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Foreclosures legislation effective from Friday

The Cyprus parliament has passed the regulations controlling property foreclosures; the law will come into effect tomorrow, smoothing the path for the resumption of bailout loan payments.

Foreclosures lawPARLIAMENT passed the regulations on Thursday governing properties in foreclosure, enabling the activation of repossessions-related legislation.

The ordinances passed after much horse-trading between MPs, along with a number of additional clauses as well as amendments tabled by the parties.

The regulations were approved with 33 votes in favour (DISY, DIKO, EDEK, EVROKO) and 21 against (AKEL, the Greens and independent MP Zacharias Koulias).

It means that banks may now – after months of the issue stuck in limbo – initiate foreclosure proceedings.

At the same time, it removes one of the last remaining hurdles in the way of international lenders to complete a pending sixth review of the island’s economic adjustment programme, paving the way for the resumption of bailout payments.

Implementation of new, effective foreclosures legislation is a key condition of a €10bn bailout deal struck with the European Commission, the European Central Bank and the International Monetary Fund.

At the House plenum, EDEK proposed postponing the vote for a week, but eventually withdrew after pleas from ruling DISY that any further delay would be detrimental to the economy.

Under a proposal tabled by AKEL, the owner of a property in foreclosure, or a first-degree relative, may take part in the auction. Initially the ordinances, as submitted by the government, prohibited the owner from participating.

In addition, if the property owner or a first-degree relative are able to match the highest bid, the property will be sold to them.

Moreover, the owner or their first-degree relatives have the right to make the winning bid, including when the highest bid is less than the debt owed to the bank.

For example, where the outstanding debt – the balance of the mortgage plus any penalties – comes to €120,000, but the highest bid placed at the auction is only €100,000.

In this case, the property will revert to the original property owner or a first-degree relative, and the remaining amount (€20,000) must be paid to the bank within two years. During these two years, the lender may not move against the property, such as serving a foreclosure notice.

The ordinances also incorporate a proposal by EVROKO, where property valuators as well as up to fourth-degree relatives, are barred from bidding.

Auction costs will be borne by the bank and not the debtor.

The ordinances on foreclosures provide that auctions will take place from Monday through Friday, 9am to 5pm, except for public holidays.

Auctions will be held at designated premises, one in each district, to be selected by the interior ministry or the banks. The process will be streamed live online, with auctioneers picked at random by computer.

Legislators also approved a bill tabled by DIKO, which extends to June 26 a ban on the sale or transfer of bank loans to third parties, such as hedge funds.

Back in January, parliament passed an amendment to the Banking Law (1997 to 2013), inserting a clause by which banks licensed in Cyprus may not sell a loan portfolio to credit institutions – such as hedge funds – operating here but licensed elsewhere. This was in fear that defaulting mortgages, and in effect large swathes of property, could fall into foreign hands, with political implications.

Readers' comments

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  • @Salah on 2015/05/18 at 7:15 am – In cases where the purchaser cannot get the deeds to the property because the developer has a ‘hidden mortgage’ there is a temporary ban on the repossession of properties where the purchaser has paid at least 80 per cent of the sale price or have fully complied with their contractual obligations towards the seller. See Home repossession ban extended.

    Primary residences are protected in some circumstances – see Primary residence protection up to €350,000.

  • Salah says:

    Good morning all. A quick question. I can’t find any information of the full law regarding the foreclosure. There was talks before about being the first home that can’t be touched or something of that nature. Or has it became now that all the property whether it’s the first or second home are liable for foreclosure. Thank you. Hope to hear from you soon.

  • Steve says:

    @ Steve R
    When going into the details of owners and/or their relatives making the winning bid or matching the winning bid, the article says,

    “For example, where the outstanding debt – the balance of the mortgage plus any penalties – comes to €120,000, but the highest bid placed at the auction is only €100,000.

    In this case, the property will revert to the original property owner or a first-degree relative, and the remaining amount (€20,000) must be paid to the bank within two years. During these two years, the lender may not move against the property, such as serving a foreclosure notice.”

    This means that the auction proceeds go to the bank to write off the same amount of the debt and the rest can be paid off during -or on the last day of- a two year period without further penalty. It may sound reasonable, but what if the winning bid is only 10% of the mortgage debt? Then the owner has another two years before having to pay off the other 90%!

