Assignment as a means of securing lending
The assignment agreement is increasingly being offered as a means of securing lending instead of a mortgage and is now being adopted more by banks for customer lending. The borrower is facilitated since they offer the property they buy as coll
The assignment agreement is increasingly being offered as a means of securing lending instead of a mortgage and is now being adopted more by banks for customer lending. The borrower is facilitated since they offer the property they buy as collateral for the loan and the bank acquires it until the loan is repaid.
It is a safe mode of lending, since the borrower no longer has rights over the property they bought. They assign their rights as a buyer under the sales contract to the bank and the property, whether apartment, house or plot, cannot be disposed of, except by transfer and simultaneously mortgaging it to the bank.
The interest of a borrower is served, since they are facilitated to buy the property and have possession of it, without having to grant another property for mortgage, which they may not have.
The bank provides them with the money to buy the property and acquires their rights, but not their obligations. With the assignment they are not allowed to transfer the property or sell or mortgage it to another bank. It is recommended that the bank deposit the assignment as collateral in the land registry for its own protection, preventing the buyer from disposing of or encumbering the property.
Specific performance of the assignment agreement
The Specific Performance Law N.81(I)/2011 contains provisions for the assignment agreement as collateral which is accepted in the land registry only if the sale contract concerning it has already been filed. In the event that the buyer does not fulfill the obligations arising from the assignment agreement, the assignee, which is usually a bank, may file an action for specific performance of the contract to which it relates, so that a court order is issued ordering the registration of the property in the name of the buyer and the simultaneous registration of a mortgage on the new title.
The Court of Appeal in its decision issued in C.A.163/2018, September 6, refers to assignment as collateral and the bank’s rights. The case concerned a property buyer who entered into an assignment agreement with a bank to secure credit facilities. The buyer assigned in favour of the bank all his rights arising from the sale contract and the vendor became aware of the assignment agreement.
Despite their assurance that they would inform the bank when the separate title to the property was issued so that it would be transferred to the buyer with a simultaneous mortgage to the bank, the property was transferred to the buyer, who registered a mortgage in favour of another bank.
The bank had not filed the assignment agreement as collateral with the land registry, but was informed about how the vendor and buyer acted. To this end, it filed a lawsuit against them claiming various remedies including specific performance of the assignment agreement based on Article 76 of the Law of Contract, Cap.149 and registration of the property in its name or alternatively, damages for the value of the property.
The trial court held that both of them breached the express terms of the assignment agreement and the covenants they had entered into. Although the buyer had assigned his right to register the property in his name to the bank, the property was transferred to the buyer without the knowledge of the bank, who at the same time mortgaged it to another bank for a loan he received.
Consequently, the court issued a judgment in favour of the bank, for the sum of €750.000 as damages, being a sufficient remedy equal to the value of the property at the time of the judgment, taking into account the practical difficulties that would arise from cancelling the registration of the property.Â
Decision of the Court of Appeal
The Court of Appeal in its judgment approved the decision of the first instance court and emphasised that the validity of the assignment agreement was not subject to its deposition at the land registry, but it was valid from the moment the buyer assigned his rights absolutely to the bank. It affirmed the right and standing of the bank as assignee to file an action to assert its rights without the assignor’s approval or consent to its rights under the assignment, including the transfer of the property in its name.
George Coucounis is a lawyer specialising in Immovable Property Law, based in Larnaca. E-mail: coucounis.law@cytanet.com.cy, tel: 24818288
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