Mortgaged Loans vs Mortgaged Property

Many Cypriots have found themselves in a tight spot and are forced to take difficult and painful decisions.
They have taken a loan to buy a property, either as an investment or for their own accommodation. They have found themselves in this position because property prices have plunged since they took the loan, while interest rates are rising, the result being that the loan is either equal to or exceeds the value of the property.
This, together with a reduction of incomes because of the crisis leads to a difficulty to pay the loan installments.
What can someone do if there is a difficulty in paying the monthly dues and bank pressure is mounting?

FIRST OPTION
The first option is to sell the property at a lower price, sometimes lower than the purchase price and less than the current loan balance.
The danger is that the loan won’t be paid up even when the property is sold.
Our suggestion is to enter into a negotiation with the bank making sure that a discount is granted in case the property is sold so that the loan is fully settled upon the property sale.
But what if the bank rejects this suggestion?

SMALLER LOAN
It might be worthwhile to negotiate with the bank a new smaller loan to cover the difference between the loan balance and the sales proceeds secured.
Unfortunately, in Cyprus, the mortgaged loans, which are not settled by the sale of the mortgaged property, continue to burden those having taken the loan. This is in contrast to other markets, like the U.S. market, where the borrower may give up his rights on the property and the bank cannot have recourse on him after the property is sold.
Another similar option, if accepted by the bank, is to offer to transfer the property to the bank and consider the mortgaged loan as paid or partially paid.
Banks have lately been more flexible giving a lot of consideration to the solution above. This is beneficial to both sides, as the bank will not be dragged into a court procedure and the property owner will not have to try to sell in today’s volatile market conditions.

FILE FOR BANKRUPTCY
The last option would be to file for bankruptcy, if of course there’s no ownership of any other property. If in other words the liabilities of a person exceed his assets, bankruptcy is always an option.
This means that having declared bankruptcy that person will be under the scrutiny of the public receiver and will not be allowed to have bank accounts or re-enter the marketplace for some years.