The purpose of this legislation is the sale of the mortgaged asset without the intervention of any governmental department and the new procedure is conducted exclusively by the mortgagee. The existing procedure for the sale of the mortgaged asset through the Department of Land and Surveys remains in place. The mortgagee has the choice to sell the property by auction or through a direct sale. If an application had been submitted to the Department of Land and Surveys for the sale of the mortgaged asset from a mortgagee, the latter has to withdraw it before initiating the new procedure.
The Procedure before the commencement of the sale of the mortgaged property
The sale procedure of a mortgaged property can commence when the mortgaged debt is made payable and due and is overdue for a period not less than 120 days. The mortgagee can proceed to start the procedure by serving a written notice to the mortgagor and to any interested party, accompanied by a statement of account of the mortgaged debt that is due, the interests and the expenses, inviting him to pay off the debt due within 30 days from the date of serving the notice. With the notice the mortgagor is informed that, in the event of not paying back the amount due, the mortgagee may exercise his right to sell the mortgaged property.
Where the mortgagor does not conform to the first notice the mortgagee can serve the mortgagor and all the other interested parties a second written notice informing them that the mortgaged asset is to be divested by auction. The notice is served within a period of not less than 30 days from the set date and time of the sale of the mortgaged property. The mortgagor and any interested party, within 30 days from the date of receipt of the notice, can file an appeal to the Court to set aside the notice of the intended sale for the following reasons:
- The notice was not duly served;
- The notice was sent before the expiry of the deadline date for the payment of the debt to the mortgagee;
- The notice does not comply with the required conditions according to the forms and the content;
- Proceedings are pending before the Court regarding the first notice that was sent.
The Procedure for the determination of the market value of the mortgaged asset
The mortgagee serves a notice to the mortgagor to proceed with the appointment of a valuer for the purpose of determining the market value of the mortgaged asset. The mortgagor has to inform the mortgagee within 10 days about the identity of the valuer whom he has appointed so as to enable the mortgagee to appoint his own valuer. In the case where the mortgagor does not appoint a valuer before the prescribed deadline the mortgagee can appoint two valuers.
The two valuers prepare the valuation reports at the same time, independently and without consulting each other and without informing one another regarding their valuation or informing any third party, and they give their valuations to the mortgagor and to the mortgagee within 30 days from their appointment. In the event that the valuers do not observe the deadline of 30 days the mortgagee applies to the Technical Chamber of Cyprus within 10 days for the appointment of an independent valuer who within 30 days prepares the valuation.
The mortgagor, instead of appointing a valuer according to the abovementioned, can ask that the value of the general valuation concerning the mortgaged asset, as is declared in the Immovable Property (Tenure, Registration and Valuation) Law Ch. 224, be the estimated market value of the asset in question. If the difference of the two valuations does not exceed 25% then the market value is regarded to be the average of the two valuations. If the difference of the valuations is equal or greater than 25%, the mortgagee, within 5 days from the receipt of the valuation reports, has to appoint an independent valuer from the Technical Chamber of Cyprus who prepares the third valuation within 30 days and he gives at the same time a true copy of the original to the debtor and creditor and to the interested parties. In the case where a third valuer is appointed, the market value is regarded to be the average of the two most proximate of the three valuations. If the difference of the three valuations is equal, the market value is regarded to be the average of the three valuations.
The sale of the mortgaged asset
The initial attempt for the sale of the mortgaged asset is carried out by the mortgagee by auction only. In the auction a reserved sale price applies which is equal to 80% of the market value of the property and the mortgaged asset cannot be sold under the reserved sale price.
In a situation where the auction does not result in a sale, the creditor can make further attempts in order to sell the asset either through a sale by auction or through a direct sale. For this purpose the mortgagee serves a notice of 20 days to the mortgagor and to the interested parties which includes the intended method of sale. For a period of three months from the end date of the first auction the reserved sale price shall remain at 80% of the market value of the asset. After the period of three months, however, there is no reserved price and the determination of the sale price is at the discretion of the mortgagee. In our opinion this is a flawed practice because no safeguard is offered to the mortgagor since the mortgagee is given the power to sell the assets at very low prices and in fact this practice opens the window to fixed auctions against the interests of the mortgagor.
If the mortgagee does not sell the mortgaged asset within one year from the completion of the procedure of the first auction, then the mortgagee has the choice either to buy the mortgaged property at its market value, which will be valued from the beginning, or he can restart the sale procedure, without having the right to submit an offer to purchase. The sale of the mortgaged asset, either through auction or through a direct sale, is conducted with a reserved price not less than 50% of its new estimated market value.
