Lenders told not to foreclose on properties if Estia approval still pending

The financial ombudsman has advised banks and credit-acquiring companies 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.

In a memo he circulated publicly, Pavlos Ioannou cited a recent judgment by Nicosia district court – dated April 5 this year – which deemed 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.

In his memo, the financial ombudsman also welcomed an own decision by Bank of Cyprus – taken after the court ruling – to cease and desist from planned foreclosures wherever the Estia process is incomplete.

Ioannou went on to urge other licensed lenders as well as credit-acquiring companies to do the same.

Last month, and soon after the Nicosia district court’s ruling, the ombudsman had cautioned that some people applying for Estia might still be at risk of losing their homes if they fell within this ‘grey zone’ – their application for the scheme had been rejected but meanwhile they were contesting the rejection.

Ioannou’s move was seen as a warning shot to lenders, given that at the time some 1,000 such applications were pending, whereas hundreds more had been rejected.

In his latest memo, the ombudsman also called on the state to complete all applications within Estia as swiftly as possible, so as to give closure to lenders and borrowers alike.

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 was approved by 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 Cypriot banking system.

Estia had little uptake from the public. And last summer, the finance ministry announced that only about 18 per cent of applications submitted were approved.