More Control over Private Mortgages
18 July, 2013
More Control over Private Mortgages
To ensure better legal protection of consumers, more control is expected to be imposed on private lenders of mortgages, enjoying loose regulation for years in Georgia.
Ministry of Justice of Georgia undertook attempts to elaborate a package of law, regulating private mortgages so as to improve legal levers, protecting consumers from fraudulent traps, depriving significant amount of consumers of their single dwelling place. Current legal framework does not provide mechanism protecting borrower from the creditor in case if the latter
misuses with the circumstances. To alleviate the situation the legislative changes envisage imposing a cap limit on interest rates offered by private mortgage lenders, also changes will be made to contract and auctioning procedures. According to Tea Tsulukiani, Minister of Justice, they work to elaborate a project that will spare people to pay interest on interest rates, the private mortgage contract to be approved by notary that will double-check whether or not the client is able to pay that will inhibit private lenders to misuse with the insolvency state of any client. As a matter of fact, quite often private creditors are interested that the client would break the contract so as to take his/her property put as collateral to the mortgage into possession, Lia Eliava, a financial market analyst, said in the interview to Georgian Journal. According to her calculations, the value of property seized by creditors through mortgages averages to GEL 2 billion in Georgia and the private lenders and microfinance organizations enjoyed the lions’ share thanks to loose regulation. “Banks generally are interested in getting the lent money back rather than get a property and handle with its sale procedures while private mortgage lenders are focused on property seizure,” she said. There are no interest rate regulatory standards for private lenders and they may take any profit out of the outstanding mortgage. Besides, the law allows them to fix yield on the interest rates imposed on the principal loan that puts clients in a deadlock. Upcoming changes will allow creditors to take over the collateral property only if it will pay to the borrower the difference between the market price of the questioned property and the financial obligations related with the past-due loan amount. Today creditors enjoy the market price that frequently many-fold exceeds the real liability volume. In case of auctions it will be obligatory to inform involved sides of the scheduled auction so as to insure presence of both sides at the auction.
Eliava approves all the changes but accentuates that the justice ministry is fulfilling the job of National Bank of Georgia (NBG) in fact for the NBG is responsible for the financial market regulation for the financial resources circulating through mortgages are the money that have an impact on the economy.
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