Every prospective purchaser and mortgage creditor should care to find out the interests of the vendor or the mortgage debtor upon a property and any matter affecting them personally.
A wise purchaser or creditor is the one acting on professional advice and search in order to be informed of the issues concerning and affecting the validity of the vendor’s or debtor’s title deed and person. Only then he can claim that he has acted in good faith regarding a particular property and without any knowledge or notice concerning any third party’s interests.
The main purpose is to exclude the possibility a prospective vendor or mortgage debtor to effect a fraudulent transfer and mortgage of the property with the intend to hinder or delay a creditor from recovering the debt owed to him.
The law gives the Court power to set aside the transfer and registration of a property made fraudulently, even if it was mortgaged afterwards without the participation of the mortgage creditor to the fraud, who acted as a bona fide third party. In such a case, the setting aside of the transfer will result to the setting aside of the mortgage.
The importance and dimensions of the issue can be seen from a recent judgment issued by the District Court of Nicosia with regard to setting aside a fraudulent transfer of properties upon which there was a mortgage in favor of a bank for the amount of €550.000, which was also set aside.
Particularly, the applicant who was another bank alleged that the properties were transferred from the debtor wife to her husband by way of a gift in December 2007, pending a legal action against her in which she accepted a judgment by consent in January 2008. The properties were mortgaged in December 2007 for the aforesaid amount.
The Court referred to the provisions of the Fraudulent Transfers Avoidance Law and the Civil Procedure Law and repeated the relevant case law. It stated that the purpose of the law is to make a property which wouldn’t have been available under other circumstances, available for execution to satisfy a judgment debt. In order to establish that the transfer of a property is made fraudulently, it must be proved that it was made with the intention to hinder or delay the creditor. The intention of the person making the transfer is crucial. In the particular case, the transfer of the properties was made after the filing of the action and after the wife as defendant was notified, but before the issue of the judgment by consent.
The Court held that the actions of the spouses, as well as the timing of the transfer create suspicions regarding their motives and it considered that they did not shift the onus of proving that the transfer was bona fide and the rebuttable presumption that the transfer was made with intent to defraud their creditor. Consequently, the application for setting aside the transfer was justified and the Court issued an order accordingly, as well as an order for the re-registration of the properties into the name of the wife burdened with a memo for the judgment debt of the applicant bank.
The fact that the rights of the mortgagor bank were affected was taken into consideration by the Court, since the bank was a bona fide party and did not participate to the fraud. In the event the transfer was set aside, the mortgage was also to be set aside, whereas the other bank was to register a memo for the judgment debts. The Court assessed all the relevant factors and the fact that the actions of the spouses affected the rights of both banks.
The fraud committed by the spouses and the fact that the applicant bank as a creditor ranked before the mortgagor bank let the Court approve the application. The Court put it that any decision taken would have affected adversely the rights of one of the creditors.
George Coucounis is an experienced lawyer practicing in Larnaca, Cyprus.
Educated at University College (London) and Thessaloniki University (Greece), George is fluent in English and has been practicing law in Cyprus since 1982.