Our View: foreclosure farce promises to run and run

Nothing illustrates the populist values of our politicians better than their recklessly slapdash handling of the foreclosures law, which they approved some nine years ago and ever since have been striving to stop it being implemented.

The law was approved under pressure from the Troika, which saw it as the only way of dealing with the huge number of non-performing exposures that threatened to sink the banking sector.

Soon after the law’s forced approval, parties came up with the idea of suspending it, but were dissuaded after the Troika threatened not to release the funds that had been expected by the state. Realising this could not be pulled off they decided that primary residences should be protected from foreclosures, because nobody should lose their home, even if it was valued at €600,000 and the ‘owner’ had not made a loan repayment for years. A law was passed protecting primary residence and professional premises from repossession to an extent.

Since then, the parties, with the exception of Disy, have been trying to vote through suspensions of the law or propose amendments that would make its implementation problematic. The former president had sent back such laws stipulating the three-month suspension of foreclosures of primary residences and professional premises, frequently clashing with the parties. After the change of government this year, the parties renewed their noble crusade, coming up with a proposal that could delay foreclosures procedures on primary residences by a few years.

The parties’ bill, if approved, would allow debt defaulters to file a law suit against a foreclosure in court. Once the suit was filed, the foreclosure procedure would be suspended until the case was completed. In short, the lender would not be able to do anything for a few years, until the court issued a decision. Of course, the interest would be running on the unpaid loan, and the defaulters could then complain that the unpaid loan has become even more unaffordable. Deputies have obviously not thought about this eventuality, or perhaps they would then pass another law allowing the defaulter to file a suit against the interest charged.

Opposing the law, because of the negative impact it would have on the financial system, the government came up with its own bill that would create a special judicial procedure – a foreclosures court – as an alternative. The bill was sent to the House, marked as ‘urgent’, but the parties decided not to vote on it. Deputies at the House finance committee will be briefed by finance minister Makis Keravnos on Monday about the government package, so they are persuaded not to proceed with their bill. Among these will be the approval of the mortgage to rent scheme and the redrafting of the Estia scheme by which the government would contribute to loan repayments of defaulters. The original scheme, for primary residences up to €350,000 proved a complete failure as too few satisfied the criteria.

The government package, said Kervanos “will not only serve the economy and financial stability, but also secure the interests and fair treatment of the borrowers that are considered, under current conditions, vulnerable, in the sense that they cannot fulfil their obligations.” People who cannot repay their loans are referred to as ‘vulnerable’, the parties presenting them as victims. Only in Cyprus would someone who had taken out a housing loan they could not repay – and have not repaid for years – be considered a victim in need of protection by the law. This vulnerable person has refused to honour his contractual obligations, in violation of the law, is living in a property beyond his means for years and the politicians are offering him ways to carry on doing so.

In most countries, someone living in a house worth €350,000 that he cannot afford to pay for, is not protected by law but is forced to move to a residence he can afford to pay for. There are cases, mentioned by a former central bank governor, in which a borrower had only paid 10 per cent of his housing loan – by what legal logic is he considered the owner of the property in need of protection? They are all vulnerable in current conditions, as Keravnos said, even though President Christodoulides has made a distinction between the vulnerable and strategic defaulters.

This foreclosures saga has been going on for years because nobody dares to challenge the narrative about the ‘vulnerable’ borrowers and their so called right to keep their primary residence without paying for it. The government has come up with this package, not because it believes it is necessary, but as a way of persuading the parties from dropping their own potentially disastrous law. The banks have also been recruited to help the government, announcing the suspension of all foreclosures of primary residences until the end of October, to give time to the government to persuade the parties to drop their bill and accept its package as an alternative.

If the government fails to persuade the populists to drop their bill, it may still be forced to take the hard line it should have taken from the start, instead of pandering to them, thus allowing the foreclosures farce to play and play.