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Foreclosure freeze row gets ugly

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Under the fear of an increase in Non-Performing Loans, as the European Central Bank continues to push interest rates up, a heated debate is brewing over the right of defaulted borrowers to challenge foreclosures.

Opposition parties are at odds with the government over the right of borrowers defaulting on their mortgage to challenge bank decisions to foreclose their primary residence with a maximum value of €350,000.

The Opposition backs legislation allowing borrowers to seek a court order to freeze foreclosure procedures.

This proposal is backed by MPs from AKEL, DIKO, DIPA, EDEK, ELAM, and the Greens, garnering 33 votes – in the 56-seat House.

It is strongly opposed by the government and the Central Bank, citing dangers to the banking system’s stability and efforts to eliminate exposure to non-performing loans.

Weighing in on the issue, the Financial Ombudsman, Pavlos Ioannou, argued that this proposal does not exempt the borrower from his obligations.

Ioannou, however, suggested the proposal cover only credit acquisition companies, which are not burdened with capital requirements.

He cited statistics showing that almost half of the cases of termination or suspension of the foreclosure process his Office takes on involve credit recovery companies.

While the debate over amendments to the foreclosure law rumbles in parliament, the government is trying to coordinate support on a proposal to create an expedited foreclosure court.

A Finance Ministry proposal was to be approved last week by the cabinet but was postponed as minister Makis Keravnos was abroad for meetings of the Eurogroup and ECOFIN.

The government’s foreclosure court bill is considered critical as it provides a counterweight to the proposed legislation that gives borrowers legal rights to obtain a freeze on foreclosure processes.

According to warnings from the ECB and rating agencies, such a development could render the foreclosure process meaningless, encouraging strategic defaulters.

In addition, the government and the Central Bank are also concerned that during rising interest rates and cost of living, the culture of avoiding payments could roll down to consistent borrowers.

Phileleftheros daily said Themis, the largest non-performing loan acquiring company, announced that it offers defaulted borrowers the option of a fast-track restructuring process.

Themis’ proposal covers all NPLs under their management secured by a first residence worth up to €350,000.

A series of temporary foreclosure freezes have been implemented since 2021 due to the COVID pandemic and the financial hardships of borrowers due to lockdowns.

The freeze had been extended until the end of January.