Legal hurdles to the new repossession law have arisen after local courts put the brakes on the supposedly faster process for banks to reduce non-performing loans (NPLs).
Just weeks after legislation was approved to speed up the repossession processes, pathing the way for the banks to reduce their bad loans, legal complications have arisen.
Two repossession cases were put on ice with decrees issued by the Nicosia and Limassol District Courts ordering banks not to proceed with the requested repossessions.
The two cases have triggered fears among the banking world that the new legal framework will prove as ineffective as the one it replaced.
On Monday, a Nicosia District Court ordered Hellenic Bank not to go ahead with a repossession process. Law firm P. Angelides &Co LLC said it had secured a decree from the Nicosia Court which prohibits the bank from going ahead with the process which involves the settlement of loans with 13 mortgaged properties.
"The decree was issued on the basis of our allegations of undue hardship and that in the case the auction had proceeded, then our client would have suffered irreparable damage at the expense of their business with unimaginable costs,” the law firm said.
“In addition, we have raised the argument that our client’s right to appeal to the court, as the principle of a fair trial as an established constitutional right has been violated,” it added.
The issuance of such decree, essentially goes against the new legal framework, strengthens the lawyers' assessment that the new legislation will have to deal with “inherent legal weaknesses”.
According to the law firm, the new legislation approved parliament is expected to have the fate of the previous one and the law is already proving to be full of loopholes.
The framework voted in by Parliament was aimed at speeding up repossessions, so as to enhance the bank’s capability of collecting non-serviced loans, thus reducing their NPLs portfolio.
Ratings agencies have recently applauded the government on taking more decisive steps on foreclosures to reduce the number of toxic loans.
However, the new law may be in danger of having the same results as the previous legislation on when thousands of letters of formal notice sent out were simply ignored.
Only 3.2% of the real estate involved was repossessed, while out of 5,400 properties for which notifications have been received since Q3 2015, only 173 have been sold at auction.
With NPLs composing 45.3% of total loans in the banking system amounting to EUR 21.99 bln, economists also fear that the new legal framework will not go along way in rectifying gaps and delays caused by the previous one.
Leverage
A banking sector source told the Financial Mirror that whether the new legal framework is to be successful remains to be seen over the coming period.
The source argued that the success of the framework will be proven by how efficiently the courts will be able to deal with the case load brought before them.
It would also depend on how efficiently the land registry department will be able to work. He also added that it remains to be seen if the law itself will be able to help in the direction of reducing NPLs.
“The banks look upon the new framework as an upgraded toolkit which they can use as leverage to get people to service their loans. We need to have the repossession tool in our toolkit so that all cases will come to a conclusion,” said the source.
The source added: “Banks do not aim at repossessing people’s homes but would rather utilize the tools provided by the new framework to put pressure on people or entities who strategically chose not to pay their loans.”
Referring to the two cases for which courts have issued a decree to freeze repossession procedures, the source said that “each case is different with specific characteristics”.
“We have cases in which judges have ruled in favour of the banking institution.”
These are lower court decisions and cannot be considered as a legal precedent which could endanger implementation of the legal framework, said the source.
