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The confusion surrounding foreclosures

By Sotos Christopher Kasinos

In order to help deal with the problem of non-performing loans, the Transfer and Mortgage of Properties Law was amended in 2014 to speed up and streamline the foreclosure process.

The amending law introduced an additional procedure under Section VIA which, in contrast to the one already provided by Section VI, allows for a direct sale of the mortgaged property without the involvement of the Department of Land and Surveys.

Unsurprisingly, the amendments have faced considerable opposition from borrowers in Court. Many of their objections have divided judicial opinion, creating in this way uncertainties which have impeded the new procedure’s application.

One such objection was based on the argument that a lender who 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 and was subsequently followed in other judgments.

In the Court’s view, 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.

It might be possible for the new foreclosure process to take place while the civil action is in progress, but once a court order is issued only the old procedure should be available.

Besides, most of the new procedure’s conditions would become inapplicable once a Court order is issued, for example the possibility of debt restructuring.

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A completely different approach was, however, subsequently taken by the District Court of Paphos, namely that a lender who had obtained such an Order should be able to use the new procedure regardless.

According to the Court, the Law offers an additional alternative procedure and it would neither be unorthodox nor abusive to use it, since the aim would simply be the execution of the Court order, just as if the old procedure was used.

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.

With the lower courts unable to agree, important uncertainties remain as to the application of the new procedure which has not yet had the desired effect of removing the delays that made the foreclosure process practically ineffective.

It now falls to the Supreme Court to reach a decision which will provide guidance and set precedent.

 

The writer is Advocate / Associate – Litigation Department (Nicosia office) ELIAS NEOCLEOUS & CO LLC www.neo.law

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