Castles Built on Sand

Financial Mirror Cyprus

Dr Alan Waring considers the growing problems with the Cyprus property market and wonders where it is heading and if there are ways to prevent the industry from destroying itself.

“THOSE whom the gods wish to destroy they first make mad”, an ancient Greek saying goes. Judging by the growing eccentricities in the Cyprus property market, there are quite a few parties heading for destruction.

For example, some developers seem to have declared open warfare on buyers and any who try to protect themselves or defend the rights of buyers. Is threat of legal action, assault or other intimidation a good way to attract new buyers?

The Long March

OVER the past 5 years, Risk Watch has commented many times on the overall scandal of Title Deeds, property fraud and official blind eyes and deaf ears.

The recent Financial Mirror Editorial ‘A Sad Day for Cyprus Property’ plus the article from George Mouskides of APPDM ‘We have not learnt our lesson’ have highlighted yet again the uphill battle that property buyers, especially foreigners, have in Cyprus both against those developers and lawyers who decide to treat them badly and against the state infrastructure and justice administration, which thus far have failed to protect them.

The new government legislation may partly correct some aspects but it almost certainly will not fix the overall problem. For example, it will not address the developer mortgage debt bubble hanging over Cyprus, estimated to be at least Euros 7 billion. It does not address the issue of rogue lawyers or errant banks or inefficient government departments or the tardy justice system. No obvious anti-corruption/anti-rusfeti mechanisms are included.

Much of the buyer protection, which the government has asserted as being exemplary in its official response to probes by the European Parliament, is therefore virtual or illusory. Fortunately, the EC is still pursuing the matter.

Risk Watch understands that further questions about the Cyprus government and its handling of the property scandal are being tabled in the EP, the initial ones being:

With reference to previous Parliamentary Written Questions E-0110/09, E-6793/08 and E-6513/08.

1. Cyprus Title Deeds Legislation

“With a view to the new legislation that is about to be put in place by the Cypriot government to address the problem of withheld Title Deeds, would the Commission answer the following questions:

Does the Commission agree that this new legislation will not address the main problem cited in the numerous buyer petitions or indeed the above-referenced Parliamentary Questions, since it will not help buyers whose properties are encumbered with developer mortgages?

Does the Commission agree that the sale of mortgaged property without full disclosure at point-of-sale is practised systemically by Cypriot developers and should be prevented in all EU countries, with stringent penalties for transgressions?

How can a prospective buyer find out about the possibility of existing developer mortgages on the property? Do any developer websites or brochures mention this possibility or how to carry out searches to discover the risk before purchase? Historically buyers’ own lawyers have not alerted them to this risk in the majority of cases.

Finally, will the Commission send a fact-finding mission to Cyprus in order to investigate these problems in more detail?”

2. Cyprus Developer Mortgages

“With a view to the new legislation that is about to be put in place by the Cypriot government to address the problem of withheld Title Deeds, would the Commission answer the following questions:

How many individual properties whose sales contracts are lodged at the Land Registry in Cyprus are encumbered with developer mortgages? How many of these have been sold to Cypriots and how many to non-Cypriots?

What is the current balance of the total mortgage debt of Cypriot developers and the percentage increase, year on year, over the last three years?”

The recent Supreme Court landmark ruling, whereby a British couple’s Paphos lawyer was forced to pay them 120,000 Euros in compensation for negligent searches, took 11 years to conclude.

It is staggering that the guilty lawyer is still practising and that mandatory duty of care rules or professional standards for lawyers’ conveyancing search duties still do not exist in Cyprus.

Other cases involving developers, lawyers or both are also taking years to pursue through the court system. It is almost as if there is a conspiracy by the Cyprus establishment to ensure that buyers with real and often horrendous grievances are deterred from seeking justice by grinding them down and exhausting their energy, health and finances with a deliberately long drawn out process. Undoubtedly, some plaintiffs will die before their cases are concluded.

However, a growing number are determined to go all the way to the European Court if necessary, no matter how long it takes.

Some More Appalling Cases

THE NUMBER of cases of alleged serious wrong-doing against property buyers in Cyprus in recent years is now legion.

