Filenews 2 April 2023 - by Eleftheria Paizanos
At a time when regulations are being sought in Cyprus to protect vulnerable or other "pressured" borrowers from foreclosures, among which is the establishment of the right of debtors to appeal to the foreclosure court under promotion, a study prepared by the services of the Parliament shows that in most European countries the sale of mortgaged property is done after a court decision.
Specifically, 14 of the 18 states that participated in the Parliament's investigation informed that banks and credit-acquiring companies will have to secure a court order before taking out a borrower's property. According to the study, prepared on the instructions of ecologist MP Stavros Papadouris, the mortgagee does not have the right to auction the mortgaged property without the issuance of an enforceable title or before the legal amount of debt is adjudicated by a national court.
What applies in Cyprus
In Cyprus, on the other hand, the mortgagee, i.e. banks and credit acquiring companies, have the right to proceed with the process of selling the mortgaged property in the event of default, "as a result of which the entire mortgage debt becomes payable and the default relates to a period of not less than 120 days from the date it becomes payable, under the terms of the contract'.
It is worth mentioning that this right is granted to the mortgagee before the legal amount of debt is adjudicated (determined) by a national court and even if a lawsuit is pending. Under the same legislation, the mortgagee is granted the right to compensation if at the adjudication of the legal amount of debt at a later stage, after the auction, it is proved that the amount of debt in question was less... It is reminded that, since 2018, after the change of the legal framework for foreclosures by the Parliament, the borrower does not have the right to go to court and obtain a decree suspending the sale of his property, in case his loan includes overcharges.
The findings of the study
In detail, according to the findings of the study prepared by the services of the Cyprus Parliament, it seems that the countries for which a court decision is needed before conducting an auction are: Austria, France, Germany, Greece, Ireland, Italy, Luxembourg, Hungary, Poland, Portugal, Romania, Slovenia, Sweden, Finland. It should be noted that there is no single handling.
By country, according to the study, the following are applied:
- Austria: The mortgagee and the debtor can agree to an out-of-court sale of immovable property. However, there is no case law allowing for the private auction of mortgage property while a court action is pending for the amount due.
- France: The mortgagee can proceed with the sale of the property only if he has an enforceable title (court decision). The sale of the property can only take place before the conclusion of the orientation hearing if the debtor requests an amicable sale.
- Germany: If the debt secured by a mortgage is not serviced within the period indicated in the loan agreement, the mortgagee has the right to proceed with the sale of the property and its sale by way of enforcement. Enforcement requires the issuance of an enforceable title, either by the court or by a notary.
- Greece: There is no provision in Greek law that gives the mortgagee the right to proceed with a private auction of the mortgaged property, in case of delay of the debtor and before the court award of the amount of money or while a lawsuit is pending.
- Ireland: The mortgagee can apply to the court for an injunction to hold the mortgaged property, which means he can receive rent or profits, if any. Without a possession order, the creditor cannot acquire possession of the property unless the debtor consents to it. After a court order for possession, the mortgagee can sell the property under certain conditions.
- Italy: Loan agreements with a mortgage are considered 'enforceable securities'. These are private agreements, certified by notaries (public officials), who are responsible for the so-called "enforcement" on real estate on the basis of common court procedures. This means that the mortgagee is obliged to follow the usual procedures at the auction of the property. Following a provision introduced in the relevant legislation in 2016, a creditor and a debtor may include in the loan agreement a clause under which, in the event of the debtor's default, the property may come into the possession of the mortgagee or be sold and the proceeds of the sale transferred to him to repay the total debt.
- Luxembourg: The creditor can only proceed with an auction if the court has issued an order to execute a payment. The order for enforcement of payment allows the creditor to recover his claims from the debtor, by all means of enforcement provided for by law, such as the forced sale of movable property by a bailiff. The amount of the claim is determined by the court.
- Hungary: If the mortgagee is late in repaying the debt, the lender can cancel the loan agreement. In this case, the entire amount is considered directly due and the creditor can take measures to seize the property. The seizure of the property is carried out following a request by the bailiff to the Real Estate Supervisory Authority for registration of the right of execution in the Real Estate Register.
- Poland: The mortgagee must first terminate the contract and invite the debtor to repay the debt in full and, if the debtor does not meet the deadline set for the payment of the debt, the mortgagee can go to court. If the court issues an executive order, the mortgagee must apply for enforcement to begin against the property. The mortgagee can then refer the matter to the bailiff, who can freeze the property and auction it off.
- Romania: There are no provisions in Civil Law giving the mortgagee the right to auction the mortgaged property before the legal amount of debt is adjudicated and while a lawsuit is pending.
- Slovenia: There are no provisions in the law giving the mortgagee the right to auction the mortgaged property before the court decision and while a lawsuit is pending.
- Sweden: There is no provision in the law that gives the mortgagee the right to auction the property before the court award and while a lawsuit is pending.
Government intentions for open capital
Last Monday, Finance Minister Makis Keravnos, when asked by members of the Parliamentary Committee on Finance to comment on whether the Government intends to restore this right to borrowers, did not respond, but had spoken out against the freezing of auctions, while referring to the Rent Against Instalment Scheme (which will help a small number of vulnerable borrowers) and the need to categorize strategic defaulting borrowers.
In addition, it left open the possibility of legislative enactment of the Central Bank Code for restructurings as well as strengthening the powers of the Financial Commissioner.
For the Court of Foreclosures, for which a relevant law proposal is pending in Parliament, Mr. Keravnos advocated its establishment, provided, as he said, that cases will be heard quickly, stressing that an institution should not be created that will issue decisions in 5 to 10 years. It is recalled that the proposal for a law was submitted by the co-governing parties DIKO, EDEK and DHPA.
The four who do what we do
Unlike foreclosures in 14 EU member states that responded to a call from parliamentary services to inform about their legal framework for foreclosures, in Croatia, Lithuania, the Netherlands and Slovakia the mortgaged property can be sold without a court decision determining the amount due.
It is assumed that the findings of this investigation by the Parliament, at the request of Ecologist MP Stavros Papadouris, will be used by the members of the Finance Committee during the upcoming discussion of proposals for legislation concerning the amendment of the existing legal framework for foreclosures. Many MPs' demand remains to establish a right for debtors to go to court to determine the debt before the foreclosure process begins. As is the case in most EU countries.
