- Cyprus Property News Magazine - http://www.news.cyprus-property-buyers.com -

Deal on foreclosures may be close

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.