Cyprus parliament receives new bills to tighten foreclosure rules

The House plenary this week received a series of bills tightening the framework governing foreclosures and strengthening protections for loan guarantors, as political pressure mounts over the handling of non-performing loans.

Two of the proposals were tabled by MP Stavros Papadouris and seek amendments to the Immovable Property (Transfer and Mortgage) (Amending) Law.

The first provides that, where attempts to sell a mortgaged property continue beyond six months from the completion of the first auction, the obligation to apply a reserved sale price must remain in force.

That price, the bill stipulates, cannot fall below 50 per cent of the property’s market value.

The second would grant the Financial Commissioner the power to examine complaints relating to debt confirmation after the borrower receives a Form “I” notice from the mortgage lender, effectively expanding oversight at a critical stage of the foreclosure process.

Separately, MPs Marios Karoyan, Alekos Tryfonides and George Penintaex submitted a bill providing for a freeze on the disposal of primary residences valued at up to €350,000 until the end of 2026.

Further amendments were proposed by MPs Zacharias Koulias and Christos Orphanides, focusing on the position of guarantors.

Their bill would require a mortgage lender to exhaust all available remedies against the primary debtor and all real collateral before taking any action against a guarantor.

This includes proceeding with the sale of the mortgaged property and securing a court judgment against the primary debtor.

In addition, where a mortgaged property serving as security for a loan with guarantors is sold under Part VIA of the law or acquired by the lender, the guarantor’s liability would be capped at the principal amount set out in the guarantee agreement.

If no such amount is expressly stated, liability would be limited to the original capital of the loan, or, in the case of a current account, to the agreed limit, less any proceeds from the sale or purchase of the property and any instalments already paid.

The same limitation would apply even where a court judgment has been issued against the guarantor, provided the lender had secured a sale order under article 44 but opted to proceed under Part VIA instead.

According to the explanatory reports, the changes are deemed necessary because a significant portion of the population remains trapped in loans or credit facilities granted to third parties, leaving guarantors exposed despite having derived no financial benefit from their guarantees.

The proponents of the bill argue that guarantors are often in a weaker position than both mortgage lenders and creditors, including credit institutions and credit acquisition companies, and risk losing property, borrowing capacity and access to future credit, even in cases where the capital originally guaranteed has effectively been repaid.