19th of September 2014
The Memorandum of Understanding that Cyprus concluded with its international creditors in 2013 committed the government to introducing a so-called “foreclosure law” – legislation to amend the procedure for the forced sale of mortgaged property to allow for private auctions. The initial target date was end-2013, but the deadline was extended to require legislation to be enacted by mid-2014 and implemented by the end of the year.
The existing system allowed recalcitrant debtors to delay the realisation of mortgaged property for years by means of strategic applications to the courts for orders to cancel auctions, by objecting to the reserve price set by the Land Registry or on a number of procedural grounds, with the result that the average time taken to enforce a mortgage was 10 years, and a determined debtor could extend the delay well beyond that.
In its annual report for 2013 the Association of Cyprus Banks published details of the initial draft law on forced sales of mortgaged land, which gave the creditors the lead role in the realization process and limited the involvement of the Land Registry, the government office that has hitherto controlled the process. Over the following three or four months there has been much debate and discussion over the draft law, much of which has been focused on a perceived need to introduce additional safeguards for so-called “primary residences”.
The providers of international financial support had made it clear that they viewed enactment of the foreclosure law as an essential precondition for release of the next tranche of funds, and after many delays the Cyprus parliament passed the law on 6 September, together with several other measures intended to mitigate its effects.
The President has accepted the foreclosure law but has remitted the other pieces of legislation to the Parliament for reconsideration. The parliament refused to alter its stance and the President was required to promulgate them, subject to the right to refer them to the Supreme Court to consider whether they are compatible with the constitution.