In the difficult economic environment we live in (accuracy, rising borrowing costs), the difficulty of borrowers to service their bank loans has become almost a social issue.

Moreover, given that the majority of red loans have been transferred to funds, the debtor is now required to negotiate with a new negotiator to settle the debt instead of the Bank.

The only thing is that the Bank and the Fund (represented by the Servicer) operate in a different institutional framework, with different objectives and constraints.

From our experience so far in negotiating our clients’ cases with claims management companies (e.g. DOVALUE, INTRUM, CEPAL, QQUANT etc.), we have found the following:

Do the Funds “haircut”?

It is perhaps the first question that comes to mind for most borrowers.

The answer may not be a simple “yes” or “no”, but there are reasons that make it easier for a Fund (as opposed to a bank) to proceed with a loan forgiveness.

For the Bank, the partial write-off of a loan is always more difficult, mainly due to the constraints of the institutional framework in which it operates (credit risk, capital requirements) and the fact that it manages depositors’ money which it has lent.

On the other hand, the Fund has “bought” loans at low cost (up to 10% of their nominal value) without the Bank’s restrictions (strict institutional framework).

Certainly, the Fund has no desire to “give away” debts and its goal is to maximize the return on its investment. However, there are cases where the debtor can benefit significantly by achieving write-offs of off-balance sheet and contractual interest and even principal.

For a detailed presentation on the subject, please refer to the article “How can I get a haircut on my loan?”

The Funds want to collect the loans they have bought as soon as possible, which is why the arrangements they offer do not exceed 10 years.

Funds (Loan Managers) by buying high risk assets (loans in arrears), try to shorten the time they get their investment money back (payback period) with a profit they have budgeted. For this reason, the Funds can show both flexibility and aggressiveness in collecting their claims.

Flexibility, because if the debtor is willing to make a substantial advance payment against his loan and settle the balance in a short term, he can obtain a substantial write-off of interest and principal.

On the other hand, a debtor who does not respond to a debt settlement will face greater aggression in terms of legal actions (e.g. payment order, seizure, auction) than the Bank, which, due to the volume of cases it had to manage, often failed to act.

The legislation on the transfer of loans from the banks to the banks Fund, does not require the debtor’s consent.

Although there are many debtors who complain about the sale of their loans to funds without their consent, the bottom line is that they do not lose any of their rights. The loan contract is transferred as it is and the debtor has the same obligations and rights as before.

The way of communication and the “adjustment techniques” are not very different.

The way of communicating with the Fund and the practices of managing overdue loans have not changed much compared to the Bank, as debtors will be asked to talk to “almost” the same people they used to talk to when their loan was with the Bank. After all, the majority of the executives and employees who staffed the Loan Management Companies came from the respective arrears departments of the Banks. Clearly, of course, funds can offer more flexible solutions than the Bank (e.g. voluntary assignment of property, greater ‘haircut’ of debts).

The willingness to compromise Fund may also be influenced by the debtor’s willingness to react to legal actions against him.

The fund, given its policy to divest as soon as possible, will prefer a compromise solution to a long legal battle. Particularly in cases where legal actions have been initiated by the bank and the fund continues them, it is important for the debtor to react with all the legal remedies available to him (e.g. injunction, appeal, etc.) so that the fund is “pressured” to propose a settlement solution on better terms in order to avoid a multi-year legal battle, which means costs and uncertainty in collection.

The code of conduct of banks is an institutionalised tool for debt adjustment, which puts a “brake” on the aggression of the Fund.

The Code of Conduct for banks is an institutionalised procedure for the regulation of loans in arrears, which both debtors (to avoid being labelled “uncooperative”), loan servicers and banking institutions are obliged to follow.

However, many loan servicers often overlook this procedure, preferring to follow specific methods of pressure for direct collections, such as letters for immediate repayment or consensual sale of mortgaged properties, etc.

The debtor has the right to request compliance with the Code of Conduct even if the loan has been terminated (after 2015), saving time and inviting the creditor to find a solution through the established procedure of the Bank of Greece.

Through the Extrajudicial Mechanism (Law 4738/2020), the debtor can invite the Banks and the funds to submit a proposal for the settlement of his debts.

The advantage of this procedure is that if the majority of the banks-funds agree, then the debtor can obtain the settlement of all his debts. However, the procedure is not compulsory for banks and funds (i.e. loan management companies) and as a result they do not always submit a debt settlement proposal, especially when it is not in their interest to agree on a long-term arrangement (up to 420 instalments). In particular, where there are properties with a commercial value to secure the loan, the Fund will prefer to auction them in order to obtain the earliest possible recovery of its claim.

Of course, the non-participation of the Fund (or the bank) in the Out-of-Court Mechanism procedure may be an argument for the debtor later in court to claim abusive behaviour on the part of the Fund.

Out-of-Court Counsel – Contact

Instead of epilogue

Although the sale of a loan to a Fund has been demonised, it can also hold opportunities for the debtor.

After all, the Fund is not here to stay forever, as it has made an investment that it expects to get back after a few years and ideally with a profit.

For this reason, the debtor can obtain a more favourable arrangement with the bank, especially if he can provide a substantial advance payment in order to obtain even “a ‘haircut’ of his debts.

But in any case, negotiating with a Fund is a battle, where each side tries to find the other side’s weak points and push for the best possible outcome.

In this “battle”, you need a reliable advisor with knowledge and experience who will show interest in your case, so that you can achieve a favourable and above all viable solution for your loan.

Contact us now for your case

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