Many have been logged in detail by the Cyprus Property Action Group (CPAG) and Denis O’Hare, who has been the subject of a gagging order and a withdrawn libel suit by Leptos (Armonia Estates). Nigel Howarth’s website cites more.

Yet another is the case of Mr & Mrs Smith reported in Cyprus Mail 9 June 2010 ‘British couple plan to sue property developer’ which has even prompted the Cyprus President’s Under-Secretary to personally intervene publicly to try to ensure they receive full and prompt justice.

Will he also do the same for the hundreds of others held up by slow courts and the Attorney General’s block on criminal investigations into alleged property fraud? I have selected five cases as further illustration:

Case 1: Alleged Developer Fraud and Assault

The Conor O’Dwyer case has reached such a level of international notoriety it is difficult to see Cyprus ever living it down.

Mr O’Dwyer alleges that he paid CYP75k towards a property in Frenaros from the developers Karayiannis. On raising some concerns about the contract, he alleges that the developers then sold his property again without his knowledge or permission and also failed to return his money. As the Attorney General views such issues as civil and not criminal, Mr O’Dwyer was forced to take a civil case against the developers.

The developers and their lawyers contest Mr O’Dwyer’s allegations and counter-charge him with attempted extortion. While collecting video evidence of the property in question, Mr O’Dwyer alleges that senior representatives of the developer arrived and assaulted him.

Initially dismissing it as a simple road traffic accident, the police were then persuaded by intervention from the British High Commission to raise assault charges against the alleged attackers. His injuries were serious enough to keep him in hospital for a week.

Both the fraud and the assault cases have now been before the Cyprus courts for some years, largely owing to multiple adjournments. In the meantime, he has organised a protest campaign in the UK including a vigil outside the Cyprus High Commission, protests outside Cyprus property exhibitions and a DIY protest website.

Case 2: Alleged Lawyer Fraud, Forgery and Assault

A buyer alleges that she has been defrauded of Euros 200,000 as a result of her house having been sold twice.

She had appointed a well-known Cyprus law firm. She alleges that her contract of sale was withdrawn from the Land Registry using a forged power of attorney not even in her name. She further alleges that when she complained to her Cyprus lawyer about these matters he assaulted her by spitting in her face. This lawyer continues to practise unfettered.

Case 3: Alleged Lawyer Fraud

Following the death of a Cypriot woman in Cyprus in 2007, her son who had been living with her at the time of her death and who was co-executor to her will with a Paphos lawyer was puzzled by the unresolved probate.

He alleges that unbeknown to him the lawyer had submitted false affidavits to the court (and without a copy of her death certificate) that this woman had died in the UK some nine years previously and that he had been unable to locate her son! The affidavits also sought, and succeeded in, her son’s removal as an executor.

Her son, armed with her actual death certificate, eventually persuaded the court to overturn this errant decision and reinstate him as sole executor.

However, his subsequent attempts to persuade the Justice Minister and Ombudswoman to act on what was prima facie evidence of criminal fraud failed. The Disciplinary Board of Advocates of the Cyprus Bar Association after nine months also has yet to consider his complaint of serious professional misconduct against the lawyer, who continues to practise unfettered.

Case 4: Alleged Lawyer Negligence, Deception and Collusion

A buyer alleges that his Cyprus lawyer failed to advise him prior to contract of the presence of a CYP50k mortgage secured by the developer against the property. He also alleges that his sales contract was biased in favour of the developer and that there was probable collusion with the developer.

For example, he discovered that for a time the lawyer shared the services of an office secretary with the developer, thus raising a question of partiality and conflict of interest. Further, he alleges that the lawyer blatantly lied in a letter to him that the sales contract had been lodged with the Land Registry within the requisite period of 4-weeks, whereas subsequent investigations revealed the registration was not completed until 18-months later.

Case 5: Alleged Developer Fraud and Complicity of Others

A foreign couple were persuaded by their IFA (Independent Financial Adviser) who worked for a well-known firm based in Cyprus to buy as an investment four apartments off-plan at a new development from Sun Gain Estates in the Paphos area.

The buyers who were overseas relied on a well-known Cyprus lawyer appointed by the IFA. The contract was signed and the initial stage payments totalling CYP50k were made. After 18 months and no progress reports, the couple asked me to investigate. I discovered that the developers had never obtained planning permission and so the work had not started. Further, the IFA reported that as all the estate agents’ sales commissions had already been paid there was no longer enough money left to complete the job even if retrospective planning permission were granted!

