New Legislation to Strengthen Guarantor Protections in Cyprus Property Loans

A new draft bill designed to safeguard guarantors involved in property loans has been introduced to the House of Representatives by DIKO parliamentarians Zacharias Koulias and Christos Orphanides. This initiative aims to create a fairer process by ensuring lenders exhaust all available legal avenues against the main borrower and the mortgaged property before pursuing guarantors.

Ensuring Lenders Exhaust Legal Remedies First

The core principle of the proposed legislation is that mortgage lenders in Cyprus must fully exercise their rights as outlined in the Transfer and Mortgage of Immovable Property Law before moving against a guarantor.

This means lenders will need to complete all procedural steps involving the mortgaged property before holding a guarantor liable. These steps include:

• Obtaining a court judgment against the primary borrower
• Liquidating all secured assets
• Finalizing the foreclosure or sale of the mortgaged property

Only after these measures are fully undertaken can lenders initiate claims against guarantors, thereby offering guarantors an essential layer of protection.

Limiting Guarantor Liability Post-Sale

The draft further clarifies that once a mortgaged property is sold or repossessed by the lender, guarantors’ responsibility should be capped at the principal amount specified in the guarantee contract. If this limit is not explicitly stated or if the loan relates to overdraft facilities approved by the guarantor, additional safeguards apply. Specifically, the sums raised from the property’s sale or the purchase price paid by the lender will be deducted, along with payments already made by the borrower.

Addressing the Financial Burden on Guarantors

Lawmakers stress the urgent need for these protections, emphasizing that many guarantors are unintentionally caught in debt arrangements they neither benefit from nor control. This can severely affect their basic rights, threaten personal assets, and diminish their own borrowing power, creating long-term financial difficulties.

Guarantors often lack the negotiation power banks and institutions have and are vulnerable to aggressive debt recovery practices, including those by so-called “vulture funds” that buy distressed debt. There have been instances where guarantors remained liable even after all secured assets were sold or debts fully settled.

Potential Effects on Cyprus’s Property Market

If enacted, this legislation could reshape the landscape of loan enforcement in Cyprus, mandating lenders to prioritize actions against borrowers and their properties before targeting guarantors. This shift could boost confidence among individuals hesitant to become guarantors during property transactions.

However, financial institutions and credit firms may need to adapt their risk management frameworks to meet the new requirements. The bill is expected to generate substantial discussion within both the financial and real estate industries in Cyprus.

For those exploring opportunities in the Cyprus property market, whether you’re interested in Auction Properties in Cyprus or searching for Cheap Apartments for Sale Cyprus, staying informed about legal changes is crucial for making sound investment decisions.