A decision of the Larnaca district court banning banks from foreclosing collateralised properties for which courts gave the green light before the new foreclosure law came in effect last year, is upsetting the banks’ plans to tackle non-performing loans.
The ruling which concerns a mortgage deal signed in 1997, for which Bank of Cyprus had a court ruling issued in 2006 ordering the foreclosure of the property, said that the lender was not entitled to send a “type I” notice notification to the borrower informing the latter of its intention to foreclose the property.
“It seems unorthodox if not abusive to use a procedure provided by legislation in order to pursue a result which was already an order by the court,” the ruling said.
“The foreclosure procedure, pursuant the provisions of Part VIA, starts when the type I notification is served,” the court said. “When the notification is rejected, it is self-evident that the procedure triggered by the notification can no longer exist”.
An official from the Cyprus Banks Association said that its members will study the ruling and assess anew the situation.
“We are carefully studying and evaluating the ruling,” Michael Kammas, director general of the business group said on the phone on Tuesday.
As the ruling was issued at the first instance, he continued, “it does not constitute a precedence for similar cases” and neither cancels “foreclosure procedures”.
In a first reaction, sources at Bank of Cyprus expressed their concern. “The legal framework is a complete mess,” a Bank of Cyprus source said in a telephone interview. “We now have to assess the situation”.
Last year, the bank announced its intention to test the new, modernised as part of Cyprus’s bailout terms in 2014 before coming into force in August 2015, by foreclosing properties for which courts already issued rulings. Since the start of foreclosures in June, success was disappointing as only a fraction of the real properties foreclosed found a buyer.
Costas Melas, who heads a group representing borrowers, said on Tuesday that banks could still foreclose properties based on existing orders, issued before the new, unpopular law came into effect.
“Banks are at risk” of losing other cases at the courts, “there are thousand lawsuits pending for the foreclosure of collateral,” he said in an interview to state-radio CyBC on Tuesday.