CBC: Foreclosure framework supports settlements and limits primary home repossessions

Nicosia, Cyprus. Cyprus’ foreclosure framework has contributed to a significant number of consensual settlements while keeping repossessions of primary homes relatively limited, according to analysis published by the Central Bank of Cyprus on Tuesday.

The analysis examined foreclosure legislation, borrower safeguards and the framework’s role in managing non-performing loans and protecting financial stability.

Framework and financial stability

The analysis was written by Marianna Christoforou, an officer in the CBC’s Risk Analysis Section.

“Foreclosures should not be promoted as an end in themselves, but should operate as a last resort tool,” Christoforou wrote. She said the framework is intended to encourage responsible borrowing, protect depositors and strengthen financial stability.

The CBC said a large stock of non-performing loans can limit banks’ ability to provide new financing, raise risk-management costs and affect funding costs, with potential consequences for borrowers who continue to meet their obligations.

Changes since 2013

The current framework has developed significantly since the 2013 banking crisis. Major changes introduced in 2018 were aimed at making foreclosure procedures faster and more transparent while balancing the rights of lenders and borrowers.

Borrower safeguards

Borrowers have several safeguards before a mortgaged property can reach the foreclosure stage.

Mortgage lenders must first comply with the CBC’s code of conduct, assess whether a borrower can repay the debt and consider realistic restructuring options before ending a credit facility or beginning foreclosure steps.

The process also requires a series of legally prescribed notices, allowing borrowers time to respond and seek a solution.

The first formal notice is issued when a borrower has been in arrears for more than 120 days.

Under legislative amendments introduced in 2024, the notice is mandatory and must set out the arrears and total debt, interest, charges and expenses, the legal basis of the claim, a deadline for compliance and information on restructuring options.