The lawyer of record refused to respond to a request for assistance so he was replaced by a reputable Cyprus lawyer who soon discovered that in fact the Sun Gain directors had abruptly closed their Paphos offices and fled abroad with the money.

Where is it all heading?

HAVING highlighted the activities of rogue developers and lawyers in the inglorious Title Deeds/fraud mess in Cyprus, what about others in the cast of characters in this macabre theatre? Where is it all heading? Is there a way out?

The Attorney General

Although aspects of Cyprus property law are based in Ottoman law, the administration of justice and Cyprus law in general claims to follow English law and precedents.

Therefore, where there is prima facie evidence of criminal activity, then criminal procedures should take precedence over civil. Indeed, in English law it is standard for civil cases to await the outcome of related criminal cases so that a higher standard of proof (‘beyond reasonable doubt’) has been tested. Cyprus law references e.g. Neocleous (2000) state that in determining whether actions are fraudulent, the authorities ‘must concentrate on the acts committed and determine whether the taking was deliberate and intentional’.

The general ‘lack of intent’ exemption from criminal liability therefore does not apply if there is prima facie evidence that, for example, a developer has:

(a) received payment from one buyer, kept the money and then sold it again to a second buyer (or, in some cases, more than two!) and

(b) refused or failed to return the first buyer’s money.

However, as the Attorney General has repudiated all this in relation to property offences, the police cannot act. It is puzzling why property crime has been singled out for this special dispensation. Why not also for murder, rape, robbery or blackmail?

Why does the Cyprus property establishment use the quaint and trivializing word ‘cheating’ when they mean ‘fraud’? Why are long-winded civil cases forced on property victims before a criminal investigation is allowed, even when strong prima facie evidence of a crime exists?

A perverse parody of English law is being acted out, which has not gone unnoticed in legal circles in other countries that actually do follow the English legal system.

The Cyprus Bar Association

Ostensibly, the Cyprus Bar Association is the professional body for lawyers and to practise as a lawyer in Cyprus requires CBA membership.

The CBA supposedly sets professional standards and a Disciplinary Board exists. However, beyond the window dressing there is precious little evidence that it takes its disciplinary role seriously.

With such a growing number of allegations of professional misconduct, including fraud, against its members, especially in property-related cases, many are asking whether the CBA controllers have even a basic understanding of the purpose, function and duties of a professional body.

Early in my career, the Deputy Director General of a UK law enforcement body advised me that a professional body exists primarily to protect the public from the activities of rogues, quacks and charlatans and should never allow itself to fall into the trap of becoming a trade union protecting the interests of its members at the expense of its duties to the public. The contrast between the behaviour of the CBA and the UK’s Law Society, for example, on matters of client allegations of fraud or other misconduct is startling.

Recently Antonis Loizou, a high profile member of the Cyprus property establishment and a regular commentator on property matters, asked in the media why there appeared to be such a disproportionately high number of cases of allegations of fraud and misconduct against Paphos lawyers. The implication of an alleged cabal of rogue lawyers operating in Paphos is disturbing enough in itself.

The deafening silence from the CBA on the matter is even more disturbing. One would expect a professional body to act swiftly and publicly at the merest hint of impropriety.

The Banks

There is also the question of the banks’ role in the whole sorry property mess in Cyprus.

As the recent Toscafund Asset Management report on Cyprus emphasized, Cyprus banks are vulnerable to the continuing further slide in property values which may involve a sharp correction. The banks would then be forced to either liquidate immovable property at fire-sale prices or extend loans but with the risk of creating a massive toxic debt bubble already thought to be in excess of €7bn.

However, just as they were only too happy to grant developers further mortgages on properties already sold, banks are still willing to extend developer loans even those that are clearly distressed or delinquent. Such loan extensions are encouraging greedy developers to maintain artificially high prices (at least 30% too high). 90-day foreclosure procedures are supposed to kick-in on defaulters but rarely do in Cyprus.

Even establishment figures in the property market such as Antonis Loizou have been calling for developer foreclosures by the banks so as to bring Cyprus into line with the rest of the developed world.

