ΙΔΙΟΤΗΤΕΣ ΚΑΙ ΔΙΚΑΙΩΜΑΤΑ ΕΚΔΟΧΕΑ ΣΕ ΣΥΜΒΑΣΗ ΕΚΧΩΡΗΣΗΣ

Legal Framework: Part VIA of the Immovable Property (Transfer and Mortgage) Law of 1965 (Law 9/1965)

In Cyprus, the Immovable Property (Transfer and Mortgage) Law of 1965 (Law 9/1965)—particularly the amended Part VIA—governs the mortgagee’s (e.g., a bank’s) rights to sell a mortgaged property upon default payment by the mortgagor.

1. Notice Requirements & Foreclosure Phases

• Notice Type Θ: The process begins when the mortgagor(s) is informed by the mortgagee of their debt and encouraged to discuss repayment or restructuring via a served Type Θ notice.(It is further understood that there is no obligation to serve the notice according to Type “Θ”, in a case in which the mortgagee has secured a court decision against the mortgagee or an application for the sale of the mortgaged property has already been filed in accordance with Article 44B of the provisions of Part VI of the Law of 1965 (Law 9/1965)).
• Notice Type I follows after at least thirty (30) days from serving Notice Type Θ from the mortgagee to the mortgagor(s) and any other interest party (i.e. guarantors), requiring repayment of the loan plus interest within a minimum of forty-five (45) days from the date the notice it was served, warning that failure to comply could lead to the sale of the mortgaged property by the mortgagee in accordance with Article 44Γ of the provisions of Part VI of the Law of 1965 (Law 9/1965)).
• If after the serving of the notice Type I the mortgage debt is still unpaid and/or unsettled by the mortgagor(s), a Notice Type IA is served by the mortgagee to the mortgagor(s) and to any interest party at least forty-five(45) days before auction, detailing auction logistics in accordance with Article 44Γ of the provisions of Part VI of the Law of 1965 (Law 9/1965). The mortgagor(s) have a limited window forty-five(45) days from the serving date to legally challenge this notice at the relevant District Court for reasons like improper service, procedural errors, or eligibility for restructuring programs like “ESTIA”.

More precisely and in accordance with Article 44Γ(3) of the Immovable Property (Transfer and Mortgage) Law of 1965 (Law 9/1965), the mortgagor as well as any interested party may, within forty-five (45) days from the date of receipt of the Notice Type IA, in accordance with Article 44Γ(2), file an appeal to the relevant District Court for the annulment of the notice of intended sale of the mortgaged property only for the following reasons:

(a) The notice served does not meet the required form(Type) and substantive requirements;

(b) The notice has not been properly served to the interested parties;

(c) The notice was sent before the expiration of the deadline for the payment due to the mortgagee;

(d) An interim injunction order has been issued in favor of the mortgagor under Article 32 of the Courts Law, Law No. 14 of 1960; (The mortgagor has obtained an interim injunction order preventing the sale of the mortgaged property until the Court hears the main application/dispute in regards to the relevant loan and/or the mortgage.)

(e) The mortgagor is an eligible debtor, and the licensed institution, despite being obligated under the Law on the Establishment and Operation of the Single Body for the Out-of-Court Settlement of Financial Disputes of 2010 (Law No. 84(I)/2010), has not engaged in mediation in accordance with the provisions of Part VIA of the Immovable Property (Transfer and Mortgage) Law of 1965 (Law 9/1965);

(f) A protective interim order has been issued by the Court in favor of the mortgagor under the provisions of the Insolvency of Natural Persons Law (Personal Repayment Plans and Debt Discharge Order) of 2015 (Law No. 65(I)/2015), or an application for such a protective interim order is pending before the Court;

(g) The mortgagor has been approved for participation in the “ESTIA scheme for addressing non-performing loans and supporting vulnerable social groups” or in any other government credit subsidy scheme, provided that they accept and comply with the agreement and their credit obligations as set out by the scheme, or a related application is pending;

Key Features of the ESTIA Scheme

• Loan Restructuring: Eligible borrowers receive a standardized restructuring solution from participating banks, which includes adjusting loan terms to make repayments more manageable.
• Government Subsidy: The government covers one-third (1/3) of the restructured loan’s annual installments, provided the borrower pays the remaining two-thirds.
• Primary Residence Protection: The scheme aims to safeguard the borrower’s primary residence, ensuring they can continue living in their home while managing their debt.

