Nonperforming loans: What borrowers can do before foreclosure

Borrowers facing nonperforming loans do not have one solution that fits every case. Their options depend on the amount they owe, their income and assets, and, above all, how far the case has progressed toward foreclosure.

The out-of-court mechanism remains fully available and can offer a single arrangement for several categories of debt. Depending on the circumstances, borrowers can address debts to the state, Greece’s social security agency EFKA, banks and loan-servicing companies in one process. Repayment can extend to 240 installments for debts to the state and social security funds, and up to 420 installments for debts to banks and servicers, subject to the applicable conditions. The mechanism may also lead to a partial write-off, setting it apart from several other forms of debt restructuring.

That does not automatically make it the best choice. Borrowers may instead negotiate separately with a bank or servicer. Such an agreement can reflect their actual financial position and could involve a lower monthly payment, a longer repayment period, a reduced interest rate, a partial debt write-off or a different repayment structure. The trade-off is that the debts are not combined. Someone who owes money to the state, EFKA and a servicer must address each category independently.

A borrower with a substantial amount of available capital may also seek a large discount by offering to settle the entire debt at once. Whether such a reduction is granted depends on the negotiation and the details of the individual case. Available cash can therefore become a strong bargaining tool. The situation becomes more urgent once enforcement proceedings have begun and a foreclosure auction is approaching.