Credit-acquiring companies warned over foreclosures

Finance Minister Constantinos Petrides on Thursday warned credit-acquiring companies (CACs) not to proceed with foreclosing on properties where the borrower has applied for a government-sponsored debt relief scheme.

In a statement, the minister said CACs should refrain from home repossessions where borrowers are covered either by the Estia housing loan subsidy scheme or the newer mortgage-to-rent scheme.

The warning comes just after the expiry of the freeze on repossessions on properties. The latest three-month freeze ended on January 31. It afforded ‘immunity’ from foreclosure to primary residences valued at under €350,000, small business premises with a turnover below €750,000, and land parcels worth under €100,000.

Banks had earlier committed to the temporary ban on foreclosures where a borrower was enrolled in, or had applied for, a loan relief scheme.

But CACs, who buy problematic loans from banks, recently intimated they were not bound by these restrictions – prompting Petrides to intervene.

The minister said further that CACs are bound by all the provisions of Purchase and Sale of Credit Facilities and Related Matters Law.

“This is also the position of the financial ombudsman, expressed following a relevant complaint, and which I fully adopt,” Petrides said in his statement.

“I therefore call on CACs to immediately proceed with processing tasks relating to applications to Estia, and as always in consultation with the ministry of labour as the responsible agency of the scheme, so as to avoid any further inconveniencing of people.”

Earlier media reports suggested that foreclosure proceedings were set to resume with a vengeance in February. The reports said some 200 repossessions were lined up for the months of February and March.

Under the initial Estia scheme conditions, eligible borrowers with loans using their primary residence as collateral and with a value of up to €350,000 would receive a state subsidy amounting to one-third of their monthly instalment required by the restructured loan facility.

The debt relief scheme got the nod from the European Commission’s Directorate for Competition, and aimed to protect applicants’ primary residence from being foreclosed on as well as at decreasing the number of non-viable loans in the banking system.

In June last year, the financial ombudsman advised banks and CACs to refrain from foreclosing on mortgaged properties before the definitive conclusion of procedures within the Estia housing loan subsidy scheme, otherwise they would be breaking the law.

He cited an earlier judgment by Nicosia district court deeming unlawful any foreclosure action on a primary residence if an applicant for Estia is contesting the rejection of their application for the scheme and while a decision is pending on that contestation.

Under the rules, lenders cannot foreclosure on a primary residence if the property in question concerns a person applying for the Estia programme. Once a person’s application to be enrolled into Estia is rejected, the bank may move in on the property.

However, an applicant may subsequently contest the bank’s rejection – and while a decision is pending on this appeal, the lender cannot take any action on the property. This prohibition covers the sending of foreclosure notices to the borrower.