New Bill Aims to Shield Guarantors in Cyprus Property Loans

The Cyprus House of Representatives has recently seen a draft bill presented by DIKO MPs Zacharias Koulias and Christos Orphanides focused on bolstering protection for guarantors in property loan agreements. This legislative move could reshape how lenders enforce loan repayments, ensuring guarantors are shielded from premature financial liabilities.

Mandatory Exhaustion of Legal Remedies Against Borrowers

One key element of the bill is that lenders must pursue all legal avenues against the primary borrower and the mortgaged property as per Cyprus’ Transfer and Mortgage of Immovable Property Law before targeting any guarantor. This means banks and lending institutions will be required to:

• Secure a court judgment against the borrower
• Liquidate all secured interests linked to the loan
• Complete foreclosure and sale of mortgaged assets

Only upon exhaustion of these steps can a guarantor be called upon to fulfill outstanding amounts.

Limiting Guarantor’s Liability Following Property Sale

The draft also proposes capping guarantors’ financial responsibility to the main amount specified in their guarantee contract, once the mortgaged property has been sold or repossessed by the lender. If this cap is absent in the loan agreement, or when linked to revolving credit arrangements, the bill mandates deductions for:

• Proceeds from the property’s sale
• Payments the lender made to acquire the property
• Installments already paid by the borrower

This nuanced protection is designed to prevent unjust extra claims on guarantors.

Addressing the Financial Challenges Faced by Guarantors

Supporters of the bill highlight that guarantors frequently endure significant financial risks without direct personal gain. Being liable for someone else’s loan may cost them their basic rights, personal assets, and creditworthiness, leading to challenges in securing their own financing.

There are concerns over exploitation, where guarantors remain financially tied even after collateral liquidation or full repayment by the borrower. This legislation aims to balance this inequality between guarantors and lenders, including aggressive credit institutions and vulture funds.

Potential Effects on Cyprus’s Real Estate and Finance Markets

If enacted, this bill will compel lenders to put borrower and property liquidation first before seeking payment from guarantors. This shift can enhance the willingness of individuals to act as guarantors in property transactions, fostering greater confidence in the market.

On the lender side, banks and credit companies will need to adapt to stricter enforcement protocols, potentially slowing repossession timelines but promoting fairness. The discussion around this bill is expected to engage various stakeholders in Cyprus’ auction property sector and broader real estate market.

For those exploring safe investment opportunities, take a look at our listings for cheap houses and villas for sale in Cyprus or explore more options in Apartments and Flats to understand current property values before diving into guarantees.