Cyprus hammered by EU legal directive crisis

Revelations this week that developers, estate agents, lawyers and banks in Cyprus have been regularly and systematically infringing a little-known EU Directive could have massive implications for the Cyprus property sector and its banking system says Cyprus Property News.
CPN has discovered that “thousands of buyers of property in Cyprus are facing the threat of a bank chasing them for someone else’s spiralling debt, or of a bank repossessing property for which they had paid in full.”
Apparently, under a 2005 European Union directive on consumer protection that became Cyprus law in 2007, property buyers whose purchase was encumbered by a developer’s mortgage or other charge without their knowledge, can make a claim for misspelling. If upheld, that claim would see the original purchase agreement declared void.
The Unfair Commercial Practices Directive 29/2005/EC, which was introduced into Cyprus law as Law 103(1)/2007 on July 18, 2007, states that it is a violation for a business to omit or hide material facts from buyers, which if had been made known, would have influenced the buyer’s purchasing decision.
A question to the European Commission tabled in the European Parliament (EP) last week by British MEP Daniel Hannan says that “it is clearly a material fact that the property being purchased has a developer’s mortgage on it, and that in the event of the developer being forced into liquidation, buyers could potentially lose their homes. This fact is systematically hidden from potential buyers by developers.”
The European Parliament question continues: “Cypriot banks even grant mortgages to buyers without informing them that the developer may also have a prior mortgage of his own on the property.”
The Cyprus property market has failed to recover, says CPN, and the key issues are:
Those involved in the sale of property will no longer be able to sell mortgaged property. As a consequence, developers will not receive the inflow of cash required to service their massive debts – and the banks will have even bigger problems than they have today as more developers will file or be forced into bankruptcy. The recent Moody’s report that the outlook for the Island’s banking system was “negative” and that the property market “remains a risk area with weak demand and unclear growth prospects” will only add to their woes.
Thousands of property buyers will be able to walk away from their bad investments and claim compensation from the banks and developers (at no cost to themselves) through the Commerce Ministry’s Competition and Consumer Protection Service (CPS). This will result in more property developers being forced into bankruptcy and will put even more pressure on the banks to keep their heads above water;
some of whom could fail.
Those who have bought property since the law was passed will have an excuse not to pay their mortgages and will submit a claim to the CPS. Based on the money they paid in say, 2008, they will be able to buy a similar property at a greatly reduced price.
The maximum fine of 5% of annual turnover placed on those who have broken the law would result in the Cyprus government (and possibly the UK Government) collecting billions of Euro s that could be used to finance a rescue package to compensate buyers who have been miss-sold property. But this again would result in more property developers being forced into bankruptcy and will put even more pressure on the banking sector.
The Office of Fair Trading may discover that Cypriot companies operating in the UK have been breaking the law if it carries out an investigation as recommended. This could result in the closure of the UK offices of those companies and the banning the promotion of Cyprus property at exhibitions of overseas property held in the UK.
The EU may place sanctions on Cyprus for failing to comply with the Unfair Commercial Practices Directive 29/2005/EC and possibly others.
“The result,” says Cyprus Property News, “could be complete and utter chaos for the banking system and the Island’s economy. If the Cyprus government wants to avoid the chaos, it has no option but to take effective action immediately.”
“One possible solution would be for the government to issue a gold-plated guarantee to the European Union that no property buyer, regardless of when they purchased the property, will lose their home as a result of a developer’s debt – and issue all of those who have paid for their properties in full with a temporary certificate of full legal ownership that will remain effective until such time as a Title Deed is issued.”