In its recently-published annual report the Association of Cyprus Banks has published details of the new draft law on forced sales of mortgaged land, which Cyprus is required to put in place under the Memorandum of Understanding with its international creditors. This requires legislation to be enacted by mid-2014 and implemented by the end of the year. It should be stressed that this is a draft law, which is still under discussion, and which is subject to change as it progresses through the legislative process.

Under the current system, regulated by the Immovable Property (Transfer and Mortgage) Law, No. 9 of 1965, the government Land Registry is the only body authorised to carry out forced sales of mortgaged land in Cyprus. The Land Registry inspects the property, sets the reserve price, undertakes the auction and distributes the proceeds to those entitled to them. The need for court approvals at various stages means that debtors may postpone the sale of the property for long periods by repeatedly obtaining court orders for the cancellation of the auction, by objecting to the reserve price set by the Land Registry or on a number of procedural grounds. Under the current system the average time taken to enforce a mortgage is 10 years and enforcement commonly takes up to 15 years.

The new draft law, prepared by the Land Registry, gives the creditors the lead role in the realisation process and limits the Land Registry's involvement. Its key provisions, which will apply not only to new foreclosures, but also to any open cases at the time the law enters into force, are as follows:

  • The procedure may be commenced if the debtor defaults for at least one month.
  • The mortgagee is required to notify the mortgagor in writing of its intention to proceed with a forced sale, detailing the outstanding debt with interest and the estimated expenses of the sale. A copy of the notification must be sent to the Land Registry and any other interested parties, such as other creditors having security over the property.
  • If direct notification is not reasonably practicable, the mortgagor may be informed by an advertisement published in at least two major newspapers.
  • The mortgagor must be allowed at least one month to repay the loan before the sale is undertaken.
  • The mortgagee must obtain detailed estimates from two independent valuers in order to assess the market price of the property and set the reserve price.
  • The mortgagee may obtain a court order for the sale of the property so as to avoid objections at a later stage as regards the amount of the debt and the reserve price.
  • If the property is unsold at the auction, the mortgagee has the right to make three more attempts to auction it, with the reserve price being reduced by 10% at each successive auction.
  • The Land Registry is responsible for distributing the proceeds of sale after payment of any tax liabilities.
  • Any person who suffers damages as a result of the mortgagee's negligence may recover damages by way of a civil claim.

The existing route through the Land Registry will remain available alongside the new procedure, in order to cater for the needs of private and individual mortgagees.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.