The Amendment of the Transfer and Mortgage of Immovable Property Law which took effect on the 13th of July 2018 marked a significant turning point for the process of foreclosures in Cyprus as it provided the legal framework for fast track private sale of mortgaged property whilst restricting the borrower’s ability to suspend or discontinue the sale of their mortgaged property.
Remarkably, the amendment of the law stipulates that its provisions apply in every case/proceeding of a contract mortgage, registered at the Land and Surveys department, before or after the date of entry into force of the present Law. Hence, it becomes clear that the amended law is to be applied retrospectively (including both new and existing proceedings) regardless if their proceedings commenced prior to the 13th of July 2018.
The safeguard of Borrowers against foreclosure proceedings is the filing of an appeal against the announced foreclosure, asking the Court to suspend the said foreclosure proceedings. However, there is a substantial differentiation which has been brought about by the amendment of July 2018. Previously, the law provided that one of the grounds for filing an appeal against the foreclosure proceedings was the existence of a pending civil action against the mortgaged debt. Therefore, the borrower could protect his mortgaged property from foreclosure by filing a civil action challenging the mortgaged debt. In the cases where the bank had already filed a civil action against the borrower regarding the mortgaged property, the borrower could file a counterclaim challenging the banks claim and this would in turn satisfy the grounds for filing an appeal against the foreclosure proceedings.
In turn, this meant that the banks faced significant delay as they often had to wait for the adjudication of the pending civil action before proceeding with foreclosure and many borrowers strategically filed civil actions and counterclaims challenging the mortgaged debt in order to gain time and evade foreclosure proceedings.
In an attempt to nullify this safeguard which had led to floodgates of civil actions concerning nonperforming loans and mortgaged debts, the amendment of July 2018 was introduced to provide speed and efficacy for the Mortgage Creditors. As a result, the amendment of the law on July 2018, abolished the borrowers right to file an appeal against the foreclosure process on the grounds of the existence of a pending civil action regarding the mortgaged debt.
On which grounds can a borrower file an appeal to suspend the foreclosure proceedings?
Since July 2018 the existing grounds for filing an appeal against the foreclosure process include:
(a) that the foreclosure notice does not comply with the required form and content, requirements.
-The Mortgage Creditor is obliged to serve a certain written notice to the borrower informing them that the mortgaged property will be sold by auction, this notice has the title and form «Type IA». This notice has to be sent, not less than thirty (30) days in advance of the scheduled date and follow a certain for and content as set out by the Transfer and Mortgage of Immoveable Property Law.
(b) that the notice was not duly served;
-Certain legal requirements regarding the service of Notice «Type IA» were not met.
(c) that the time period to make payment given to by the mortgage creditor had not ended at the time this notice was sent;
-Before scheduling the date and time of the auction, the borrower is given a period of not less than 30 days to make payment of the whole debt, by written notice.
(d) that an interlocutory injunction has been issued in favour of the mortgage debtor in accordance to Article 32 of The Courts of Justice Law;
- In certain cases the borrower may apply to the Court for an injunction suspending the foreclosure proceedings. These orders are issued only in special circumstances and there is still limited case law on the matter. However, some of the grounds on which the borrower may apply for such an injunction include (and are limited to) instances where the mortgage creditor is clearly acting in bad faith, where the mortgage creditor and the borrower were in the process of substantive efforts for restructuring of the loan or material efforts for some settlement, where the borrower has evidence that challenge the debt claimed by the mortgaged creditor etc.
(e) that a protective decree has been issued in favour of the mortgage debtor under the provisions of The Insolvency of Natural Persons (Personal Repayment Schemes and Debt Relief Orders) Law;
(f) the mortgage debtor whose participation is approved to the plan ESTIA for dealing with non-performing loans and supporting vulnerable social groups" or to any other State aid plan for credit facilities, provided that, he/she accepts and complies with the agreement and his/her credit obligations resulting from that plan.
How can one know if they run the risk of foreclosure?
If you are an interested person or the borrower of a nonperforming loan which is secured by mortgage, then you must pay attention to the written notices sent by the mortgage creditor.
Notice «Type Θ»
The process of foreclosure begins with the service of Notice «Type Θ». This notice informs the borrower or the interested persons that in case of difficulty in the payment of their debt then they are invited to contact the mortgage creditor in order to examine if they meet the socioeconomic conditions for restructuring.
Notice «Type I»
The next notice served by the mortgage creditor to the interested persons or the borrower is Notice «Type I» accompanied by a statement of account which indicates the total debt, interest and any other expenses. This notice invites the borrower to repay the total debt within a deadline not less than 30 days from the date of service of Notice «Type I». The notice also informs the borrower or interested person that in case of failure to repay the total debt within the given deadline, then the mortgage creditor may exercise the right to sell the mortgaged property.
Notice «Type IA»
In the event that the mortgage borrower fails to comply with the deadline of Notice «Type I» then the mortgage creditor may proceed and serve Notice «Type IA» with which the borrower is informed that the mortgaged property will be auctioned. This notice must be served at least, 30 days before the scheduled date and time of the auction of the mortgaged property.
Notice «Type IB»
Notice «Type IB» is usually served simultaneously with Notice «Type IA». This notice invites the borrower to appoint an evaluator within 10 days from the date of receipt of the said notice and conclude his/her own evaluation of the mortgaged property if he wishes to do so. Failing to appoint your own independent evaluator will not affect or delay the process of foreclosure. On the contrary, the mortgage creditor will appoint two evaluators, one on the behalf of the creditor and one on behalf of the borrower.
Upon first attempt to sale the mortgaged property via private auctioning, the price is set to correspond to 80% of the market value of the mortgaged property. (As explained above, the market value of the property is decided based on the evaluations of two independent evaluators and a specific formula).
In the event of unsuccessful auctioning at 80% of the market price, then 3 months later, the mortgage property may be auctioned at 50% of its market price.
In conclusion, it is important to highlight that the deadlines for appealing against the foreclosure proceedings are very tight and often the borrowers do not have the necessary time frame to react and seek legal assistance. It is advised that in such cases one should seek legal assistance as soon as possible and definitely upon receipt of Notice «Type Θ» and Notice «Type I».
For further assistance legal assistance and enquiries as to whether you have grounds for appeal against the foreclosure proceedings of your mortgaged property please contact a member of our team.