Where Are the ‘Honest but Silent’?

IT IS OFTEN said that the only thing necessary for the triumph of evil is for good men to do nothing.

From what I know, there are decent developers, lawyers and agents in Cyprus who hate what they see going on among the ‘bad guys’ and the conspiracy of convenience with a grossly inefficient government administration; but they are scared to go public. Many of them tell me how much they admire what the Cyprus Property Action Group has done. We need to hear more public statements of support from the ‘honest but silent’ so as to publicly identify and isolate the wrongdoers.

If a cabal of dishonest lawyers exists, for example, why does a cabal of honest lawyers not stand up and denounce the ‘bad apples’ and insist that the CBA throws them out?

Without unequivocal action from those developers, lawyers and agents who do have integrity, I fear that Cyprus will continue to carry a general stigma that will continue to harm the economy.

A Way Forward?

THE DAMAGE to the property market inflicted collectively by bad developers and their lawyer cronies and the weak and flaccid authorities can only be countered by sustained action on the whole ‘system’. That includes the government stopping the banks in Cyprus from extending developer loans when they clearly have no means to repay.

CPAG has already advised the Interior Minister of a tried-and-tested formula to save developers from bankruptcy and all the terrible effects on buyers and the economy.

The Irish government, with full EU backing, has instituted a compulsory developer debt purchase scheme. A National Agency (using existing civil servants) to supervise the Cyprus property developer debt bubble and loosen the constipation of the market and tax revenues would also be a positive step in the gathering crisis.

The longer-term culture change at the population and industry levels will require time and persuasion. Bringing individual rogues to account in specific cases, however, warrants more immediate action and of a different kind. Unfortunately, the current attitude of the Bar Association and the Attorney General makes redress, both criminal and civil, that is normal in other EU countries hard to attain in Cyprus.

The ‘appeasement of wrong-doers’ argument favoured by some apologists is without merit and will only encourage bad developers and crooked lawyers to continue to ride roughshod over their luckless clients. Throughout history, appeasement of power-abusers and bullies of any kind has rarely worked. They can only be contained or crushed, not bought off or negotiated with.

Pressure and persuasion of the right kind do work. ‘Naming and shaming’ is one tactic against individual wrong-doers, which eventually hits them in the pocket if they fail to remedy the wrongs or to change for the good. If the professional bodies and the justice system fail to identify and root out dishonesty, it is likely that an angry and emboldened public will do it themselves.

A number of developers and lawyers who are alleged to be ‘bad apples’ have been identified on a variety of websites and blogs. Ultimately, there is no hiding place.

Apart from culling the ‘bad apples’, what is also needed, in effect, is an embedded cultural change in the property industry and the wider population. This will take many years. It can’t be bludgeoned into people.

Changing deep-seated attitudes and behaviours in a whole population can only come about if the population sees clear benefits from the change i.e. enlightened self-interest. Remember, the problem of rusfeti, ‘cheating’ i.e. fraud, cigar-cigar and laissez-faire does not just involve neatly packaged groups such as ‘bad developers’, ‘dodgy lawyers’, ‘low integrity bankers’ and ‘incompetent and inefficient civil servants’. These entities exist and flourish in a wider society that nourishes them.

The carrot is Cyprus’s return to economic prosperity and a respected status as a high integrity/high reputation investment location. The stick is economic decline and a low reputation among foreign buyers and investors.

A twin-track approach is needed involving the faster-paced pressure from CPAG, the EU, foreign governments, international media etc plus pro-active peer pressure from the honest but thus far silent individuals within the industry itself.


ONE MIGHT imagine that the Cyprus property market’s current Ice Age might have already concentrated minds and galvanized action to attract foreign buyers back by the industry cleaning up its own mess.

It was not compulsory that mastodons and dinosaurs should survive a sudden and lengthy change in climate. It is not compulsory that the Cyprus property market should survive a sustained loss of customers.

By: Dr Alan Waring Published: Tuesday 22nd June 2010
©2010 Alan Waring

(This article first appeared in the Financial Mirror)
To read comments on this article from expats in Cyprus see the Cyprus Property News

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. He is a Fellow of the Institute of Risk Management and is a founding member of the IRM Cyprus Regional Group. Contact

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