How and why funds operate uncontrollably in Greece.
Why the crucial decision of the Supreme Court is expected to be in favor of credit servicing firms.
What came out of the research:
Overdue private debt, according to Bank of Greece data, exceeds 101 billion euros, of which 86.8 billion euros belong to funds.
- The incredible judicial adventure of a heart patient who was found totally incapable of work.
- The arbitrariness of transferring loans to foreign companies in violation of the laws
- The fiasco with the much-publicized plenary session of the Supreme Court last Thursday
A lawyer of the DSA who has handled relevant cases states that it is almost impossible for the debtor to obtain a “haircut deal” of his loan from the credit servicing firms.
There are currently about 20 funds in Greece. Among the largest are Intrum, doValue, and Davidson Kempner as well as more than 20 loan and credit claims management companies.
Why the financial institutions that have bought the red loans are hoarding uncontrollably
by Data Journalists
At a time when public opinion has been given the impression that the Plenary Session of the Supreme Court will put a brake on the credit servicing firms and stop the auctions, the Procrustean bed is now home to 10,000 homes scheduled to be auctioned by July.
“That’s not going to change,” says a lawyer who deals with red loans and tries to find a line of communication with funds and credit servicing firms. The only thing that will change is that with the decision of the Supreme Court examining whether the management companies have the right to proceed to forced executions and expected in the coming months, will open the skins of Aeolus and speed up the auction procedures. Lawyers are betting their degree that the Supreme Court’s decision will be in favor of the Banks.
Already the courts with their decisions in favor of banks, funds, and management companies, but even if the decisions are in favor of the borrowers, the funds operate as a state within states.
Such a case of forced execution comes to exacerbate the feeling of uncertainty created by the abolition of the protection of the primary residence, says Michalis I. Kouvaris (https://www.michaliskouvaris.gr) Lawyer at the Supreme Court, Legal Advisor of the Consumers and Borrowers Association and Accredited Mediator at the Public Prosecutor’s Office.
The case
The specific case, as Mr. Kouvaris says, began in 2008 and concerns a borrower with a disability, and is now before the electronic auction, which has – against the law and the relevant court decision – set for June 2023.
More specifically, in 2008, an amortization loan agreement was concluded between this individual and a large systemic bank, for an amount of EUR 30,000, equipped with a mortgage of EUR 36,000. At the same time, the lending bank requested the signing of an insurance contract with the insured object of the borrower’s property and coverages that were put to him by the latter, which was the case.
Among other things, the cooperating insurance company of the systemic bank undertook – in case of total incapacity due to illness – to pay to the lending bank the balance of the loan that would be due on the date of payment of the amortization installment that would coincide – or would follow – the twelve-month period of continuous total incapacity.
Unfortunately, in December 2011 the borrower suffered an acute anterior extensive myocardial infarction and underwent surgery to repair the damage.
However, the damage was not dealt with and, subsequently, the treating doctors considered it necessary to force him to refrain from any professional activity, as posing risks to his health and life. In other words, he was declared totally incapable of working, receiving a 67% disability certification for a period up to May 31, 2014 – beyond the 12 months required by the insurance contract, in order for the cooperating insurance company to undertake the repayment of his loan.
Upon consultation with the employees of the lending Bank – and under their direction – the borrower applied for activation of the condition of full repayment of the loan, as provided for in the case of proven disability. The insurance company requested – in order to check his request and as is the usual procedure – through the employees of the lending Bank a number of supporting documents, which, indeed, were sent, but his request was rejected in April 2014, contrary to what was agreed between them. In fact, the systemic bank, for its part, did not take the necessary actions to activate its rights against the cooperating insurance company.
Legal exoneration
Following the above developments, the borrower entered, since 2014, into a multi-year judicial and extrajudicial struggle, which has been unfolding, until today, unexpectedly, rendering him a victim of non-law-based enforcement actions.
Although he maintains in his quiver a court decision as early as 2018, which obliges the insurance company to repay his loan product with the appropriate payment to the lender systemic bank, the relevant actions were never completed, as the latter never disclosed to the first account number, despite the constant nuisances.
It should be noted that the policy was a necessary condition for the granting of the loan, and the participation of the private borrower and the signing of the policy took place through the employees of the lending bank.
And while the borrower continued to make every possible extrajudicial effort to settle the debt from the insurance company, the lending bank itself communicated to him in 2021 an extrajudicial statement inviting him to repay the amount in question himself, a claim to which the borrower objected by letter, again setting out the facts.
The transfer and the electronic auction
However, while the borrower believed that he would be able to be vindicated, having in his hands the relevant court decision, the lending bank proceeded to transfer claims to a foreign company, including improperly in the claims securitized and the debt of the borrower, notes Mr. Kouvaris.
Despite the clear assurances of the foreign company – fund, that it will not take further action against the borrower and his property, finally, after a court decision that vindicates him and many years of fruitless efforts, the latter is currently before an electronic auction of his primary residence, which is scheduled to take place in June 2023.
