President Nikos Christodoulides has blocked nine of twelve laws passed by parliament at the April 6 plenary session on foreclosures, insolvency, and guarantors, referring five back to the House and sending four to the Supreme Court on constitutional grounds, Phileleftheros has learned.
The President signed the remaining three measures, comprising two government bills and one private member’s bill. The Law Office identified constitutional conflicts, legislative drafting errors, incorrect or incomplete scope of application, retroactivity issues, and overlaps with existing legislation across the nine rejected measures.
The parliamentary majority, according to Phileleftheros, was aware the proposals carried legal and constitutional weaknesses. The decisions were taken at the last minute, sources said, due to the complexity of the legislation.
Five referrals back to parliament
The five laws referred back to the House cover a wide range of borrower protections. A DIKO bill would allow District Judges to hear financial disputes between borrowers, guarantors, security providers and creditors, and to set aside Type IA foreclosure notices within 45 days of receipt. After 12 months, a creditor could issue a new notice unless the court sets it aside again on special grounds, provided the borrower is not acting in bad faith.
An Ecologists bill on personal insolvency aims to remove distortions that create artificial barriers for insolvent individuals entering the insolvency framework and to correct the unequal balance of power in favour of creditors.
A joint AKEL, DIKO and DEPA bill on interest rate liberalisation would prohibit banks from imposing additional interest once the total amount owed, including interest, reaches double the original debt.
An ELAM bill on consumer credit agreements for residential property would bar licensed credit institutions, credit acquisition companies and credit facility managers from demanding additional security from a borrower when the loan is already fully covered by the property mortgage.
A joint AKEL and Ecologists bill amending the Transfer and Mortgage Law would give debtors access to the courts over abusive clauses and the level of debt. The government found this proposal risks undermining financial stability with serious consequences for public finances, according to Phileleftheros.
An official source told Phileleftheros there is a risk of up to €100 million in annual cash flow impact, that it could foster a culture of loan non-repayment, delay court proceedings in ways that would ultimately harm borrowers, be used abusively to obstruct foreclosure proceedings, and expose Cyprus to negative assessments from credit rating agencies.
Four Supreme Court referrals
The Law Office found the four laws referred to the Supreme Court contain provisions that are manifestly unconstitutional and breach core articles of the constitution.
A bill submitted by DISY, EDEK, DEPA and independent MPs would cap guarantors’ liability at the original loan amount when a mortgaged property is sold at auction or repossessed by a creditor.
A DIKO bill would require a mortgagee to exhaust all collateral and obtain a court judgment against the primary debtor before taking any action against a guarantor.
A joint AKEL, DIKO and DEPA bill would write off any remaining balance after a foreclosure sale if the proceeds do not cover the full mortgage debt and interest.
A DEPA bill would suspend foreclosure proceedings on primary residences valued at up to €350,000 until the end of the year.
What was signed
The President signed an Ecologists bill providing that auction prices cannot be set below 50% of a property’s market value.
He also signed the two government bills on the debt confirmation mechanism. Under these measures, the Financial Commissioner’s decisions will be binding up to €20,000 for complaints against financial firms, which will retain the right to appeal to the courts including on the substance of decisions.
Borrowers will also be able to approach the Financial Commissioner for debt confirmation upon receiving a Type I letter, rather than waiting for a Type IA letter.
Parliament’s race against time
Parliament now has less than 24 hours to respond. The parliamentary Finance Committee will meet in emergency session on Thursday morning to consider how to handle the referred legislation, while the House is expected to dissolve later the same day ahead of the May elections.
Should parties reach a deadlock, an emergency plenary may need to be convened after dissolution. The constitution allows parliament to sit in extraordinary circumstances, and the existing House may continue to meet until the new parliament assumes its duties. The matter was discussed at a meeting of party leaders.
Confusion has arisen over whether referrals constitute an extraordinary event triggering that provision, prompting parliament to seek a legal opinion from Achilles Emilianides.
Some have argued that if parliament fails to convene after dissolution, the referred laws would be deemed accepted and would come into force.
An official source told Phileleftheros that this interpretation is incorrect: if parliament does not convene, a referred law does not come into force and will not be applied.