Foreclosure Moratorium Set to Stay
By: A.G. Paphitis & Co Law Firm
It is reported in the Cyprus media that the President Nicos Anastassiades signed the foreclosures law on Thursday December 8th 2022, almost two weeks after he referred it back to Parliament.
The foreclosures freeze law has been a thorny issue for the government, with the President mentioning that it aims to reward loan defaulters, rather than protecting vulnerable groups.
It was voted into law in November, where deputies voted to extend the foreclosures freeze until the end of January 2023.
The moratorium on foreclosures applies to a debtor’s primary residence valued at €350,000 or less, business premises where the business’ annual turnover does not exceed €750,000, and parcels of land with a value of €100,000 or less.
Both the government and the Central Bank had warned against a new freeze on repossessions, saying it would undermine the island’s foreclosures framework and jeopardize the country’s sovereign credit rating. It should be emphasized though, that to date this scenario has not shown itself to be a reality, as recent bank results and the positive rating of Fitch this week prove otherwise.
They also cautioned it would encourage strategic defaulters and lead to an increase in the stock of non-performing loans, forcing banks to raise their capital provisions.
In July of 2019, Cyprus’ House of Representatives passed the following laws (the “amending laws”) in relation to the foreclosure regime in Cyprus:
- The Suspension of Foreclosure of Immovable Property Proceedings (Temporary Provisions) Law of 2019; and
- The Transfer and Mortgage of Immovable Property (Amending) (No.2) Law of 2019.
The amending laws were not immediately put into force, but were referred by the President to the Supreme Court of Cyprus to rule on their constitutionality.
On June 3, 2020, the Supreme Court held that the laws were in line with the Constitution. Following this, the amending laws were published in the Official Gazette of the Republic of Cyprus and came into force on June 12th, 2020.
So these remain in force and effect.
- The Suspension of Foreclosure of Immovable Property Proceedings (Temporary Provisions) Law of 2019 (Law 60(I)/2020): Suspension of the foreclosure proceedings during the suspension period (which is defined as the period starting at the date of entry into force of the above law and ending on 1 October 2019) for mortgage debtors who satisfy the criteria for participation to the Estia Scheme.
- The Transfer and Mortgage of Immovable Property (Amending) (No.2) Law of 2019 (Law 61(I)/2020):
Extension of the periods concerning the right of the mortgage debtor to repay its debt or submit an appeal for the setting aside of the notice for the sale of the mortgaged property from 30 days to 45 days. It should be noted that the submission of an appeal for the setting aside of the notice does not automatically suspend the foreclosure proceedings and is usually filed together with an application for an interim injunction;
And in the case of loans, overdrafts, credit cards or financial leases up to EUR 350,000 secured or related to a primary residence or business premises, additional right of the mortgage debtor to appeal for the setting aside of the notice for the sale of the property in the event that the lender (bank, credit acquiring company, financial institution) refused to or did not proceed with a loan restructuring pursuant to the Law relating to the Establishment and Operation of a Single Agency for the Out of Court Settlement of Disputes of Financial Nature (the “Financial Ombudsman Law”) or where such procedure is pending at the date of entry into force of the above law.
Introduction of a right of the mortgage debtor to submit an ex-parte court application for an order prohibiting the intended sale of the property upon finding of a breach of the Code of Conduct by the Financial Ombudsman; and
Extension of the period in which the reserve price cannot be less than 80% of the market value of the property from 3 to 6 months. The amending laws may cause delays in certain foreclosure proceedings and thus reactions to their enactment have been mixed. No doubt, Cyprus’ Finance Minister Mr. Constandinos Petrides will repeat his warning from earlier this year, when he had warned that the country needed to pass reform bills in order to handle foreclosures properly but without protecting the island’s bad debt culture, arguing that postponing foreclosures was endangering EU relief funds aimed at protecting responsible homeowners who needed help to pay mortgage under specific criteria.
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