“In this case, we are faced with legal action such as the filing of an application for an order for payment by the foreign company – fund and, subsequently, the carrying out of further acts of enforcement, which is not justified by the facts, as well as by the wording of the provision of art. 455 of the Civil Code clearly shows that a transfer of a receivable is lawful only if the receivable is existing.
In the present case, as is clear from the above, at the time of the assignment of the disputed claim by the société anonyme to the foreign company, there was no equivalent claim by the transferor against the private individual.
In short, the original lender, without the debtor being overdue – since its claim turned, from a certain point onwards, against the insurance company and no longer against the private borrower – proceeded to the assignment, sale, and transfer of a loan product to a foreign company, which, in turn, without a legal basis, ie the borrower’s default, applied and succeeded in issuing a payment order, asking the borrower to pay an undue amount.
Such action, however, is contrary to the provisions of the Law, and the debtor enjoys the protection of Articles 455, 462, and 463 of the Civil Code, being entitled to oppose against the transferee foreign company all the objections he maintained against the transferor banking company. Consequently, the order for payment and the subsequent enforcement actions based on it is voidable in the absence of a debtor’s default.
The said injured borrower is entitled to file a lawsuit before the Greek Courts claiming the payment of a sum of money as compensation from a tort (according to art. 299, 300, 330, 914, and 932 of the Civil Code) and compensation for extracontractual liability of the transferor and the transferee foreign company for personality infringement (according to art. 57 and 59 of the Civil Code), while there is both a violation of Article 8 of Law 2251/1994, as well as a violation of the obligations arising from good faith (according to art. 914 of the Civil Code), violation of Article 288 of the Civil Code and generally abusive behavior according to Article 281 of the Civil Code.
The fiasco with the Supreme Court
At the same time, legal circles that spoke to data journalists speak of a fiasco for the much-publicized plenary session of the Supreme Court last Thursday. “Even if the Supreme Court plenary meeting on Thursday finally decides that management companies cannot perform enforcement actions under the 2015 law, a solution will be found and the problem will be overcome,” said a lawyer dealing with both red loans and auctions on the part of natural and legal persons.
He notes that the wave of forced executions has not been halted, but “there is an upsurge in acts of forced execution. “More than 10,000 primary home auctions are scheduled for July. And this mess that is being made today with what decision the Supreme Court will make is because of the upcoming elections,” he says.
Overdue private debt, according to Bank of Greece data, exceeds 101 billion euros, of which 86.8 billion euros belong to funds and 14.5 billion euros are in banks. The debts of businesses are over 42 billion euros, households from mortgages and consumer loans are 46.6 billion euros, and 12 billion euros are the debts of independent contractors.
“This debt has changed hands through loan sales and has been bought not even at 20% of its value by the management companies says a well-known lawyer. That is the problem. The management companies have bought from the Bank 1/5 of the value of the debtor’s loans and asked him to repay it in full.
And not only that, management companies don’t make arrangements. To date, a significant part of the debt collection takes place through real estate auctions. At least a third of the private debt will come from auctions,” another lawyer says.
A lawyer of the DSA who has handled relevant cases states that it is almost impossible for the debtor to obtain a “haircut deal” of his loan from the credit servicing firms. He also clarifies that loans from cards have been purchased at 5-10% of the value of the debt, at 10-20% is the average of the packages acquired while loans of real estate fillets that are up-to-date have been purchased up to 70% of the original value.
The contradictions
But let us return to the Plenary of the Supreme Court. It all started with two conflicting Supreme Court decisions. By Decision 822/2022 (http://www.areiospagos.gr/nomologia/apofaseis_DISPLAY.asp?cd=AQWPM9SU1WI3DXTHNYAIH3C9J0EXIN&apof=822_2022&info=%D0%CF%CB%C9%D4%C9%CA%C5%D3%20-%20%20%C12) the Supreme Court banned management companies from auctioning real estate.
According to the Supreme Court, Law 3156/2003 on securitizations does not confer on the management company the status of an exceptionally qualified party, as is the case in the law on non-performing loans (4354/2015).
The provisions of Law 4354/2015 on the exceptional legitimacy (as non-beneficiary parties) of loan management companies cannot be applied proportionally to the management companies of Law 3165/2003, because the management company of article 10 of Law 3156/2003 undertakes with a mandate contract the management of the acquired receivables, without having been defined by law as a non-beneficiary, exceptionally qualified, party.
“Therefore, it is not entitled to carry out procedural acts on behalf of the principal of the company, nor can the contract between them and the provision of power of attorney establish exceptional legitimacy,” the Supreme Court said.
It may be that this decision gave breath to the borrowers another decision of the Supreme Court or 1102/2022 legitimizes the right of management companies to proceed with real estate auctions.
The confusion between the two decisions was caused by the two different securitization laws. Act 3156 of 2003 and Act 4904 of 2015, on the basis of which the securitizations have been carried out.
