A new role is being acquired by the Out-of-court Debt Settlement Mechanism as, from a debt settlement tool, it is now also being upgraded into a mechanism for separating and protecting the primary residence from auctions.
For the first time, debtors who, apart from one house, also have -and are at risk of losing- a holiday home, plots of land or property in the village, can exclude their residence from the liquidation of the rest of their property.
The Ministry of National Economy and Finance put this new option for debtors into full operation - from September 21 - through the platform of the General Secretariat for the Financial Sector and Private Debt Management (www.keyd.gov.gr or on Gov.gr and along the path: Property and taxation - Debt management - Out-of-court debt settlement mechanism).
Through this solution, "the out-of-court mechanism is being transformed into a tool for protecting the primary residence,” Kyriakos Pierrakakis stressed in Parliament. In addition, however, beyond the "shielding" of the house from auctions, the debtor can thus achieve greater debt write-off and lower monthly installments, compared with those already offered by the platform.
"You give property, you save the house"
This new option allows the debtor, if they wish, to separate their primary residence from the remaining properties. In this way, the remaining debt is automatically limited to the value of the house that the debtor keeps, or even lower. At the same time, it reduces the burden of the debt that remains and that they are called upon to service, securing more favorable repayment terms that ensure they will repay it more easily and more quickly, without their residence being at risk.
The trade-off is the consent they give to their creditors for the liquidation of the other properties to proceed, through a simplified auction procedure. A key reason and criterion for this choice is that it thus ensures that, instead of risking the disposal of all their properties at the first "misstep" in repaying the settlement, they exclude and protect their primary residence in time.
Which solution is beneficial and when
In practice, instead of receiving only one settlement solution, debtors who have real estate will see on their computer screen two alternative repayment paths, so as to choose which one better suits their needs and capabilities.
Thus, if a debtor applies today to the Out-of-court mechanism and has overdue debts of 500,000 euros, but owns a primary residence worth 200,000 euros and other properties also worth 200,000 euros:
* the usual proposal of the Out-of-court mechanism, as it has operated until now, provides the debtor with a long repayment period (up to 35 years) to offer "breathing space," facilitating repayment. The Mechanism will give them a repayment arrangement of up to 420 installments, depending on the income they declare.
At the same time, it will also reduce their debt based on the value of the assets they own. In this example, they receive a "haircut" of 100,000 euros, because they own properties worth 400,000 euros.
A greater debt reduction above this limit is not permitted: debt write-off cannot be granted to them if their property exceeds their debt. On the contrary, when the property is not sufficient to cover what is owed, as in the above example, then the debt is indeed "cut" in favor of the debtor, but up to the amount of the property they retain -and not below it- because they keep in their possession properties whose value also assures the creditor that they will be able to collect the debt (if they liquidate them), in the event that the debtor defaults on the repayments they have agreed to.
By following this path, the debtor does not lose their property. However, the debt remains relatively high (equal to the value of their property) and, therefore, the corresponding installments come out noticeably higher.
This option therefore serves those who see that they can repay their installments to the end, while keeping their properties as well. However, they take a risk if it proves over time that the installments lead the debtor to greater pressure, causing the arrangement to become non-viable: in the event of delays and payment default, the protection of their properties is lost, with the result that all of the property then goes under the "hammer" and the debtor loses everything.
* with the new option provided, the debtor declares on the Out-of-court platform that they wish to exclude their primary residence and consent to the liquidation of the remaining properties. Based on the new framework, the debt to be settled is reduced to 200,000, exclusively on the basis of the value of the primary residence that they have safeguarded. This choice thus automatically means smaller installments and greater security for the future of their home.
In this specific example, the initial debt of 500,000 euros is reduced by 300,000 euros: the new debt is limited to 200,000 euros, equal to the value of their residence. The debt is "cut" by 100,000 euros as in the first solution, while the 200,000 euros from the liquidation of the remaining properties permanently erase debt to the creditors. From this point of view, the settlement through the platform operates like the settlements granted by the courts under the "Katseli law" (Law 3869/2010), namely protection of the primary residence with liquidation of the remaining properties.
What is ultimately the benefit for the debtor? For up to 35 years they will pay an almost half installment compared with the first option, making the arrangement safer and more viable, while avoiding having the residence declared as primary put up for sale.
How the new settlement works
When submitting the application on the electronic platform of the Out-of-court mechanism, the borrower can declare that they wish to protect their primary residence.
The platform then automatically separates the residence from the remaining properties and the settlement is calculated based on only the value of the house. For example, if the debtor owns their residence, a holiday home and a plot of land, with the new procedure they keep the primary residence and accept the liquidation of the holiday home or the plot, to the extent needed for the satisfaction of the creditors.
This option is provided on a voluntary basis, following an application by the debtor. It concerns only natural persons -not companies- and especially households with "red" loans, but also self-employed persons or professionals with debts from business activity and loans.
How the residence is preserved
Provided that the proposal is accepted and the restructuring agreement is signed, the agreement acquires the force of an enforceable title: on the one hand, the disposal of the remaining properties is included in the terms of the agreement, and on the other hand, the same agreement prohibits creditors from initiating compulsory enforcement, auction or interim measures against the primary residence, at least for as long as the debtor complies with the arrangement.
Who can benefit - "Windows" and exceptions
For those who had already joined the Out-of-court mechanism but defaulted on a previous agreement because the installments had come out high and they were unable to keep up with them, the possibility of a new application is provided for a period of six months from the entry into force of the new arrangement. In practice, for them the deadline expires on March 20, 2027.
At the same time, the same possibility is extended to debtors who had in the past requested inclusion under Law 3869/2010 (Katseli law), provided that there is no longer any pending litigation.
The new option concerns debtors who own more than one property. If the debtor has as their only property their primary residence, there is no alternative solution beyond the "classic" Out-of-court settlement with 240 installments for debts to the state and up to 420 installments for banks and financing institutions. However, access to the Out-of-court mechanism is also being expanded for them, even for smaller debts: the platform has opened and now also accepts debts from 5,000 euros (instead of from 10,000 as had been provided at minimum). Thus, a debtor who cumulatively owes 6,000 or 7,500 euros or 9,500 euros to AADE, e-EFKA, banks or servicers, can request a comprehensive "all in one" settlement.
In any case, however, unconditional debt forgiveness is not provided for: the protection of the residence ceases if the debtor defaults on its terms. In addition, the prohibition of auction concerns only the creditors who participate in and are bound by this procedure. Debts to third parties, such as common charges, etc., are not automatically covered by the agreement and therefore, if there is another such creditor, they may also proceed against the primary residence, provided the legal conditions are met. Indeed, if this auction proceeds, then the creditors of the settlement may also request to be paid from the proceeds of the disposal.
SOURCE: ANA