CYPRUS PASSES LAW REGULATING THE FORECLOSURE PROCESS FOR MORTGAGE DEBTORS' PROPERTIES BY BANKS

On December 8, during its last session of 2023, the Parliament of the Republic of Cyprus approved by a majority vote a package of laws and amendments concerning the foreclosure of mortgage debtors' properties by banks. The aim of these innovations is to help banks address the issues of "toxic" loans that are not being repaid, protect vulnerable borrowers, and compel strategic defaulters, who have exploited legal loopholes despite having the means to repay their debts, to settle their loans.

WHAT DID THE PARLIAMENT DECIDE?

The powers of the Financial Ombudsman of the Republic of Cyprus will be expanded. He will be able to appoint mediators to assist in resolving disputes between banks and their debtors out of court.

Special judicial structures at the district court level (informally known as "expropriation courts") will be established. In these courts, residents of Cyprus will be able to challenge banks' decisions to foreclose on homes, apartments, or commercial properties due to non-payment of loans. The collateral property must be the primary residence of the debtor and worth less than 350,000 euros or the headquarters of a company and worth up to 750,000 euros.

During the appeal process in the special judicial structures, creditors must "freeze" auctions for the sale of the collateral properties.

Five bills have been approved concerning the concept of "loan restructuring" and the possibility of including debtors' collateral properties in the "Rent Instead of Loan Payments" scheme. Participants in this scheme will be granted a tax holiday.

The package of laws approved by the parliament will come into effect after being signed by the president and published in the official gazette of the Republic of Cyprus.

This issue [of banks foreclosing on debtors' properties] had been unresolved for many years, creating risks for fiscal stability and financial confidence [in Cyprus on international markets]. After several months of persistent efforts, it has been successfully addressed.