(h)(i) The notice concerns a property which constitutes the primary residence, as defined in the Scheme, in relation to which an application for inclusion in the Scheme has been approved; or

(ii) The notice concerns a property which constitutes the primary residence, as defined in the Scheme, in relation to which an application or objection for inclusion in the Scheme has been submitted and is pending, where:

(aa) the applicant for inclusion in the Scheme or any member of their family, as defined in the Scheme, meets the conditions referred to in term 2.2.2 of the Scheme; or

(bb) the applicant for inclusion in the Scheme meets the conditions referred to in term 2.5 of the Scheme:

Provided that, for the purposes of applying the provisions of this paragraph, the term “Scheme” means the “Rent Against Installment” scheme, which was approved by Decision No. 95.054 of the Council of Ministers, dated July 12, 2023, as amended from time to time.

Key features of the Scheme:

Loan Settlement: Eligible participants transfer ownership of their primary residence to the Cyprus Asset Management Company (KEDIPES), which settles the outstanding mortgage loan. – term 6 of the Scheme.

Rent Payment: Payment of the Specified Rent by the Republic of Cyprus to the New Owner and the obligation of the Tenant to pay an annual rent of one euro (€1) until the expiration of the lease term, allowing the tenant to continue residing in the property. – term 12(β) of the Scheme.

Repurchase Option: Possibility of acquisition of the Main Residence by the Owner or a First-Degree Relative of the Owner at the Repurchase Price(below the market price) after the lapse of five (5) years and before or upon the expiration of fourteen (14) years from the commencement date of the Lease Agreement. In such case the Lease Agreement shall be terminated. The Repurchase Price of each Main Residence is included in the Lease Agreement.  term 12(ε)(στ) of the Scheme.

Duration: The rental agreement typically spans fourteen (14) years, unless one of the tenants on the date of signing of the rental agreement is over 65 years old and/or his/her wife/husband is at least 50 years old where the tenancy period is set for life for the aforesaid tenants.  term 12(α) of the Scheme.

In the event of the death of both Tenants before the expiration of the Lease Agreement, the Lease Agreement shall be terminated. The New Owner or any subsequent owner may enter into a lease agreement with the Dependent Children of the deceased who reside in the Main Residence and are over the age of 18, and the State Grant for the rent shall continue to be paid until such time as they cease to be considered Dependent Children for the purposes of the Scheme. term 15(2)(3) of the Scheme.

• Dependent Children – Means any legitimate child, child born out of wedlock, or legally adopted child who:

(a) has not attained the age of twenty-one (21) years; or

(b) is permanently incapable of self-support, irrespective of age, as certified by a state medical officer.

Definitions (Article 44IE of the Immovable Property (Transfer and Mortgage) Law of 1965 (Law 9/1965)):

“Eligible debtor” means a mortgagor whose mortgaged property under foreclosure constitutes a primary residence.

Provided that, a mortgagor who has received from the licensed institution all the letters provided for in paragraphs 5(2)(b), 5(2)(c), 5(2)(d), and 5(2)(e) of the Code after the entry into force of the Transfer and Mortgage (Amendment) (No. 2) Law, and has not submitted to the licensed institution all the required and other information within the time frames specified in said letters, shall not be considered an eligible debtor.

“Licensed institution” means a licensed credit institution as defined in Article 2 of the Law on the Business of Credit Institutions, or a purchaser as defined in Article 2 of the Law on the Sale of Credit Facilities and Related Matters.

“Primary residence” means the residence used for the accommodation of its owner and/or the members of their family for a period exceeding six (6) months per year, the assessed value of which does not exceed three hundred fifty thousand euros (€350,000).

“Code” means the Code of Conduct for the handling of borrowers facing financial difficulties, which is included in Annex 2 of the Directive on Arrears Management issued by the Central Bank of Cyprus, as it may be amended or replaced from time to time.

