Fast-track courts should protect 20,000 debtors from losing homes

Lawmakers heard on Monday that around 20,000 debtors should benefit from the planned establishment of special courts fast-tracking financial disputes between borrowers and banks, aimed at affording some protection to mortgaged primary residences.

In parliament, finance ministry senior official Avgi Lapathioti said the government legislation provides for giving district courts special jurisdiction to fast-track cases for such financial disputes.

The ultimate goal, she added, is to prevent primary residences – of a value up to €350,000 – being repossessed. Based on finance ministry estimates, this should cover approximately 20,000 debtors at risk of losing their homes.

The official explained that the bill won’t cover cases already adjudicated on in courts, or cases for which a hearing process is underway.

The cabinet is slated to give the nod to the government bill later this week, after which it will be immediately tabled to parliament.

Giorgos Panteli, the finance ministry’s permanent secretary, told MPs that total non-performing loans (NPLs) amount to €25 billion.

That number has not changed over the past decade. Meanwhile the number of borrowers expressing an interest in restructuring their loan, before they receive a notice from banks or credit acquiring companies, remains “limited”.

As the legal framework governing foreclosures stands, Panteli said, it achieves part of its purpose – given that upon receipt of the first foreclosure notice 18 per cent of borrowers respond, while 30 per cent respond after receipt of the second notice.

Panteli said also that to date banks and credit acquiring companies (CACs) have not moved to foreclose on primary residences worth under €400,000.

For his part, Michalis Kronides of the banks association said most ‘bad loans’ are not serviced for more than six or seven years.

Anthi Exadaktilou, representing the association of CACs and credit servicers, likewise said that most loans that they acquire relate to NPLs not serviced for more than seven years. The companies prefer to restructure loans rather than move to repossess properties, she noted.

Legislators also discussed a joint legislative proposal – co-sponsored by Akel, Elam, Diko, Edek and the Greens – which would allow debtors to obtain a court order setting aside foreclosure proceedings until such time as a determination is made on disputes such as alleged ‘unfair charges’ by banks.

Banks as well as the government have warned that allowing loan defaulters the ability to suspend a foreclosures process, posed a huge risk to the banking sector, the economy and the creditworthiness of the country.

The banks association has said it will lead to an increase in the risk profile of the Cypriot banking system.

The move would also adversely impact Cypriot lenders during EU stress tests, and lead to a reduction in the value of collateral, both of serviced and non-serviced loans.