    The original government proposals prevented the owner (but not his/her relatives?) from bidding at the auction, but this was overturned by AKEL, the party who created much of the current pain and suffering in the first place.

    How can the Troika accept such a nonsense?

  • Steve R says:

    I think you may have this a little bit wrong. If the defaulters property goes to auction and he wins the bid he will have to pay for the property again plus he will still have the existing mortgage to pay. I may be wrong

  • Steve says:

    After watching the UIK comedy show called the General Election, we are now back with the long-running series “Clowns in the Cyprus Parliament.”

    The defaulters on the mortgages and property loans in Cyprus who have never paid off a cent of interest or principal (a friend who knows some of these people told me that although they can afford to pay, they don’t because they still believe that the loans will be written off, so they will never have to pay) will read this report and take great comfort from it. The MPs in their infinite wisdom have decided to allow the defaulters to buy back their properties at auction. Now I ask you, how is that going to persuade or put pressure on them to pay off the loans now? They now have the luxury of not paying anything until the property goes for auction. If it sells (back to the defaulter) for more than the debt the defaulter will receive the difference. If it sells for less, the defaulter can have TWO MORE YEARS before paying off the shortfall, so again no pressure to pay. To cap it all, the bank must pay the costs of repossession and auction. Those who can pay, but don’t, have NO CONSEQUENCES.

    The patients have taken over the looney bin. Let’s face it, the UK General Election was just a curtain raiser before the real entertainment began again in Cyprus

  • jjames says:

    It would be reassuring to know that somewhere in Brussels there is an “operations” room – a bit like on TV cop programmes(!) – where they pin up all these different pledges, promises, reneging on promises etc. with all the dates over the months and years.

    Plotted against these a few representative payment records of those of us without deeds!

    They “play” while we pay!!!

  • Mike says:

    I tend to agree with all the comments below and in particular sadly with Campbell @ 0901. I have constantly maintained (and often been derided for doing so) that property prices in Cyprus are overinflated by multiple hundreds of percentage points, in some cases, and of course those who paid these silly prices are those left suffering unfortunately.

    Why individuals leave their normally sound common sense at their airport of departure is a question I have never understood, at home they understand the value of location, infrastructure, build quality and possession of title but here we spend life savings on almost ‘third world’ structures utilising poor quality materials, poorly erected in areas close to being described as deprived.

    I understand the quaintness of any such move but as a sound, rock solid guaranteed investment I believe it is a questionable choice at least for many. If someone is prepared to pay any price then that is what the price will rise to. As a result I imagine a few bargains will become available at time of foreclosure and that will be the true market price. Perhaps we can then return to normality – but I doubt it!

  • Campbell says:

    They passed the law to get what they want — more dosh. Will they enforce it? Cynical old me says probably not. If they do, it will be against a soft target.More smoke and mirrors!

  • Chris says:

    Hi Nigel please can you explain what pledge means in Cyprus? As in reality it just another delay tactic does not mean anything. The pledge to protect buyer who have purchased there property in full but due to the Developer mortgage, taxes not been paid the COA has not been issued to lodge for transfer of title deeds.

    What will happen in Cyprus is a similar process to Spain, Portugal that when the property market burst most of the Expats with morgages handed back the keys walked away. The banks were left with thousands of properties that after 7 years property prices have not recovered properties being sold at fraction of the original selling price. Unlike Spain that has large manufacturing capability , Oil & Gas Cyprus has not got that luxury.

  • Frank says:

    Is the “Pledge to protect paid-up buyers” any more effective than the pledges given by developers that Cyprus Property Law is based on UK Law; or the pledges given to ‘buyers’ that Title Deeds were guaranteed and forthcoming? How about the pledge from Minister Sylikiotis to solve the Gordian Knot? There has been a surfeit of pledges.

    The road to Title Deeds appears to be paved with pledges: all broken.

  • @Andrew on 2015/05/15 at 5:12 pm – Please refer to Pledge to protect paid-up buyers.

  • Andrew says:

    And people who are trapped by hidden developer mortgages. What will happen to their homes. Are they expected to attend auctions, even if they have already paid their developer?

  • steve says:

    can someone explain this is short terms?

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