“Member of the family of the owner of the primary residence” means the spouse, the direct descendants who are under the age of eighteen (18) or are dependents of the mortgagor regardless of their age, as well as the spouse’s direct descendants or dependents, and also the direct ascendants who are dependents of the mortgagor or their spouse.

Fortunately for the mortgagee and unfortunately for the mortgagor, the current system emphasizes strict timing and proper notice; when banks comply, it’s highly challenging for borrowers to halt the process.

2. Auction & Pricing Rules

Article 44Δ of the Immovable Property (Transfer and Mortgage) Law of 1965 (Law 9/1965) defines the procedure of valuating the mortgaged property for auctioning it, which exemplifies the below:

(1) Subject to the provisions of subsection (3) of section 44Γ, two (2) valuers shall be appointed, one on behalf of the mortgagee (lender) and one on behalf of the mortgagor (borrower), to conduct independent valuations of the mortgaged property simultaneously for the purpose of calculating its market value. Both valuers shall be provided by the mortgagor and the mortgagee, and/or obtain from the competent departments or services of the Republic, the same data and information regarding the mortgaged property:

Provided that the mortgagor may, instead of appointing a valuer as above, request that the general valuation value of the mortgaged property, as defined from time to time by the Immovable Property (Tenure, Registration and Valuation) Law (CAP. 224), be considered the estimated market value of the said property:

(2) Subject to subsection (1), the mortgagee shall serve a notice to the mortgagor in the form Type “IB” of the Second Appendix, which may be served before, after, or simultaneously with the notice in the aforementioned form Type “IA,” stating that within ten (10) days of the notice being served, the mortgagee will proceed to appoint a valuer:

Provided that the mortgagor shall inform the mortgagee of the identity of the valuer appointed before the expiration of the ten (10) day period, so that the mortgagee may appoint their valuer:

It is further provided that if, for any reason, the mortgagor has not appointed a valuer within the specified period, the mortgagee shall proceed to appoint two (2) valuers for the determination of the market value of the mortgaged property:

(3) The valuers, pursuant to subsection (1), shall prepare their valuation reports simultaneously, independently, without consulting each other, and without disclosing their valuations to each other or to any third party until their official submission and delivered them to the mortgagee and the mortgagor no later than thirty (30) days after the appointment of the mortgagee’s valuer:

Provided that if either of the two valuers fails to deliver their valuation report within the thirty (30) day period, the mortgagee shall, within ten (10) days of the date of such failure, request from the Cyprus Scientific and Technical Chamber the appointment of an independent valuer, who shall prepare an independent valuation within thirty (30) days of their appointment, in accordance with subsections (4), (5), and (6).

(4) If the higher valuation based on the reports referred to in subsection (3) is less than the lower valuation plus twenty-five percent (25%) thereof, then the market value shall be considered the average of the two valuations, and this market value shall be final.

(5) If the higher valuation based on the reports referred to in subsection (3) is equal to or greater than the lower valuation plus twenty-five percent (25%) thereof, the mortgagee shall, within five (5) days of receipt of the valuation reports, request from the Cyprus Scientific and Technical Chamber the appointment of a third independent valuer within ten (10) days, who shall prepare an independent valuation of the mortgaged property within thirty (30) days of their appointment and simultaneously deliver a true copy of their valuation report to the mortgagee, the mortgagor, and any other interested party.

(6) In the case of the appointment of a third independent valuer pursuant to subsection (5), the market value of the mortgaged property shall be considered the average of the two closest valuations, taking into account the valuations obtained under subsection (3):

Provided that if the three valuations differ equally, the market value shall be considered the average of all three valuations.

• Article 44Ε and Ζ of the Immovable Property (Transfer and Mortgage) Law of 1965 (Law 9/1965) clarifies that the initial auction reserve price must be at least 80% of the Open Market Value (OMV), which is determined via independent valuations as exemplified above.
• If the property isn’t sold within three months, the reserve may be lowered to 50% of the OMV, and after six(6) months, valuation must be revisited before proceeding further.

3. Alternative Sale Methods

If auction(s) attempts fail, the law allows other routes:

• Direct Private Sale via Article 44H of the Immovable Property (Transfer and Mortgage) Law of 1965 (Law 9/1965): Requires advertising widely (including online(website) and in two daily newspapers), written or electronic bids, a minimum 20% upfront payment must be paid immediately by the highest bidder whose offer was accepted, and completion within twenty (20) days from the acceptance of his/her bid, or risk forfeiture of the initial deposit. The property will be sold to the highest bidder who submitted his bid.

