Cyprus Mail

Pledge to protect paid-up buyers

By Elias Hazou

INTERIOR minister Socratis Hasikos yesterday urged MPs to give the government a three-month window to submit legislation comprehensively regulating the matter of homes paid for by owners but facing the prospect of repossession because of developer mortgages.

Last month parliament passed a bill, indefinitely banning repossession of houses whose owners have no title deeds, even though they may have paid for them in full, because the building developers had already taken out loans on those properties which they cannot repay.

Developers’ land and buildings are counted as assets that need to be offset against their debt to banks, which gives lenders a claim on people’s properties that had been mortgaged by developers.

Tens of thousands have been left without title deeds as a result.

A clause in the main foreclosures law exempts this category of properties from repossession until April 30. According to the provision, such properties will be exempted provided the buyers paid at least 80 per cent of the sale price or have fully complied with their contractual obligations towards the seller.

But in March MPs amended the duration of the exemption, making it indefinite.

The President then refused to sign the bill into law and sent it back to parliament, arguing that it was unconstitutional and created a general and permanent shield, not for vulnerable groups, but a number of sellers and land developers.

Hasikos proposed to MPs that, rather than an indefinite exemption, legislators should instead extend the initially envisaged deadline of April 30 to June 30. By that time, he said, the government will bring to parliament a comprehensive law dealing with this class of home owners without title deeds.

The government’s top priority, he added, was to protect all those people who paid up fully for their homes, or up to 80 per cent but are unable to get the title deed.

Under the terms of its bailout, Cyprus has set up a task force “on registered, but untitled, land sales contracts” that must prepare a study by the end of May.

A lasting ban on repossessing any properties would breach the terms of the island’s bailout deal, which mandates that Cyprus enact effective foreclosures legislation allowing banks to gradually recover bad loans.

This has given opposition parties ammunition to accuse the government of siding with banking interests rather than with distressed borrowers.

It is perhaps why Hasikos told MPs that Cyprus’ international creditors – known as the troika – have “pleasantly surprised” the government.

According to the minister, the troika are not seeking mass foreclosures on properties, and are working on various scenarios to avert this phenomenon.

The ministry has already drafted legislation on this class of properties; the item is currently being vetted by the Attorney-general’s office.

Under it, the director of the department of lands and surveys will review title deeds in limbo on a case-by-case basis.

Hasikos went on to explain how the new system would work. Where an apartment bloc has 10 flats, of which nine have been sold and paid for, the bloc as a whole is still held in mortgage due to the developer’s debt, and title deeds cannot be issued to any of the buyers.

By way of example, if the developer’s outstanding loan is €100,000 and the value of the flat that has not been fully paid for covers the developer’s mortgage, then the other nine flats will be released from the encumbrance and title deeds issued to their buyers.

On Friday, April 17 the House plenum is to convene extraordinarily to vote on the President’s referral of the MPs’ bill.

Should the House reject the President’s referral, the matter will be settled by the Supreme Court.

Also on the same date, the House plans to finally put to the vote the insolvency framework, which is inextricably linked to the foreclosures issue.

The parties have tabled a raft of amendments to the framework – a set of five government bills regulating personal and corporate bankruptcy.

During Monday’s joint session of the House finance and interior committees, AKEL said it disagreed with the philosophy of the bills because they provide no real safety net for vulnerable borrowers.

In particular, AKEL wants to strike a clause stipulating that banks cannot be left in a worse financial position once a property is repossessed.

For his part, DIKO chairman and MP Nicolas Papadopoulos said they would vote down the framework unless their own amendments are adopted.

The centrist party is proposing debt cancellation for debts up to €25,000 where the borrower is unable to repay – has a monthly income of up to €200 – and has property worth up to €1,000.

DIKO further proposes that a bank may not take legal action against guarantors unless it has first exhausted all means against principal debtors.

They also want primary residences shielded from repossession, where properties are worth up to €300,000 (currently the bill stipulates up to €250,000) and where a person’s total debts are under €350,000.

Socialist party EDEK meanwhile propose that during a debt restructuring process, a court may order banks to write off compound interest, with lenders instead allowed to charge a maximum 2 per cent interest on loan payments in arrears.

They insist also that a guarantor should be let off the hook when the principal debtor declares bankruptcy.

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