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

Foreclosures legislation effective from Friday

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.