In a move designed to shift the burden of debt away from third-party backers, DIKO MPs Zacharias Koulias and Christos Orphanides have tabled a high stakes bill before the House of Representatives. The proposed legislation seeks to fundamentally reorder the hierarchy of loan recovery, mandating that financial institutions exhaust all legal and physical avenues against a primary borrower before ever knocking on a guarantor’s door.
Under the current system, many trapped guarantors find their own credit scores and properties at risk simultaneously with the main debtor. This bill aims to turn the guarantor into a last resort rather than a parallel target for banks and credit acquisition companies.
The ‘Exhaustion of Remedies’ Clause
The core of the DIKO proposal is the requirement for a complete legal cycle to finish before a guarantor can be pursued. Lenders would be legally prohibited from taking action against a guarantor unless they have first met several strict conditions:
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Court Judgment: A formal ruling must be secured specifically against the primary borrower.
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Asset Liquidation: The lender must sell off all secondary collateral associated with the loan.
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Final Foreclosure: The specific mortgaged property must undergo a full sale or repossession process under the Transfer and Mortgage of Immovable Property Law.
Capping the Silent Debt
One of the most significant changes involves how debt is calculated after a property is sold. Currently, many guarantors remain tied to ballooning interest and hidden charges even after the secured asset has been repossessed.
The bill introduces new Deduction Rules:
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Strict Liability Limits: A guarantor is only responsible for the principal amount explicitly stated in the original guarantee agreement.
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Direct Offsets: Any proceeds from the property’s auction, or the value assigned to it if the bank acquires it, must be immediately subtracted from the guarantor’s remaining obligation.
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Instalment Credits: All previous payments made by the main borrower must also be clearly deducted from the guarantor’s potential liability.
Protecting the Benefit-Free Party
Lawmakers argue that the reform is a matter of basic fairness. Unlike borrowers, who receive the funds to buy homes or grow businesses, guarantors typically gain zero financial benefit from the transaction. Yet, they often face a ‘pogrom’ of financial consequences, including a loss of their own borrowing capacity and the potential seizure of their personal assets.
“Guarantors are in a significantly weaker position than credit institutions,” the MPs noted, highlighting that many individuals are exploited through complex contracts that keep them tied to a debt even after the guaranteed sum has effectively been recovered through property sales.
Market Implications
If enacted, the bill is expected to breathe fresh confidence into the real estate market, as people may be more willing to act as guarantors if they know they are legally protected from being first in line for litigation. Conversely, banks have expressed concern that these hurdles could slow down debt recovery and lead to stricter initial lending criteria.
The House is expected to fast-track the discussion as part of a broader package of foreclosure reforms before the parliamentary session concludes in April.
Source: news.cyprus-property-buyers.com