Law 4354/2015 on “red” loans provides special legitimacy to management companies so that they can carry out procedural acts instead of the beneficiary of the claim, while Law 3156/2003 on loan arrangements in general and Article 10 (paragraph 14) states that the envisaged companies carry out management acts on behalf of the companies that have the loans, without attributing to them the specific status of “non-beneficiary or non-liable party”.
Eventually, it was decided to go to the Plenum of the Supreme Court, as it happened. On Thursday, January 26, the Plenary Session of the Supreme Court met to decide on the two contradictory decisions that had been issued. Whether management companies such as Do Value, Intrum, etc. can carry out enforcement actions if they have not transferred the loans by the 2015 Act but by the 2003 Act. Tomorrow the parties will submit their positions in writing in order to close the file and then the Plenary Conference will take place where the relevant proposal will be made.
The official publication of the Supreme Court’s decision is expected two months after the plenary session, but due to the planned elections, it is possible that it will be issued afterwards.
What Happened in the Plenary
The Prosecutor of the Chair, Deputy Prosecutor of the Supreme Court Panos Panagiotopoulos, chose the Solomon solution, arguing that both legislative texts can be used simultaneously (2003 and 2015). That is, management companies have, under the law, the legitimacy to carry out foreclosures and expedite auctions on behalf of funds (special purpose companies) that hold non-performing loans. Therefore, his proposal is in favor of the annulment of Decision 822/22.
The borrowers’ side, the Bar Associations, etc. argued that the Funds cannot be parties to litigation, all the more so when they do not pay indirect taxes and fees (transfer tax, stamp duty, notary rights, etc.).
In the additional intervention exercised under Article 90 par. g Code of Civil Procedure, the Athens Bar Association, in favor of the borrowers and against the Factoring Companies (funds), said that contrary to the practice of the Hellenic Loan Servicers Association (HLSA) so far, the latter do not have exceptional legal standing for the exercise of procedural acts in general (issuance of a payment order, acceleration of enforcement, etc.), in cases where the transfer of claims and the corresponding delegation of management to them is based on the provisions for the securitization of the claims of Law 3156/2003.
They also said that auctions should be carried out as required by law, i.e. the debtor should be given the opportunity to settle his debt beforehand and the funds’ tactics should not be applied.
In Greece today there are about 20 funds, of which the largest are Intrum, doValue, and Cepal, Intrum, doValue, and more than 20 companies managing loans and credit claims. The latter, such as Cepal, Intrum, doValue, etc. are licensed by the Bank of Greece.
“Banks have transferred the loans to foreign investors. And they achieved their purpose. The red loans are in the hands of the funds and the management companies are strangling the debtor,” says a lawyer who is trying with great difficulty to contact the representatives of management companies to regulate his customers’ loans.
The Hellenic Loan Servicers Association (HLSA), which manages loans and receivables exceeding 100 billion euros, claim that they are doing godly work. This was supported in a few words by the president of HLSA and CEO of doValue Tasos Panousis at the annual general meeting of HLSA, who said that in the last year alone, portfolios of 22 billion euros were transferred out of bank balance sheets, which are managed by the members of HLSA and are already in the process of transferring another 13 billion euros of loans.
“We have borne the brunt of the big problem of non-performing loans that the multi-year crisis left to our banking system. Without a rapid response, we would not be able to return to smooth financing of the economy, to strong and sustainable growth rates, and to a path of recovery of the investment grade for Greece,” Panousis said.
“We must not allow a relapse into the negative payment culture of the past. Enforcement is our last option, but its absence negatively affects and brings to the surface the moral hazard,” he said.
Regarding the results of the Out-of-Court Debt Settlement Mechanism, he admitted that they lag behind expectations.
“We have over 39,000 applications in principle, but the number of those completed is still very small, due to the fact that this is a complex process, in which many factors are involved until the information on the platform is completed and the algorithmic solution is proposed to the borrower.
However, this attitude of waiting is not a paradox. It is important to remember that the new out-of-court mechanism is now taking its first steps. I believe that as the market learns of the solutions that have been provided, the relevant requests will increase.”
Finance Minister Christos Staikouras pointed out that “improvements and harder work are needed by loan and credit servicing companies, as well as by banks, in order to benefit more citizens and successfully settle their debts”.
The finance ministry expects debt settlements of more than 1.8 billion euros through the extrajudicial mechanism in the next five months. The goal is to bring the total amount of regulation closer to 4 billion euros.
According to the data (http://www.keyd.gov.gr/wp-content/uploads/2023/01/OCW-Presentation_Dec22_EN.pdf) published by the Ministry of Finance, the extrajudicial mechanism offers arrangements with an average “haircut” of approximately 20% for debts to the State and 30.8% for debts to financial institutions. But when you consider that the financial institutions have bought the red loans at 10-20% of their original value, it is obvious that they are earning a fortune.
