(Adds outcome of auction in first paragraph)
By Stelios Orphanides
Hellenic Bank was unsuccessful in its first attempt to auction a foreclosed luxury mansion in Nicosia on Thursday as no bids were submitted, a bank source said.
Bidders were discouraged by the restrictive legal framework on foreclosures, even after its modernisation more than two years ago, which forces banks to offer foreclosed properties at a reserve sale price of 80 per cent of their estimated value, the bank may decide on a second attempt at a lower price in the future, the source said, commenting on condition of anonymity.
The movement against foreclosures, a non-governmental organisation had said hours before that it would mobilise on Thursday to thwart the scheduled auction of the 263-square meter house in Engomi.
“Around 10 supporters” attended the auction in Lakatamia, the source said, adding that half a dozen members of far right party Elam also showed up at the venue.
He also described the case as strategic default for which Hellenic Bank obtained a court order to go ahead with the foreclosure on Wednesday.
Photos show the group’s chairman and lawmaker Christos Christou, and spokesperson Geadis Geadi being present at the event.
Since banks started testing the new foreclosure framework in May last year, success at the auctions was limited, mainly attributed to the reserve sale price clause included in the legislation. Central Bank of Cyprus governor Chrystalla Georghadji said in May that she favoured improvement of the legislation to make it more effective.
“The bank goes ahead with foreclosing the residence because of debts of the family business in which the owner of the house in Engomi is a shareholder together with her siblings and parents,” the Movement against Foreclosures said earlier.
The foreclosed property belongs to a “young family with a child,” it added. “Banks are taking a tougher stance as we predicted. A new era begins in which we shall often see properties auctioned”.
A spokesperson of the movement who vowed to avert the auction, said the decision to foreclose the property was taken after Hellenic Bank’s partners in a non-performing loans management unit allegedly intervened in restructuring negotiations. While the borrowers accepted a restructuring proposal submitted by the bank, APS Debt Recovery rejected the proposal, Evgenia Moyseos, spokesperson of the movement, said in a telephone interview.
“It now comes to light that the primary residence, be it of 50 square meters or even 1,000 square meters, is not protected,” Moyseos said.
While Hellenic did not reveal details of the case as part of its standard policy not to comment on cases of individual customers, a spokesperson said that “it fully applies the legal framework and court rulings and shows particular sensitivity to vulnerable groups but not to non-cooperative customers and strategic defaulters”.
The source at Hellenic said the owners of the house with a swimming pool, situated in a prime location in Engomi and built on a 550-square metre plot with a reserved price of €459,000, remained uncooperative for two years “without returning our calls” and stopped servicing their mortgage more than four years ago.
“They challenged the foreclosure at the court and they lost,” the source said.
The Hellenic Bank source also dismissed allegations made by Moyseos that the bank had backed down from an earlier restructuring proposal adding that the bad loan management unit with APS had no involvement in the case. “The procedure was initiated long before the implementation of the agreement with APS,” he said.
Moyseos said that the bank is foreclosing the property because of other outstanding loans extended to the family business, which again the bank source denied.
“They also owe us money as an enterprise but this foreclosure has nothing to do with that,” he said.
The movement against foreclosures staged a protest in early August outside the headquarters of the Cyprus Cooperative Bank when the latter announced a similar agreement with Spain’s Altamira.
Several politicians from opposition parties attended that protest, including Akel’s presidential candidate Stavros Malas, Costis Efstathiou, a deputy of Edek, Anna Theologou, a member of parliament in the Citizens’ Alliance party and deputy George Perdikis, the leader of the Green party.
Hellenic Bank which struggles with a €2.5bn non-performing loans accounting for 57 per cent of its loan portfolio, said on September 1, that it will increase its provisions for loan impairments in its second quarter results by further €51m to an estimated €1.4bn. Non-performing loans, roughly half of the banks’ loan portfolio, are considered the biggest threat to financial stability in Cyprus. The modernisation of the foreclosure framework was part Cyprus’s bailout terms.