David Darmanin An unusually high number of defaulting bank debtors, 63 in total, will over the next four months have their properties auctioned by the courts on behalf of their creditors.
More than half these property owners have lost their residences, immovable investments or business premises after failing to honour commitments with banks, resulting in 36 properties are being auctioned on behalf of either Bank of Valletta, HSBC or Fimbank.
A list published on the Ministry of Justice website shows the auctioning of 18 personal properties and seven commercial ones on behalf of BOV; seven personal properties and three commercial ones on behalf of HSBC; and one personal property on behalf of Fimbank.
Issuing a garnishee order for the confiscation of property against a defaulter is usually deemed by banks as the very last resort, after several alternative attempts to recover dues would have been made.
Observers however claim that the situation does not necessarily reflect the current state of the economy, although such a high number of sequestered properties “cannot be a good sign”.
“Although I am not privy to past statistics, I do not remember the number of properties for sale by auction being so high,” commercial lawyer George Cutajar told MaltaToday. “I honestly do not think of this as a normal situation.”
Cutajar said that most confiscations of property by banks have been effected against guarantees provided by debtors as collateral to loans.
“The situation says a lot about cash flow problems,” he added.
But Cutajar qualified that many of the debtors waiting for their property to be auctioned over the next four months “had been dragging their debit problem with banks long before the recession”, since the issue of a garnishee order is normally the last straw in banking procedure.
“Whoever had their property sequestered by a bank last September, for instance, would have had debit issues dragging for long before,” he said. “You also get situations when a defaulter makes a payment to the bank after a property is confiscated. The bank would then decide to stop proceedings, but if the debtor fails to honour a second commitment taken with the bank to redress, the process for auctioning starts again.”
In fact, one of the cases brought by BOV against a car rental company dates back to 2003.
“One only hopes that this is not an indication of what is yet to come,” Cutajar stated. “Although this should not be interpreted as a direct effect of the current economic situation, it will only compound matters for the industry in general.”
He said that by next year, he expects “to hear of some well-known firms that are in financial dire straits because of the current economic situation”.
He said that a particular development company has its back against the wall, but bank proceedings have not yet started.
Veteran banker John A. Consiglio on his part said that the record number of sales by auction “do not necessarily indicate a deteriorating economy”, adding that he would be very cautious before making a link to the economy.
“It could just be the case that the court processes coincided together,” he said. “Conflicts between the customer and the bank could have started at different times, and one must remember that every case has its own merit and circumstances that differ from the other. Cases are never identical.”
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