Foreclosures and buyers - where to from here?
With the implementation of the law, the free transfer by creditors of the properties should now be enforced, because the attitudes today by some bankers/financiers is not to allow the free transfer even if a transfer release has been issued, or if a bank guarantee has been issued for the transfer (thus, in effect, breaking the law).
The question that remains is, although the banks will not be able to foreclose on the property that has been fully paid, they should allow transfers if the buyer has paid the 100% of the sales price, as well as the relevant municipal and property taxes.
The logical way to proceed is for the financiers to allow transfers, by deducting mortgages and removing any pending ‘memo’ on specific properties, since they will no longer be able to foreclose anyway. This way, the lender is not worse off according to the law.
Here, there might be a problem as it makes sense for financiers to stop lending as they will not be able to foreclose on mortgages. But this is a future concerns of lenders (and does not precede the new law), who should exert stricter control over the developer’s revenues from sales, and that they were indeed received, placed in the project’s account and disbursed only with the approval of the bank (eg. for use by the civil engineer where there are works). Any surplus income or cost per unit should be retained by the bank until the completion of the project. This way, if there are unsold units at the end, the surplus in the account should be used for other costs (including property, municipal and income tax, etc.).
This new legislation will also put banks on a more sustainable footing as regards new projects and buyers/sellers, where:
i. where it is financing the developer there should be closer monitoring of costs and revenues according to a budget controlled either internally by a team from the bank or by external consultants who will act on behalf of the bank.
ii. When financing buyers where the seller is also the guarantor as part of the so-called “corporate guarantees”, the guarantor should also participate in evaluating the buyer, since until now the bank used to evaluate the borrower and disregarded the guarantor, throwing the responsibility onto the guarantor, but with allowing the guarantor to evaluate the buyer.
iii. Any non-fulfillment of the purchaser’s obligations, who in the meantime has submitted the title deeds and therefore the guarantor cannot get back the sold unit to resell and thus cover the guarantee, is great injustice against the seller. Therefore, with some regulatory changes, the cancellation of the deposit and the recovery of possession by the guarantor with ‘vacant occupancy’ (there are several tricks that currently apply to purchasers) should be done automatically and without long court procedures, provided that the seller has fulfilled his obligations. Thus, the seller can also be covered for his guarantee. As the wording of the ‘corporate guarantee’ currently stands, which is common to all lenders, the buyer retains possession, collect any rents etc. and the guarantor (seller) is called to cover the debt of the borrower, but without being able to repossess the property, to re-sell either by auction or otherwise, and to return any difference to the buyer or bank.
iv. At present, the methodology for mortgages and guarantees does not take into account of any variations in property prices. When prices are on the rise there is no particular problem, but if they are falling (as it is now), any difference would have to borne by both, i.e. the bank/seller/developer, and the buyer. This could mean a higher risk for lenders and may be reflected in the level of interest or collateral.
These and other issues are in need of further discussion, but the issuance of title deeds needs to be put on a new basis with simple procedures and not as it is today. With the failure of the construction amnesty (which can be corrected by a simple decision of the Cabinet), and the unenforceable practice that exists today, the priority of the seller/lender should be the issuance of title deeds. This is where the participation of the lender is necessary, and not the current trend of independent foreclosure. This is to the benefit of lenders which is why there are reports of mass foreclosures. For example, if there is a single project with 30 units and no titles, who will buy them? While if there are 30 separate title deeds it is safer for all, thus increasing their value while reducing the risk for everyone. This will also help to avoid the so-called mass foreclosures and the sale of mortgage portfolio to third parties.
We will continue to monitor the developments.