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Our View: The passing of legislation protecting the ‘first residence’ is certain to be abused

FOR SOME time now, deputies have been discussing the drafting of legislation that would prevent the re-possession of homes belonging to people that have defaulted on their loan repayments to the banks. What has come to be known as the ‘protection of the first residence’, would ensure that home-owners that have fallen on hard times and have not been repaying their housing loans, would not be kicked out on the street.

Deputies often pose as the guardians of the poor people, but it is questionable whether the legislation under discussion would be protecting unemployed home-owners or people that want to get out of meeting their financial obligations. There were three draft law proposals that were merged into a single one and would ensure against bankruptcy proceedings for people’s homes; the law, if passed would also suspend the execution of court decisions for the collection of debts, which is a recipe for disaster. The Central Bank understandably has warned the legislature against such a move which would offer ‘legal strategies’ for people not to repay their loans.

In fact this would be a danger posed by any legislation aimed at protecting the ‘first residence’. It would be exploited by cunning individuals who do not want to pay back their loans and also lead to the increase of debts of many people, making the eventual repayment even more difficult. Needless to say, that any law suspending repayments or preventing foreclosures would put the struggling banks under additional pressure, by increasing their capital needs.

There is no need for any new legislation as it would create more problems for the economy than it would solve. The banks are unlikely to go after the small debtors because this would not make much business sense, at a time when there are businesses owing millions. They would try to recover the hundreds of millions that are owed first and then turn their attention to home-owners. By then, many of the latter might have resumed repaying their loans. The last banks want it is to end up owning 10 or 20 thousand houses they cannot sell.

According to a representative of the banks, speaking at the House legal affairs committee on Wednesday, there were currently 6,000 cases of foreclosures at the Land Surveys Department that were not being executed because debtors were given a second chance. But this situation cannot be allowed to go on indefinitely, through the passing of legislation protecting the ‘first residence’ which is certain to be abused. Things should be left to run their course and deputies must give up the misguided idea of new legislation.

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