Cyprus Bill Would Force Banks to Exhaust Borrower Remedies Before Chasing Guarantors

A legal reset for guarantors in the Cyprus real estate market

The Cyprus real estate market may be about to change the rules of engagement between lenders and people who guarantee mortgages. A draft bill submitted to the Plenary of the House of Representatives by DIKO MPs Zacharias Koulias and Christos Orphanides would require lenders to exhaust all legal options against the principal borrower and the mortgaged property before pursuing a guarantor. For anyone involved in property transactions in Cyprus, from buyers and investors to expats asked to sign as guarantors, the proposal is material and worth understanding.

In our analysis we look at what the bill says, why MPs proposed it, how banks and credit buyers are likely to respond, and what practical steps guarantors, borrowers and investors should take now.

What the bill actually requires

The authors base the changes on the Transfer and Mortgage of Immovable Property Law. The core requirement is straightforward: lenders may not pursue guarantors until they have used all remedies available against the main borrower and the secured property.

Under the draft bill lenders would have to complete every enforcement step linked to the sale of the mortgaged property before turning to a guarantor. That list includes, explicitly:

• Obtaining a court judgment against the main borrower
• Selling all secured assets
• Completing the foreclosure or sale of the mortgaged property

Only after those steps are concluded could a lender take action against the guarantor.

The bill also addresses the size of a guarantor's liability after a sale of the secured property. It states that if the mortgaged property is sold or taken over by the lender, the guarantor will be liable only for the principal amount set out in the guarantee agreement. If the guarantee contains no explicit limit, or if the loan is tied to a current account approved by a guarantor, the bill requires deductions from the guarantor’s liability for:

• Proceeds raised from the sale of the property, or
• The amount the lender paid to acquire the property,

and also for instalments already paid by the main borrower.

These are not small procedural tweaks. They change the sequence of recovery and they impose a mathematical floor on what a guarantor may owe after secured assets are realised.

Why MPs pushed the measure: the human and market drivers

MPs from DIKO argue the changes are needed because many guarantors are left exposed to debt they did not benefit from. The parliamentary brief identifies several concrete problems:

• Guarantors may receive no financial benefit from a loan yet face risk to their personal property.
• Guarantors can experience loss of basic rights and lower borrowing ability, making it harder for them to get loans for their own needs.
• Guarantors often occupy a weaker negotiating position compared with banks, credit institutions and debt-purchasing firms, sometimes called vulture funds.
• In some cases guarantors remain tied to the debt even after the secured assets have been sold or the guaranteed amount has been repaid.

These observations are rooted in real complaints we hear from families and small-business owners across Cyprus. People sign guarantees to help a relative or business associate and later find their credit file hampered or personal assets threatened.

Immediate implications for lenders, borrowers and the property market

If the bill becomes law, its operational impact will be felt across several fronts.

Impact on lenders and debt buyers

• Banks and credit institutions would have to pursue the principal borrower first, including full judicial enforcement and sale of secured collateral, before bringing guarantors into proceedings. That is a procedural shift that could lengthen the enforcement timeline for non-performing loans.
• Debt-purchasing companies that buy non-performing loan portfolios may face higher transaction risk or lower expected recoveries because the path to a guarantor claim narrows.
• Lenders may react by changing underwriting standards. Expect to see more conservative lending where guarantors are a primary credit mitigant.

Impact on borrowers and guarantors

• For guarantors the bill is a relief in principle: they would face claims only after a lender has exhausted remedies against the mortgaged property and the borrower.
• Borrowers might find it harder to secure guarantors. If family members or friends are less willing to guarantee loans, some buyers will struggle to qualify for credit.

Impact on the Cyprus property market and prices

The market-level effects are uncertain and depend on bank behaviour. Potential outcomes include:

• A possible tightening of credit availability, which could slow transaction volumes in some segments of the market.
• A shift in the cost of credit if lenders price-in higher recovery costs or legal risk.
• Short-term uncertainty in the non-performing loan market, which has been a material factor since the financial troubles of the 2010s.

In short, the bill enhances legal protection for guarantors, but it may also raise the cost of lending and slow down enforcement — factors that can ripple into lending supply and housing demand.

Practical advice: what buyers, guarantors and investors should do now

We advise different actors in the Cyprus property market to take specific steps depending on their role.

For potential guarantors

• Get independent legal advice before signing a guarantee. Ensure the guarantee states a clear monetary limit (the principal amount) if you want the protection the bill describes.
• Ask for a clause that requires lenders to confirm in writing that they have completed all remedies against the borrower and the mortgaged property before claiming from you.
• Keep detailed records of instalments and any payments the borrower makes, because the bill would allow these to be deducted from your liability.
• Reconsider offering guarantees where you receive no direct financial benefit.

For borrowers seeking guarantors

• Expect greater reluctance from friends and family to sign guarantees. You may need to provide alternative security or accept less favourable loan terms.
• Transparently share the implications of the draft legislation with potential guarantors so they can make an informed decision.

For property investors and portfolio managers

• Monitor how banks and debt buyers change their lending and enforcement practices. A shift toward cautious lending could reduce competition for property purchases financed by bank credit.
• Stress-test investments for slower foreclosure timelines and possible legal disputes over guarantees.

For banks and lenders

• Review guarantee documents to ensure clarity on limits and treatment of sale proceeds. The bill would make ambiguous guarantees more problematic.
• Consider tighter collateralisation, more rigorous borrower affordability assessments, or higher pricing where guarantors are central to the credit decision.

Legal and operational questions the bill raises

The draft is clear on sequence, but leaving some practicalities open will create litigation and administrative work if the bill becomes law.