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15 August 2017
In order to address the problem of non-performing loans following the 2013 financial crisis, the Transfer and Mortgage of Properties Law was amended in 2014 to speed up and streamline the foreclosure process which allows lenders to repossess and sell properties pledged as security for loans in arrears.(1)
The amending law introduced an additional procedure under Section VIA which, in contrast to the existing procedure under Section VI, permits the direct sale of the mortgaged property by the lender without the involvement of the Department of Land and Surveys. The department's required involvement in any sale of mortgaged property had been criticised and had led to substantial delays.
Unsurprisingly, the amendments have faced considerable opposition from borrowers in the courts. Judicial opinion on the objections has been divided, which has created uncertainty and hampered the effective use of the new procedure.
One such objection was based on the argument that a lender which had already obtained a court order for the sale of mortgaged property could not use the new procedure to achieve its sale. This argument was accepted by the District Court of Larnaca,(2) which held that it would be unorthodox, if not abusive, to make use of a process provided by legislation to achieve a result which the court had already ordered. While Article 44A(4) of the Transfer and Mortgage of Properties Law might allow the foreclosure process to take place despite a civil action being in progress,(3) once an order for the sale of the mortgaged property had been issued, only the old procedure was available, as Article 44(2) appears to explicitly confirm.(4) Further, according to the court, most elements of the new procedure would become inapplicable once an order had been issued (eg, the possibility of debt restructuring). This decision was subsequently followed in several other cases.(5)
However, in another 2016 appeal, the District Court of Paphos took a completely different approach and held that a lender which had obtained judgment ordering the sale of the mortgaged property should be able to use the new procedure regardless.(6) In the court's view, it was neither unorthodox nor abusive to use an additional, alternative foreclosure process since the sole aim was to provide a means of executing the court order (just as the old procedure had done).
While Article 44A(4) does not explicitly state that Section VIA can be used once the court has issued an order, it does not explicitly prohibit it and – in the absence of such a prohibition – the court cannot decide to exclude the use of the new procedure.
In a more recent judgment, the District Court of Nicosia agreed with this view, describing the new procedure as a natural continuation of obtaining a court order for the sale of mortgaged property.(7)
With the lower courts unable to agree, significant uncertainties remain as to the application of the new procedure, which has yet to have the desired effect of removing the delays that made the foreclosure process practically ineffective. It now falls on the Supreme Court to reach a decision that will provide guidance and set a binding precedent.
For further information on this topic please contact Sotos Kasinos at Elias Neocleous & Co LLC by telephone (+357 25 110 110) or email (firstname.lastname@example.org). The Elias Neocleous & Co LLC website can be accessed at www.neo.law.
(3) In free translation: "44A(4). Nothing in this Section (Section VIA) shall preclude the right of a mortgage lender to proceed with a civil action to obtain a Court Order for the sale of the mortgaged property."
"44(2). Where the sale of mortgaged property for the repayment of the amount secured by the mortgage is ordered by the Court, the following provisions shall apply, unless the Court orders otherwise:
1. the provisions of subsection (3) of article 37 (Section VI) apply, mutatis mutandis, as if the Court Order was an application pursuant to subsection (2) of article 37.
2. the provisions of articles 41 and 42 (Section VI) apply, mutatis mutandis, as if the Department of Land and Surveys had decided to order the sale pursuant to the provisions of this section, and the 30-day period provided by subsection (1) of article 41 should begin from the date of the notification given by the Department of Land and Surveys pursuant to subsection (3) of article 37."
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