The government is planning to adopt practices implemented by other countries and which may lead to the reduction of ‘red loans’.
The new legislative framework aims to ensure that banks will be able to hunt down strategic ‘bad payers’ by employing electronic auctions and posting notifications on the real estate to be auctioned.
The bills, which were tabled in Parliament on Friday, as well as the bill for debt securitisation, will tackle the high level of NPLs in the Cypriot banking sector.
Procedures for real estate auctions are set to become faster. The new law will also cover old court decisions, debts from court decisions or arbitrations. In addition, periods in which the reserve price can be used in the process of property auctions will be more clearly defined.
The new laws will also limit the time frame in which the mortgagee can buy the property and ensures that the mortgagor allows the mortgagee to enter the property for purposes of calculating its market value. The mortgagee’s privileged status will stop when s/he receives a state subsidy as a contribution to cover part of the debts and when the value of the primary residence exceeds € 350.000.
Moreover, in the case of a loan sale it is possible to split a mortgage into smaller mortgages so as to assure that unsecured loans will not be sold when collateral is transferred to the loan’s buyer. The loan sale bill will also allow credit management companies to access the data exchange mechanism for purposes of assessing the borrowers’ solvency.
It is also ensured that all collateral is transferred to the buyer without the payment of fees and that the effects of the transfer are regulated, in particular the transfer of rights and obligations, benefits, priority order, possible continuation of legal proceedings and custody of documents. The right to set off is also introduced.
The criteria under which which borrowers can benefit from the insolvency framework fall will be broadened. The state and local authorities are no longer preferentially treated for debts owed to them when natural persons are included in a personal repayment plan.
Finally, a debtor who has receiving a state subsidy as a contribution to partially cover his debts, is no longer protected is s/he has not paid the creditors for a period of three months.