Mortgage foreclosures and the process of auctioning mortgaged properties have been significant concerns for creditors and debtors in Cyprus over the past decade. The auctioning of a mortgaged property traditionally occurs as a consequence of non – payment of the mortgage debt. However, the frequency of auctions has notably increased in Cyprus with the enactment of the amending Law N.142 (I)/2014.
The amendment introduced provisions allowing mortgage lenders to sell mortgaged properties without the necessity of a court judgment for default debt issuance. In the context of this amendment, Article 44Θ was incorporated into the Transfers and Mortgages Law N. 9/1965, stipulating:
“In the event that the mortgaged property in encumbered by a previous mortgage or any other encumbrance, the written consent of the previous mortgage lender or encumbrance holder is required or, as the case may be, a Court judgment authorising the auction or the sale of the mortgaged property without the consent of the previous mortgage lender or the holder of an encumbrance, under conditions which the Court may determine:
Provided that, the written consent or the Court judgment, may authorise multiple attempts to sell the mortgaged property in accordance with the provision of this Part”.
Encumbrances include amongst others, mortgages, sale agreements, assignment agreements and Court judgments. Article 44Θ of the Law grants mortgage lenders the right to initiate legal proceedings in the District Court where the property is located, seeking the authorisation for the execution of an auction or the sale of a mortgaged property, notwithstanding the fact that the mortgage does not hold primary chronological preference among encumbrances. Consequently, the Law provides mortgage lenders with an important tool to circumvent the fact that the mortgage registered in their favour lacks priority. Despite the existence of this provision, the use of article 44Θ of the Transfers and Mortgages Law has been limited, if not entirely absent, until today.
The District Court of Paphos recently issued a judgment in favour of a mortgage lender, authorising an auction despite a sale agreement that predated the mortgage and encumbered the mortgaged property. Article 44Θ’s framework allows each Judge to determine the conditions that are essential to approve a request, given the lack of explicit guidance within the article or relevant case law on this matter. Notification of the legal proceedings in question to the beneficiary of the encumbrance and to the competent district land registry officer was deemed as a prerequisite for the practical progress of the legal proceedings, which had been filed unilaterally (i.e. ex-parte). Such an approach is inconsistent with the spirit of article 44Θ and Part VIA of the Law, which deals with auctions processed directly by the mortgage lender. However, it aligns with the broader principle of Cypriot law regarding the right of interested parties to be heard and their positions examined by the competent Court.
The consequences of a Court judgment rendered under Article 44Θ of the Transfers and Mortgages Law are significant, given its direct impact on the immovable property rights of individuals. Simultaneously, mortgage lenders can take advantage of the basic provisions of the article to recover the default debt in cases where the collateral, i.e., the mortgage registered in their favour, has been compromised due to the chronological order of its registration in the land registers. In particular, the use of article 44Θ by mortgage lenders through the filing and progression of legal proceedings presents an opportunity as it offers them the possibility to define the actual conditions that will be required for the successful conclusion of requests and the improvement of the existing, deficient mechanism provided by the Law.
