By Elias Hazou
UNDER the foreclosures bill drafted by the government, mortgagors will have around six months at their disposal to challenge or block repossession proceedings on a property, with recourse to the courts and mediation agencies available every step of the way.
Where a borrower is late on mortgage payments for over 90 days, he or she may, during the first 90 days, ask the bank to restructure the loan or request the services of a mediator based on the financial disputes agency created under a law passed this year. Also during this time, the borrower may take to the courts challenging the amounts demanded by the lender. In both these cases, sales procedures on a property are suspended.
After the 90 days have passed, the mortgagee (the bank) may send the borrower a notice asking for repayment of outstanding debts within 30 days. During this time, the debtor can again take to the courts challenging the amount demanded by the bank.
In the event the borrower has not complied, the bank may send a second notice informing that the mortgaged property will be sold by auction. The auction notification must include the date, time and location. The notice must be delivered no less than 30 days before the auction date.
Having received the second notice, the borrower may then, within 30 days lodge an application in court to circumvent the notice, provided certain conditions are met, such as if a prior application for the first notice is pending before the court.
At the same time, the bank delivers a notice to the borrower notifying him/her to appoint an independent valuator within ten days to determine the market value of the property in question. The bank appoints its own valuator.
Working separately, the two valuators must deliver their valuations to both parties (bank and borrower) within 30 days.
Where the difference between the two estimates is less than 25 per cent, the mean of the two estimates will be taken as the market value of the property to be auctioned. If the margin in the two valuations is equal to or more than 25 per cent, the bank may, within five days of the valuations being submitted, request the Technical Chamber (ETEK) to appoint a third independent valuator. This valuator then has 30 days to prepare a valuation, copies of which are handed to both the bank and the borrower.
The mean of the two closest estimates (out of three) is then taken as the market value of the property.
At this stage, the bank may attempt to sell a property via auction only. At the auction, a reserve sale price is set at no less than 80 per cent of the market value.
If no sale is made during the auction, the lender may next seek additional ways to sell the property (via other auctions or other means) for a period of three months. The reserve price still applies.
Should the property remain unsold at the end of the three months, the reserve price may be slashed to no less than 50 per cent of the market value, for a period of nine months. Once the nine months have passed, the valuation process is repeated from scratch, with the reserve price set at no less than 50 per cent.
The bank has the option to purchase the mortgaged property itself only after 12 months have passed since the for-sale process has begun. The whole procedure is repeated every year as long as the property has not been sold.
Primary residences are excluded from the law’s provisions until January 1, 2015, and will be affected on that date or once the insolvency law enters into force.
The ‘Insolvency Framework’ approved by the cabinet and published this week summarises the bankruptcy provisions governing both legal and natural persons in the coming law. The insolvency law will establish so-called insolvency consultants, independent government-appointed officials to whom debtors can turn for restructuring their loans. Specific eligibility criteria will apply to debtors whose primary residence is on the line.
The law will, moreover, introduce a mechanism for fast and total debt forgiveness to non-viable borrowers with no income and no assets and whose debt is low, under certain conditions.
For viable borrowers (natural persons), debt repayment schemes will be introduced.
There will also be incentives to rescue and restore companies through debt restructuring, giving viable entities the chance to maintain jobs and maximise their value to benefit creditors.
According to the latest data from the Central Bank, at the end of May/beginning of June, non-performing loans worth some €4bn were tied to owner-occupied housing, or primary residences. With commercial banks, 36 per cent of loans for owner-occupied housing were designated as non-performing, 44 per cent at cooperative banks.