TROIKA

[Janner]

Does anyone know if the TROIKA have definitely been told about all the hidden debt. Do they know that its not just the Greek debt which is a major headache for the banks? I understand that there is disagreement over the definition of a NPL. If Cyprus are allowed to keep their interpretation of NPL's then this is going to prove a problem. If the banks are bailed out for the hidden debt then there will be no incentive for the banks to put pressure on the developers' to pay off their loans.

I would like to think that the TROIKA are fully aware of this but does anyone know for sure?

Janner

[Nigel Howarth]

Hi Janner,

I have it on good authority that the troika has been made aware of all bank loans - a list was provided to them by the Central Bank.

As we speak, professional property valuers (including a number of overseas firms) are valuing properties that have been used as collateral for bank loans and mortgages. The smallest of the big 3 lenders, the Hellenic Bank, has around 17,000 property loans and I suspect that the total number of loans in this category by all the banks must be in the region of 80,000 if not more.

Not all property loans are being assessed in this way - it would take many years. A number of properties valued by each of the companies involved is being given to a second company in a 'blind' check.

Hopefully the troika will have a very good idea of what it is going to cost to recapitalise the banks early next year.

As for the definition of nonperforming loans (NPL), this is set by the International Monetary Fund (IMF):

“A loan is nonperforming when payments of interest and/or principal are past due by 90 days or more, or interest payments equal to 90 days or more have been capitalized, refinanced, or delayed by agreement, or payments are less than 90 days overdue, but there are other good reasons – such as a debtor filing for bankruptcy – to doubt that payments will be made in full.

After a loan is classified as nonperforming, it (and/or any replacement loans(s)) should remain classified as such until written off or payments of interest and/or principal are received on this or subsequent loans that replace the original”.

(Reference: BOPCOM-05/29 "The Treatment of Nonperforming Loans" page 8 available at http://www.imf.org/external/pubs/ft/bop/2005/05-29.pdf )

However, the banks in Cyprus do not consider loans that are fully secure as being nonperforming even though they have not been serviced for 90 days. (A fully secured loan is one where the value of the underlying collateral, such as land and immovable property, is equal to or greater than the amount of the loan - so you can see why properties used as collateral for loans are being re-valued by professional, independent valuers).

Another sticking point is that troika has proposed that “the ad­ministrative hurdles and leg­islative framework currently constraining the seizure and sale of loan collateral will be amended such that the prop­erty pledged as collateral can be seized and offered for sale within a maximum time-span of 1.5 years.” At present it takes around 10 years to seize a property.

Regards,

[avanapa]

Hi Nigel, given that the banks who have outstanding developer loans will be able to seize and sell property/land more easily if the TROIKA proposals are accepted, are these banks legally obliged to give the purchasers caught up in this position the first option to pay off an outstanding balance?
In other words, is it possible for the banks to sieze and sell the land on which properties are built to a third party without the consent or knowledge of property owners on that land?

[Nigel Howarth]

Hi avanapa,

The banks certainly wouldn't need the consent of those who had bought properties but I suspect that they would be prepared to enter into negotiations.

There are legal avenues that the buyers could pursue (this is already happening with properties built by a couple of development companies at he eastern end of the island - and another in Paphos).

There are many questions still to be answered - e.g. what will happen in cases where a buyer is maintaining his mortgage repayments to the bank but the developer isn't?

Regards,

[avanapa]

Thanks Nigel, I know you cannot elaborate on individual cases but in general terms, do you mean these ongoing legal cases are in order to allow a purchaser to pay ones share of any developer balance sought by the bank. I did hear that legislation had come out sometime this year which would allow a purchaser to negotiate a settlement with a bank (regarding their particular plot) and that the bank could no longer refuse to negotiate. However, I did not believe it to be retrospective and therefore only a benefit to new buyers and sellers.

[Nigel Howarth]

Hi avanapa

We're taking about two different things here:

The replacement Specific Performance Law that came into effect last year - this allows buyers to repay an element of the developer's mortgage to the mortgage lender and the balance to the developer. New buyers have this as a right, current buyers can only do this with the agreement of the developer.

Where a developer has gone into liquidation. In this situation the liquidator will try to recover as much as in needed to repay the developer's creditors. The cases I am talking about buyers are negotiating with the liquidator to keep their properties.

Regards,

[Janner]

Does anyone know what has happened to the TROIKA's proposal that land be sold on which loans were secured against within 18 months of non-payment?

I don't really see how the banks can ask for bail-out money when they have all their property loans secured against land and haven't bothered to sell it. What is the point of having it secured in the first place if the bank doesn't realise its assest?

Not that I want this to happen as innocent people will lose their homes most probably. But for those who do not live in Cyprus and simply let the property we need to know as what is the point in paying a loan on a property which may/can be taken from you by the bank?

Also, what €6 billion of rolling debt mean? Why will it not be included in the Cyprus' total debt??