In any case and regardless of the method of sale(either auction or direct private sale) of the mortgaged property, the mortgaged property shall not be sold:

(a) To a person who holds more than two percent (2%) of the share capital of the licensed credit institution or the licensed financial institution, or is connected to such a person, or to a representative, spouse, parent, or descendant up to the third degree, or to any officer, director, or employee of the mortgagee;

(b) To any officer, director, representative, or relative up to the fourth degree of the auctioneer.

• Bank as Buyer: After six months without sale, a bank may purchase the property itself at the last OMV or based on a new valuation.
• The lender may even suspend the sale process if the anticipated price is deemed unfair.

1. Mortgagee’s Rights (Bank or Financial Institution)

Under Cyprus law (particularly Law 9/1965, as amended), the mortgagee (lender) has a set of defined rights aimed at securing and recovering the loan amount in case of borrower default.

A. Right to Foreclosure and Sale

• The lender can initiate a foreclosure process without court intervention (non-judicial) if the borrower defaults.
• This process is governed by the “fast-track” foreclosure rules in Part VIA of Law 9/1965.

B. Right to Issue Notices

• The lender has the right to serve the borrower with: Notice Type Θ – a preliminary notice of default, giving the borrower the chance to settle or restructure the debt. Notice Type I – formal notice demanding repayment within forty-five(45) days. Notice Type IA – notice of sale, specifying auction details.

C. Right to Determine Auction or Private Sale

• The lender can sell the property via public auction.
• If the auction fails, the lender can: Proceed to private sale. Eventually purchase the property themselves, provided certain conditions (valuation and time period) are met.

D. Right to Retain Proceeds

• From the sale, the lender is entitled to: Recover the principal loan, interest, legal costs, and enforcement fees.
• Any surplus goes to the mortgagor.
• If the proceeds are insufficient, the lender may seek a deficiency judgment to recover the balance from the mortgagor personally.

E. Right to Suspend Sale

• The mortgagee can suspend or terminate the sale process if: The reserve price is not met. The market conditions are unfavorable. There is a risk of legal challenge.

2. Mortgagor’s Rights

Though the law empowers lenders, the mortgagors are not without protection. Mortgagor’s rights are increasingly emphasized due to economic vulnerabilities and EU-aligned legal reforms.

A. Right to Notification and Transparency

• The borrower must receive: All three notices (Θ, I, IA) in accordance with the law. Notifications must be properly served (e.g., registered mail and served via bailiff) to all interested parties.
• Failure to serve notices correctly can invalidate the foreclosure.

B. Right to Cure the Default

• After receiving Notice Type I, the borrower has forty-five(45) days to: Pay the arrears. Negotiate a loan restructuring (through programs like ESTIA or Mortgage-To-Rent schemes).

C. Right to Object or Appeal

• Borrowers can apply to court for an injunction to: Suspend or cancel the foreclosure via the procedures exemplified in the relevant law. Challenge the validity of notices (e.g., if not properly served).
• Must act within forty-five(45) days of receiving Notice Type IA.
• Courts will not typically interfere unless procedural violations or abuse of rights are proven.

D. Right to Redeem the Property

• The mortgagor has the right to repay the full amount due before the auction or sale is finalized and reclaim the property.
• Known as the “equity of redemption”, this right ends when the transfer of title is completed.

E. Right to Surplus Proceeds

• If the property is sold for more than the debt, the excess is returned to the mortgagor.
• The mortgagor has the right to receive a breakdown of the sale proceeds and deductions from the mortgagee.

F. Protection from Unfair Valuations

• The mortgagor can challenge the sale if: The reserve price is set unfairly low. The property was sold at a significant undervalue.
• Evidence of bad faith or negligence on the part of the mortgagee can lead to court annulment of the sale.

For further information in regards to the rights and/or obligations of the mortgagee and/or mortgagor and/or for any Court and/or out of Court procedures in regards to your loan/mortgage do not hesitate to contact us at contactmv.legal@gmail.com