A recent decision by the Court of Appeal in Cyprus has reshaped the real estate landscape, particularly for buyers of properties with existing mortgages. The ruling highlights challenges faced by ‘trapped buyers’ and raises questions about the effectiveness of current laws.

Background

On June 20, the Court of Appeal ruled in favor of the Bank of Cyprus in a case involving a mortgaged property sold by a developer. Under a 2015 law designed to protect trapped buyers, the land registry had transferred the title deed to the buyer, disregarding the bank’s mortgage claim.

The appeals court declared certain provisions of the 2015 law unconstitutional, citing violations of property rights and contract freedom. It ruled that:

• The bank’s mortgage claim must be resolved before a title can be transferred.
• Lenders are not obligated to transfer mortgages to other properties owned by the borrower.

The ruling affects thousands of pending cases but does not invalidate title deeds already transferred under the 2015 law.

Impact on Trapped Buyers

Trapped buyers are individuals who have fully paid for properties but cannot secure ownership titles because developers used funds for other purposes, leaving properties under mortgage. Without legislative reform, these properties remain vulnerable to foreclosure.

Legislative Background and Current Status

Since 2015, over 21,000 applications from trapped buyers have been submitted to the Department of Lands and Surveys. Of these:

• 11,158 titles have been issued.
• 9,834 cases remain pending, with 2,331 now stalled due to the court ruling.

A December 2023 amendment introduced safeguards, including:

• Mandatory Land Registry search reports provided by sellers before a sale.
• Direct payment of purchase amounts to the mortgagee (bank) rather than the developer.

Protecting Future Buyers

Prospective buyers should take the following steps to avoid becoming trapped buyers:

1. Conduct a Land Registry Search: Identify any encumbrances on the property, such as mortgages or liens.
2. Seek Legal Advice: Engage a lawyer to verify property status, review contracts, and ensure legal protection.
3. Secure a Bank Waiver: Obtain a document from the bank relinquishing its rights over the property upon payment.

Conclusion

The Court of Appeal’s decision underscores the importance of due diligence in property transactions. Legislative reforms are needed to balance buyers’ rights with constitutional safeguards. In the meantime, buyers must remain vigilant and proactive to protect their investments.