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Plan to freeze property auctions in 2021 distorts the market, economy

Banks and loan servicers have been pushing to reopen courts, arguing that keeping them closed raises the risk of a new generation of strategic defaulters emerging.

Concerns are rising among banks and claims management companies about the government's insistence on extending the suspension of loan enforcement measures, putting those hit hard by the pandemic on the same level with those who have escaped the impact of the health crisis, until March.

At the same time, this is having a serious impact on the smooth operation of businesses and the market, as the across-the-board suspension has resulted in many taking advantage of the situation and defaulting, despite the fact that they have not been affected by the pandemic.

Businesses have raised the issue with Finance Minister, Christos Staikouras and Development Minister, Adonis Georgiadis, and sent letters to the Ministry of Justice.

The government is exerting enormous pressure on official sector creditors in order to achieve the extension of the current status, ie the partial functioning of courts and the complete freezing of enforcement measures until March 15, while for pandemic victims it has proposed the ban be extended until June.

If this happens, there will be practically no auctions in 2021, as 7-8 months is required from the beginning of loan enforcement procedures until a home auction is held.

Official sector creditors have reservations about the government's proposal, raising objections about the effects on the payment culture but also the general impact on the market.

Banks and loan servicers have been pushing to reopen courts, arguing that keeping them closed raises the risk of a new generation of strategic defaulters emerging.

As reported by Business Daily on Monday, only in two European countries is there a complete freeze on loan executions: in Greece and Hungary.

Bank officials point out to Business Daily that the suspension of measures raises questions given that special tools and programs have been put in place to support and protect vulnerable borrowers. They note that there is the Gefira program, which involves about 110,000 households affected by the crisis, and Gefira II is expected to soon follow, which will help protect business owners and professionals hurt by the pandemic.

In addition, the government has enacted a new bankruptcy code which will take effect on March 1 for businesses and June 1 for individuals and which provides protection to weaker borrowers.

Given the protection of vulnerable borrowers, bank officials note, the horizontal ban on auctions and enforcement measures can be exploited by businesses and individuals who want to dodge their obligations.

"The horizontal ban will be detrimental to the economy itself, because any increase in non-performing exposures to banks will limit the possibility of new financing and growth itself," bank executives told Business Daily.

The same sources add that courts need to reopen immediately so that the preparatory proceedings can begin at the end of the year, and, provided that we have returned to normalcy, commence some auctions. Additionally, without enforcement, loan servicers will not have the tools to recover debts, which could have an impact on the "Hercules" plan. If loan servicers do not succeed in achieving agreed recoveries rates, then government guarantees provided to investors who have bought bad loan packages may be activated.

Disruptions to businesses

The issue of suspending loan enforcement actions, in the context of general restrictions imposed to deal with the pandemic, poses major problems for many companies and for the smooth functioning of the market. The horizontal suspension results in many taking advantage of the situation and defaulting despite not being affected by the pandemic.

Market participants point out that while a company may succeed in issuing a payment order for debts owed to it, the non-operation of courts and the suspension of all enforcement proceedings, without exception, do not allow its enforcement. They emphasize that "this is a major mistake that completely distorts the operation of the market and burdens healthy businesses." As they note, the current situation equates those hit hard by the pandemic with those that haven’t.

"Apart from this," they emphasize, "enforcement operations are, for the most part, purely formal and do not pose any risk related to the COVID-19 virus. Even if it was deemed necessary to suspend any such act, the suspension could be limited to cases of physical executions. All the rest (such as confiscation of bank account contents, pre-registration or foreclosure), which can only be carried out by a bailiff, could be done so, at a time when, in general, the delivery of documents by bailiffs is not subject to any restriction, which means that it is considered safe ".

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