On Friday 17th January the Cypriot Parliament received assurances from the Cypriot Asset Management Company KEDIPES and the Association of Distressed Loan and Collateral Management Companies (SEDP) that property repossessions from distressed borrowers will be suspended for the next two to three months.
The Cyprus Bankers' Association is expected to join them in the near future.
It should be noted that the Parliamentary Legal Affairs Committee had earlier called for a moratorium on the sale of all mortgaged properties in Cyprus pending the adoption of new legislation aimed at solving the problems of thousands of stranded property buyers. Specifically, officials began looking for solutions after the Supreme Court ruled that certain parts of the Property Transfer and Mortgage Law 2015, Law N. 139(I)/2015, were unconstitutional.
The committee asked banks and lending institutions not to touch troubled borrowers until the new rules are in place. KEDIPES and SEDP agreed to make concessions by imposing another moratorium, this time until April 2025. At the same time, the organisations said they would continue to send notices to their clients asking them to submit all necessary documents to prove their legal rights to the property.
For its part, the Cypriot government, with the help of legal experts and other stakeholders, intends to finalise and adopt legislation that will allow for the issuance of separate title deeds for trapped buyers. The working group is preparing a new draft law, which is expected to be submitted to Parliament for a vote by the end of January.
The bill contains six major changes to the current law. Its main aim is to allow the Land Department to cancel previous encumbrances (such as mortgages) and transfer ownership to buyers.
Other changes include stricter application and review deadlines, requiring the consent of previous owners of distressed properties to sell them, and setting a two-year deadline for issuing a tittle deed. According to preliminary estimates, the changes will affect about 4,000 people.
It should be recalled that the moratorium on the sale of mortgaged properties in Cyprus has been in force since 2020. For this reason, the Cypriot authorities have repeatedly received the appropriate signal from the European Central Bank (ECB) and the Commission.
The heads of these supervisory bodies are concerned about political interference in the sales law. According to the ECB, changes to the institutional framework for asset sales are not allowed. On the contrary, legislators should be careful to make changes that support banks' efforts to reduce NPLs rather than potentially increasing them.
However, supervisory reluctance is not limited to changes in the law in question, but also extends to the national banking supervisor's "tolerance" of continued suspensions of enforcement of the asset sale law. Thus, the first suspension of sales was granted for the period from March to June 2020, then it was extended until August, the next suspension covered the period from December to March 2021, the fourth moratorium was granted from April to July 2021, and so on ad infinitum.
It must be said that Cypriot financial institutions are awash with mortgaged properties that they cannot sell because of the constant postponements. And new extensions of the moratorium only increase their number. In addition, the country's credit rating is being downgraded and the government's cost of borrowing on the capital markets is increasing, as Cyprus' rating is already at the minimum investment level.