Can anyone clarify these points to the layman!??

[Nigel Howarth]

Hi Janner

No-one knows what's happened to the proposals - apart from the Troika and the government's negotiating team.

I expect that when bailout terms have been agreed the details will be made public.

Until then we'll just have to wait.

Cheers,

[Pantheman]

I don't think the Troika fully understand the consequences of their demands regarding the property side of things. Without an understanding of the current property issues, it's easy just to throw ideas to make up the numbers. The problem is a complex one and simple solutions cannot be applied. Too many questions need to be answered. This needs a seperate committee to comb through these issues and come up with suitable solutions.

[Janner]

Hi Pantheman.

Are you saying the TROIKA don't understand the property issue? I would have thought they were fully aware, but then I am often surprised by this entire saga!

You say that a separate committee is needed to comb through the issues and provide suitable solutions. Do we really need another committee, more delay, more expenditure. I think everyone knows what needs to be done. It has all been mentioned on this site many times. The bottom line is that the government do not want to otherwise they would have done it by now. Wouldn't they be due a chunk of money if property transfer tax was paid when a title is issued? There is obviously a reason why the government do not want this tax to be paid. The banks do not want to sell the land they own as it will not be good for them not because they give two hoots about turfing people out of their homes.

We all know it is complex because that is how the system has been allowed to operate. Let's face it, the government or banks, to my knowledge, have not even admitted that there is a problem with how the property industry works! How can a system be fixed if those that run it don't even see a problem.

[Nigel Howarth]

I have been told that one of the reasons that a number of foreign banks decided to pull out of Cyprus was the problem of recovering monies owed by loan defaulters.

I cannot see how a bank could survive loaning a person (say) €400,000 to buy a property and then find it virtually impossible to recover its money if the borrower defaulted on their mortgage repayments.

In other countries there is public/social housing available to provide those who have lost their homes somewhere to live. I don't believe there is much (if any) public housing in Cyprus and so everyone is worried what will happen if people lose their homes.

(Incidentally, if anyone wants to read the draft Troika memorandum that was leaked (given) to the press, it can be found at “The economic adjustment program for Cyprus” - and the proposals put forward by the Troika relating to property at "Are we about to meet our NAMAsis?").

Regards,

[Janner]

Reading the 'economic adjustment program for Cyprus' it does appear they are in a pickle. If my understanding is correct, they have to provide title deeds by Q4 of 2013 and repossess property/land where the loans are in arrears.

These two points may appear straight forward but will clearly be very difficult for Cyprus. First of all, they don't like being told what to do (especially by foreigners), they don't have the framework to do it, they don't want to do it and it will be monitored.

So, what do they (banks/government) do? Lets say that there is a plot of land with 10 houses on it. 3 of the houses do not have a mortgage, the other 7 do but 2 of the purchasers do not pay their loan and are in arrears. The bank can take back the properties belonging to those in arrears and instigate proceedings in an attempt to recover their loss. They should also be issuing title deeds by this time next year for all the remaining properties. They will also have to organise titles for the 2 they repossessed if they want a good chance of selling them. This could work quite easily unless you have the situation below................

Now to complicate things. It's the same scenario as above but the twist is there is developer debt on the land of €500,000. This loan is secured against the land. The two owners in arrears are out of the picture as their homes have been repossessed. The title deeds cannot be issued due to this debt. The bank either wipes the developer loan or removes the clause that it is guaranteed against the land but the debt still stands. This will then free them up to issue title deeds. Or, they take the land back including the properties and sell the whole lot in an attempt to recover their loss. In order to do this they will still have to sort out the title deeds. Meanwhile, the bank will have to instigate proceedings against the developer as I doubt the sale of the properties/land will cover his debt. The remaining 8 owners will also instigate legal proceedings for being turfed out of their homes, 3 of which don't even have a loan with the bank in the first place! Do those with a loan continue to pay their loan? Are their loans wiped the minute the bank take back the entire chunk of land?

[Nigel Howarth]

No-one knows what the agreement says - there should be an announcement this afternoon from the European Commission.

As soon as I have any concrete news regarding the impact of the bailout conditions on the property market, I'll publish an article in Cyprus Property News.

Regards,

[andyp]

No-one knows what the agreement says - there should be an announcement this afternoon from the European Commission.

As soon as I have any concrete news regarding the impact of the bailout conditions on the property market, I'll publish an article in Cyprus Property News.

Regards,

I may have missed something but I am not sure an agreement has actually been reached despite the announcements from the Cyprus negotiating team. The only announcement from the EU side says "progress is being made towards an agreement" and that was last night.

I suspect that bad news is on the way.

[Scots Lad]

I would say the Troika are awaiting the Pimco Bank Audit Report due I think the 3rd dec. If there report shows Cyprus needs more then 17.5 Billion the terms of the loan would I think change.