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Deal on foreclosures may be close

The Cyprus government plans to submit the last of the five bills comprising the insolvency framework to parliament within the next few days according to a source in the Finance Ministry.

Deal on foreclosures closeTHE SUSPENSION of the implementation of the foreclosures legislation by opposition MPs caused a rift between Cyprus and its Troika of international lenders resulting in the suspension of further bailout loan tranches until the matter had been resolved.

Opposition MPs voted to suspend implementation of the foreclosures legislation because the government failed to introduce the insolvency framework at the same time.

However the fifth bill of the insolvency framework proved equally controversial because political parties and the Troika could not agree on the thorny issue of guarantors for bad loans.

The troika argued that a bank cannot be entitled to less than it would be if properties used as collateral were to be foreclosed on and sold. But political party officials disagreed, arguing that the loan amount comprises not only the principal and the regular interest rate, but also often includes overcharges and they insisted that the banks should share some of the cost.

It appears that the stalemate has been overcome with the Troika and the Cyprus government having reached a compromise deal.

The deal will require guarantors to repay the difference between the assessed value of the collateral and the size of the loan they guaranteed – and not the difference between the loan they guaranteed and the price the collateral achieves at sale.

E.g. If the loan was for €150,000 and the assessed value of the collateral (property) is €120,000 but only sells for €90,000, the guarantor will pay €30,000 rather than €60,000.

Bank loans in Cyprus were often guaranteed by one or two family members and this compromise deal should ensure families are not unduly burdened with debt.

Readers' comments

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  • @pils – on 2015/02/18 at 11:43 am – We cannot say what the provisions of the bill may be. Only when “all actors in Cyprus” have come to their senses and the bill has passed through parliament will we know what it actually says.

  • pils says:

    The latest foreclosure bill to be implemented in March 2015 or there about. I can only see good. The guarantor i.e developer/Bank etc will be responsible for the original loan amount in i.e 2006/2007 etc less the value of property when sold.This is how I am reading the situation.

    Any debt above the original loan amount will be your responsibility to pay back to the bank unless the banks are made responsible for some of this debt ?

    With no title deeds only promises and how Cyprus operates, personnel I am walking away.

  • Mike says:

    And the charade goes on and on and on………….

  • @Poor guy point of view on 2015/02/16 at 10:50 am – Thanks for your comment. I know a few people in a similar position to yourself – one a divorced lady who is bring up a child. The banks are being very hostile at the moment, but hopefully that will change once the foreclosures law and the insolvency framework have been agreed by parliament. Among other things these will provide for a mediation service to help those in particular hardship.

  • Brian says:

    This just opens it up for more corruption. You just bribe valuer to value the property lower and hey…. the guarantor owes nothing. Simples

  • Janinne says:

    Doesn’t sound like the reason for many of the NPLs is being fully understood…. Every country that used the Swiss Franc and then unilaterally increased margins has (entirely predictably) run into NPL problems, and crashing property prices. Banks took on a huge gamble with borrowers when using Swiss Francs, especially at unrealistically low interest rates, with not only capital free mortgages for 5 years, but in some cases interest free too. Laiki was one example.

    In effect, the banks competed with each other as to who could offer the highest mortgages with least repayments, sending property prices sky high. Punishing their victims for this irresponsible behaviour – with foreclosures and seizing their other assets – constitutes both mental abuse and an abuse of justice. Abuse 10 x worst than any physical abuse too!

  • Poor guy point of view says:

    Well, we were young foreign couple which made the wrong decision 7-8 years ago to get a mortgage and dream that perhaps it would be possible to pay it off in 30 years time with our 2 salaries as an income per month. Yet, the dream went nightmare when the crisis hit in year later… From 1/3 of our income it went to 1/2 to pay to the bank monthly because of the job shortage, salary decreasing prices going up and so on… And now with baby on the way we go even deeper in to the s..t So, yes please we would love to get some help if possible.

    Is it our fault that there is no job, not to choose, but there is no bloody opportunity whatsoever, is it our fault that the bloody prices are going down of the properties?! And the bloody bank it is not cooperative at all- cut you expenses they told me, on the food list, you eat to much?!?! Would I prefer to stay in misery and raise my child in poverty? Hell no!

    The bank and the developer pushed us kindly to obtain the title deed as it was ready so with the timeframe and amount they charge us for it we are on cota 0 now…even plus fee more years on the top extended mortgage, so where is the future for us?! Hell, take the bloody keys and ………..

    With all that said I would like to be clear – we would like to pay, but HOW?! I am not talking for the people who can pay but simply do not like to, I am talking from the part of the people which are in similar situation like ours… Nothing against you guys posting here but many times I see you are putting all of us under one name, but we are not all rich developers or arrogant blocks who simply shows middle finger to the banks coz they like so…. Cheers and no hating!

  • Stuart says:

    UBoat has put his finger on the crucial spot. The debtor won’t pay so the guarantor is called upon to pay. The guarantor can’t pay because he too claims to be in dire straits. So no-one pays and everything carries on just as it was before. Perhaps when NPLs hit the €30 billion mark another brilliant plan will be hatched between the government and the Troika.

  • UBoat says:

    Its still unbelievable that these people knowingly take a loan out with a legal promise to repay it in a given time plus interest.

    As I see it when it suits them they stop paying the loan back sitting the current situation and hard times and Now every effort is made to protect these people from having their assets sold to help pay it back. The so called legal guarantors say its nothing to do with us ? (What a Joke) you signed the guarantee in the first place.

    The other joke is some of the guarantors are the very people that cant pay now or the institutions that lent the money and wont pay themselves….. So they all say NO and miraculously a way out is found that can be agreed by the Troika. (It’s a complete Joke … I wish I could go to my bank and say I’m not paying my mortgage now so you will have to find some other mug to pay it for me)

    It makes a mockery of a legal system.

    Yes now you are right Deanna, we will find that the property valuations will alter accordingly for this exercise at least ….

  • Deanna says:

    Yippee: estate-agents/assessors rubbing their hands in glee; hands which will soon be holding large brown envelopes for assessing the property as worth same as mortgage loan.

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