A draft bill aimed at giving stronger protection to guarantors of property loans has been put before the Plenary of the House of Representatives by DIKO MPs Zacharias Koulias and Christos Orphanides.
The bill states that lenders must first use all their legal rights against the main borrower and the mortgaged property before taking any action against a guarantor.
Using all legal options first
The main goal of the bill is clear: if a mortgage lender does not use the rights given under the Transfer and Mortgage of Immovable Property Law, they cannot turn to the guarantor.
Under the proposal, lenders must complete every step linked to the sale of the mortgaged property before pursuing a guarantor. This includes:
- Getting a court judgment against the main borrower
- Selling all secured assets
- Completing the foreclosure or sale of the mortgaged property
Only after these steps are finished would a lender be permitted to take action against a guarantor.
Limiting guarantors liability after a sale
The bill also states that if a mortgaged property is used as security for a loan with guarantors, and that property is sold or taken over by the lender, the guarantor will only be responsible for the main amount set out in the guarantee agreement.
If this limit is not clearly written in the original loan agreement, or if the loan is linked to a current account approved by the guarantor, extra protections will apply. In such cases:
- The money raised from the sale of the property, or
- The amount paid by the lender to buy the property
must be deducted, along with any instalments already paid by the main borrower.
Tackling financial pressure on guarantors
MPs say the changes are needed because many people are trapped in loans or credit facilities taken out by others.
As a consequence, guarantors may face:
- Loss of basic rights
- Risk to their personal property
- Lower borrowing ability
- Difficulty getting loans for themselves
MPs argue that guarantors usually gain no financial benefit from the guarantees they give. At the same time, they are in a weaker position than banks, credit institutions and vulture funds.
They also point out that guarantors can be exploited. Even after secured assets have been sold (and sometimes after the guaranteed amount has been fully repaid) guarantors may still remain tied to the debt.
Possible implications for the property market
If passed, the bill could change how loan enforcement works in the Cyprus property market. Lenders would have to focus first on the borrower and the mortgaged property before turning to guarantors.
This could give more confidence to people asked to act as a guarantor in property deals. However, it would also place stricter obligations on banks and credit-buying companies operating in Cyprus.
The proposal is likely to spark debate in both the financial and real estate sectors in the weeks ahead.
