A new legislative initiative has been introduced to the House of Representatives aimed at insulating individuals who act as guarantors for property loans. The draft bill, championed by DIKO lawmakers Zacharias Koulias and Christos Orphanides, proposes a fundamental shift in debt recovery: lenders would be legally barred from pursuing a guarantor until they have exhausted every available legal remedy against the primary debtor and the underlying property.
The move seeks to dismantle the current “parallel pursuit” system, where banks can often squeeze guarantors for payment while the foreclosure of the actual property is still pending.
Mandatory Exhaustion of Assets
The primary objective of the proposal is to ensure that the guarantor is truly the “last resort.” Under the new rules, a mortgage holder cannot turn to a guarantor unless they have successfully completed a rigorous three-step enforcement process:
-
Judicial Ruling: Securing a formal court judgment against the actual borrower.
-
Asset Liquidation: The successful sale of all other secured assets tied to the credit facility.
-
Property Finalization: The total completion of the foreclosure or sale of the mortgaged real estate under the Transfer and Mortgage of Immovable Property Law.
Limiting Residual Liability
Beyond the timing of the claim, the bill introduces significant caps on how much a guarantor actually owes after a property is sold. If a home is repossessed or sold to a third party, the bill dictates that:
-
Principal Only: The guarantor is liable only for the core amount defined in the guarantee agreement.
-
Automatic Offsets: All proceeds from the property sale—or the value at which the bank acquired the asset—must be deducted from the guarantor’s remaining balance.
-
Prior Payment Credit: Any previous installments paid by the primary borrower must be subtracted from the final demand made to the guarantor.
The “Trap” of Third-Party Debt
The sponsoring MPs argue that these reforms are a matter of social justice. Many citizens find themselves “trapped” in debt cycles for loans they never personally benefited from. The consequences for these “silent partners” are often severe, including a decimated credit rating, the risk of losing their own personal assets, and the inability to secure loans for their own families.
“Guarantors generally derive no financial gain from these deals, yet they face the same predatory pressure from banks and credit acquisition companies (vulture funds),” the lawmakers noted.
The bill points out that in the current climate, guarantors can remain legally tied to a debt even after the bank has recovered the full guaranteed amount through property auctions—a loophole this legislation intends to close.
Impact on the Real Estate Market
If approved, the law would likely increase consumer confidence for those asked to co-sign property deals, knowing they have a robust legal safety net. However, it will also place significantly stricter operational requirements on financial institutions and “vulture funds” operating in Cyprus, potentially lengthening the time it takes to settle non-performing portfolios.
The plenary session is expected to begin debating the specifics of the bill in early March 2026.
Source: Property News Cyprus