Tough times ahead for NPLs
Following the announcement of the government’s plan to protect the primary home and small business accommodation on June 3, to be monitored by the Cyprus Land Development Organisation, we are witnessing the completion of the legal framework regarding foreclosures and insolvencies.
It is now the time for tough decisions to be made by people with non-performing loans (NPLs).
Why do I say this? Because all those affected must study all the relevant legislation and decide on a course of action. So, then, what are their options? For starters, they must first try to reach a mutually acceptable solution with their lenders for loan restructuring. If this is not possible they then must ask the Financial Ombudsman to appoint a mediator in an effort to help the two parties reach an agreement and restructure the loan.
If the mediation procedure fails, then the next option would be the appointment of an insolvency consultant. The consultant will try to establish whether the debtor fulfills the criteria for protection according to any of the schemes included in the relevant laws.
The consultant will also determine whether the debtor can benefit from the primary residence protection scheme. It is clear that a great number of debtors do not satisfy the criteria of either the insolvency or the mediation scenario.
The only solution for people who do not meet the criteria is to try and secure a good loan restructuring deal with their banks. Banks will most certainly go ahead with a foreclosure procedure on the mortgaged property, if such a deal is not possible.
Of course it is now clear that the foreclosure and auction procedure will be lengthy. If debtors exhaust all deadlines as set per the legislation, we hardly expect any foreclosure to materialise in less than five years.
Are NPLs, eligible for protection by these rescue schemes, better off with these schemes or with a good restructuring arrangement?
Probably they will be in a better position if they agree to a loan restructuring with their lenders. Securing a sensible restructuring will ensure a better bank-client relationship, interest rates might drop, with lower instalments and what is most important is that costly trips to the courts will b avoided and legal fees and other expenses will be eliminated.
Concluding, I would like to acknowledge that each case is unique and requires a careful study of its particularities. In any case, this is actually the best time for a thorough study of the facts; it is time to properly utilise the independent advisors, so that, non-performing borrowers can take the best decisions.