right outside their office.”
Speaking at the same joint session of the House finance and interior committees, a Central Bank official said they have asked each of the commercial lenders to furnish estimates on how far the bill would impact their balance sheets.
The banks have yet to provide the data, the official said.
A government source asked recently about the possible impact on banks said the Central Bank did not have a problem with it.
The bill concerns the seller’s obligations to banks and the state.
To benefit from these provisions a sales contract for the property or part thereof, must have been submitted to the land registry department by December 31, 2014.
The bill applies to all immovable property, plots and buildings.