Sale by auction
The choice of the auctioneer for the conduct of the sale of the mortgaged asset through an auction will be done randomly following an application from the mortgagee to the electronic system that is maintained at the website of the Ministry of Interior which includes a catalogue with qualified auctioneers. The auctions will be conducted Mondays to Fridays from 9:00 to 17:00. The auction is set by the area manager within three days from the date of the application made by the mortgagee. The auctions are carried out at five specified auction places, one in every District area. Until the specified time of the auction, a written bid to the auctioneer is allowed to be made for any asset that is included in the auction notice. The sale can be finalized before the passing of one hour from the start of the sale and at least 15 minutes after the last outbidding. Every notice for auction is prepared and issued by the mortgagee. The notice for auction is served to the mortgagor and to any other interested party within 30 days from the auction date.
The notice for auction is published within 30 days from the auction date:
- At the specified auction place;
- At the website of the Ministry of Interior;
- At the website that is maintained by the mortgagee and/or is connected to the mortgagee;
- In two daily newspapers.
The auction procedure of the asset is governed by the Sale Regulations according to Part VIA of the Law.
During the auction and sale procedure the following safeguards are maintained for the benefit of the mortgagor:
- The auctioneer does not sell more assets than is necessary to cover the amount of the debt and he does not sell an asset of greater value where the amount of the debt is covered by an asset of a lesser value.
- If the auction notice includes an asset which is a residence, this will be the last asset to be sold, provided there are other assets that cover the debt that is stated in the notice, except where other instructions have been given by the mortgagor or if there is a court order which provides differently.
- In the auction, the owner of the main residence in auction or a first degree relative has the right to participate with a privileged status against the last tenderer who has submitted the highest oral bid.
- The auctioneer, after he receives the last oral bid and before he declares the last tenderer, submits the question whether the mortgagor can pay the amount of the last tender in a lump sum or in cash.
- If the mortgagor pays the amount, the auction is ended to the benefit of the debtor.
Sale without an auction
Following the failure of the first auction, the mortgagee can choose to sell the asset with a direct sale which is conducted according to the Sale Regulations as provided in Part VIA of the Law. In a case where the mortgagee elects to sell the property directly without an auction he should conform to certain conditions, such as:
He should ensure promotion of the sale via advertising, including open access to the internet in at least one website and via a publication in at least two daily newspapers of wide circulation.
The sale will be finalized to the benefit of the tenderer with the highest bid, who pays immediately at least 20% of the accepted bid price and the remaining amount will be paid within 20 days from the acceptance of his offer. Otherwise, the initial payment is kept and not refunded and the sale is cancelled.
Distribution of the auction proceeds
The creditor, after the sale, informs the debtor about the sale proceeds that were collected either by auction or through a direct sale as well as about the costs, the charges, the taxes and the fees that were imposed during the auction procedure, if the sale was conducted through an auction. The mortgagee sends within 30 days from the sale, a notice to the debtor, to any interested party and to all claimants concerning the recommended disposal of the sale proceeds as regards the mortgaged asset. All the interested parties have the right to oppose the disposition of the auction proceeds within 20 days from the notice. If no oppositions accrue the mortgagee confirms the recommended disposition which is rendered final and he sends the confirmation or the court’s decision, if an opposition preceded, within 5 days to all the parties.
After all the necessary expenses are paid in the form of taxes, fees and capital proceeds for the transfer of the asset, the sale proceeds are disposed in order of priority to every party who has an encumbrance over the asset and any remaining amount is paid to the mortgagor. Any fees, obligations and sale expenses are paid by the mortgagee.
Where the asset bears previous encumbrances, a written consent of the beneficial owners of the encumbrances is required except where there is a Court decision which authorizes the sale or the auction without previous consents. In a case where there are subsequent encumbrances over the asset the creditor notifies the beneficial owners of the encumbrances of the auction/sale within 15 days.
Registration of the mortgaged asset
With the completion of the sale of the mortgaged asset through an auction or a sale or a purchase from the mortgagee, the latter, within a period not exceeding 30 days from the date of completion of the sale, submits an application to the relevant District Land Office for the registration of the asset in the name of the purchaser. For this purpose, he submits together with the application, an affidavit of the mortgagee and/or the auctioneer, with which the observance of the Law and the Regulations is confirmed, and all the necessary documents and all the confirmations which are required under s. 18(3) of the Law.
The content of this article intends to provide a general guide to the subject matter. Specialist advice should be sought on your specific circumstances. For further information, please contact Ms. Yiolanda Zimboulaki.