Purchasing a mortgaged immovable property

When purchasing mortgaged immovable property, the purchaser can be protected by obtaining a waiver from the mortgage creditor that he will remove the mortgage

THE purchaser of a mortgaged immovable property, flat, house or land with or without a separate title deed is not protected if the vendors share in the land is mortgaged. Even though a sale contract is signed and deposited at the Land Registry Office for specific performance purposes, the purchaser is not protected because the sale contract is subject to the mortgage. In such a case, the purchaser depends completely upon the vendors willingness to pay off the mortgage, issue a separate title deed and get the consent of the mortgagor for the transfer and registration of the property into the purchasers name. So, a purchaser who intends to buy an immovable property must always seek advice or request a search through the Land Registry in order to find out of any mortgage, memo or other encumbrance burdening the property to be purchased.

The law, Cap.232, enables the deposit of the sale contract in the Land Registry Office and provides that the sale contact operates as an estate in land on the whole property of the vendor, until a separate title deed is issued for the particular part or unit purchased. Thereafter, the estate in land created is diminished on the purchased property until it is transferred into the name of the purchaser in accordance with the provisions of the law and of the sale contract. Furthermore, the law provides that in the case of a sale contract which is deposited at the District Land Registry, the relevant provisions regarding the registration of mortgages are applicable pro rata, as if such deposit was a mortgage instead of an estate in land.

Therefore, the legislators intention is clear: on the one hand to protect and safeguard the purchaser who deposits his sale contract at the Land Registry Office, making it equal with a mortgage. In other words, he gives priority towards any other mortgage, memo or encumbrance registered afterwards. On the other hand, he gives the vendor the opportunity to mortgage the land in order to raise the funds needed for the completion of the building project. Consequently, in case the vendor has already mortgaged his whole share in the land, any sale contact thereafter deposited comes second and it is subject to the mortgage. In such a case, the purchaser is considered to have purchased a mortgage property.

The importance of the matter is evident when the vendor is not able to pay off the mortgage and the mortgage creditor proceeds to sell the whole property in public auction in order to get his money. Here, it will be examined whether the sale contract was deposited prior to the mortgage and if so, the purchasers interest is not affected. However, the same does not happen when the mortgage was registered prior to the sale contract. In the latter case, the purchaser is not protected because his sale contract is subject to the mortgage. If the whole mortgaged property is sold in a public auction, the estate in land which was created for the purchasers benefit when the sale contract was deposited at the Land Registry will be removed from the Land Registry records and it will no longer exist. The purchaser in such a case loses his property.

Even if according to the relevant law the sale contract is equal to a mortgage, it does not mean that it is a mortgage. The intention of the legislator is only to safeguard the purchaser who is cautious and cares to deposit his sale contract at the District Land Registry, provided there is no previous mortgage registered. The purchaser is protected and can exercise his right of specific performance when the separate title deed is issued and in case the vendor refuses to transfer and register the property into the purchasers name. However, if the whole property of the vendor is mortgaged and therefore sold in public auction, the purchasers right for specific performance is lost and it only remains contractual, as if the sale contract has never been deposited at the Land Registry. The purchased property is therefore lost and the purchasers remedy is for damages from the vendor. It must be noted that there are cases where a vendor has no other property and the purchaser loses everything.

In order to avoid the above, it is advisable for every purchaser at the time of the signing of the sale contract to ask the vendor to provide him with a mortgage waiver by the mortgage creditor, through which he will undertake to remove the mortgage from the purchased property upon payment of the purchase price, the issue of the separate title deed and that he will give his consent for the transfer and the registration of the property into the purchasers name.