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Information for Cyprus Expats on Cyprus Personal Guarantees
When acquiring property (or for any other asset) the seller or the Bank financing the purchase, might ask a third party to become a personal guarantor, guaranteeing the buyer’s abidance of the terms of the contract.
This is usually done amongst friends, for children, wife to husbands etc, or if a Company is the contracting party, the major shareholders/directors might be asked to provide a guarantee for the Company. For locals this is a “normal” case, but not so amongst foreign people.
A recent case in the lower courts gave hope to the guarantors, since it decided that (in this case) the Bank should have sued the contracting party first (prime debtor) and if it was not satisfied by selling the assets etc and there is a balance due, then and only then it could turn to the guarantors. The same case re-appeared at the High Court however on appeal which has decided otherwise. The High Court decided (Shiammas case) that the Bank could sue both independently and it was not required by the Bank to take action first on the prime debtor.
This has upset many unsuspecting people, who, as we have said, were guaranteeing as a routine matter each other. Now if the contracting party (prime buyer) is not to be found/has no cash to cover his debt, or for any other reason, the guarantor will be called upon to pay. This, coupled with another (disastrous we add) Cyprus high court decision regarding delayed payment that can attract interest rate charges of 13% (in U.K. the High Court decided that a 26% interest charge was legal!!) has turned upside down the whole system.
Coming to real estate contracts and if there is no mortgage to cover the loan (e.g. a title deed) the developer is usually the guarantor of the buyer’s loan. So we have now the odd situation, that a buyer literally disappears or moves to another country and as such no litigation can be undertaken against him (no summons can be delivered) and thus the Bank, moves against the developer or the guarantor.
So at the end the prime debtor gets “off the hook”, he still retains the property (deposited contract with the Lands Office secures this and it takes years to lift it through a court order) and the developer/seller is left with nothing other than the debt repayment. Of course the developer/guarantor can sue the buyer/prime debtor, but if he is not to be found what recourse has he since he may not repossess the property save through a long driven court decision?
Of course one might argue that it is the developer’s fault for not having a title deed for the buyer, but if this is adopted literally, then it means that only a few hundred properties could be sold in Cyprus, since most of the projects are sold new, or are under development etc. We refer to real estate as this is the nature of this column, but it applies to all sorts of guarantors (e.g. furniture, car purchases etc) it also refers to husband and wife cases, which become particularly irritating if the couple are no longer together.
An attempt to set a certain sense in this procedure through the introduction of a Bill at the House which stated clearly that a creditor should move first towards the prime debtor and then to the guarantors did not make any progress in the House and so we are back to a most unsatisfactory situation.
So that we provide you with the other side’s view, in the Shiamas case, the Company had acquired real estate through a Bank loan and with a title deed, with the directors being the guarantors of the debt. The Company closed down, moved offices abroad, yet the directors were in possession of the property, thinking that they got off. Of course this is a con-job, but then how can one distinguish the con jobs and the rear cases (who have used the lower court decision, to get away with the burden?).
© Antonis Loizou & Associates website
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