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Foreclosure row rumbles on

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Finance Minister Makis Keravnos will present to legislators on Monday a government package of seven proposals to address the issue of foreclosures to block a bill that gives borrowers rights to appeal decisions.

The package hopes to avert the approval of a bill tabled by Opposition left-wing party AKEL, co-signed by ELAM, the Greens, and MPs of government coalition parties DIPA and DIKO, giving the right of a non-performing borrower to appeal to the court requesting suspension of a foreclosure to dispute the outstanding value of the loan and excessive charges.

The Finance Ministry, the Central Bank of Cyprus and the Association of Cyprus Banks expressed concerns that such a law would obstruct efforts to reduce non-performing loans and subsequently weigh on the state’s credit ratings.

Last Thursday, the Parliament Plenary decided to postpone the vote for one week and to refer the proposal back to the House Finance Committee, along with another proposal tabled by Social Democrats, providing that collateral should be auctioned based on the estimated value when the loan contract was signed as opposed to the reserved value.

Furthermore, the House Finance Committee will hold a joint meeting with the House Legal Affairs Committee to examine a government bill providing for the creation of a special jurisdiction in District Courts to examine financial disputes between borrowers and the holders of the loan contract (banks and credit acquiring companies) concerning loans collateralised with primary residences with a value up to €350,000.

MPs will also discuss a legislative proposal which grants the right to homeowners, under certain conditions, to appeal to the court and obtain an order postponing a planned auction.

The proposal, which essentially introduces a mechanism initially proposed by the CBC, also concerns loans collateralised by primary residences with a value of up to €350,000.

Apart from the special jurisdiction in District Courts, the government package features a voluntary suspension of foreclosures of primary residences up to €350,000 agreed upon by banks and credit acquiring companies until the end of October.

It also proposes strengthening the Financial Ombudsman, a new ESTIA scheme for borrowers in trouble with revised criteria to include more homeowners, and a new mortgage-to-rent scheme to support vulnerable non-performing homeowners with a state subsidy and protect them from losing their homes.

Government Spokesperson Constantinos Letymbiotis said the government package could effectively and comprehensively address the issue of foreclosures, assisting vulnerable borrowers and averting strategic defaulters to exploit the procedures.

“We trust the responsibility of the political parties will evaluate the consequences of their decisions, rise to the occasion and understand that a wrong decision over a horizontal suspension of foreclosures will yield very negative results to the whole economy,” he said.

According to Central Bank data, non-performing loans declined significantly from €20.6 bln in 2017 to €2.2 bln in March 2023.

However, many of these toxic loans have been transferred to credit-acquiring companies and continue to weigh on the economy.