The Nicosia District Court has issued a landmark ruling that may have far-reaching consequences for tens of thousands of mortgages, after blocking a foreclosure due to potentially unlawful additional charges within the mortgage contract.
In an unprecedented decision, the court granted an interim injunction halting the foreclosure of two flats and a shop. This marks the first time a Cypriot court has prevented a foreclosure on the basis of the mortgage agreement’s own terms, rather than external factors.
The case centred on the legality of extra charges imposed by the bank, including commissions and insurance premiums, which were added to the mortgage beyond the principal amount, interest, and legally permitted costs. The plaintiffs argued that such charges were not only excessive but also contravened existing financial regulations, placing an unfair burden on mortgage holders.
Legal representatives for the mortgage holders, barristers Andreas Mathikolonis and Chryso Papachristodoulou, successfully contended that these additional fees violated Articles 5, 8, 21(1)(c), and 21(2) of Law 9/65. They maintained that the agreement’s terms unfairly increased the total financial liability of the borrowers beyond what the law allows, making it impossible for them to accurately determine their obligations.
The court accepted these arguments, ruling that the plaintiffs had demonstrated “more than a mere probability” of success in their claim. The judge highlighted that the mortgage agreement contained clauses that rendered the secured amount, interest, and associated costs indefinite and impossible to quantify, thereby creating significant legal uncertainties.
This decision is particularly significant as it has the potential to influence thousands of similar mortgage agreements held by banks and credit institutions. Many such contracts contain identical or comparable clauses, meaning that this ruling could set a precedent for future legal challenges against unfair lending practices.
In addition, the court determined that permitting the foreclosure to proceed would cause irreparable harm to the property owners, as they would be deprived of their assets while their legal challenge remained unresolved. Losing their properties before a final decision on the case would place them in an unjust situation, potentially rendering their legal victory meaningless if they were unable to reclaim their assets.
The ruling is expected to prompt further legal scrutiny of mortgage agreements and could lead to broader reforms within the banking sector, ensuring greater transparency and fairness for borrowers facing similar disputes.
