Foreclose on the mortgage

Main concepts:

  • Types of meeting the demands of the lender
  • Notary as the state registrar
  • Legal character of acquisition mechanism for ownership of the lender
  • Arbitrage practice
  • Conclusions

Current legislation of Ukraine gives the lender the right to choose how to meet its requirements: on a voluntary basis, or by filing case to court.

Voluntary method, in other words, non-judicial, is to acquire ownership of the property for a mortgage for the lender. That is, the re-registration of ownership of the mortgaged property to repay the principal obligation is performed in accordance with Article 37 of the Law of Ukraine "On Mortgage". This procedure is called "entering on the balance."

Court decision is not required for such voluntary settlement activities!

How is implemented the mechanism of acquisition of ownership for the lender?

The Law of Ukraine "On Mortgage" provides several ways to meet claims of the lender, namely:

  • registration of ownership for the mortgaged property for the lender, or "entering on the balance";
  •         sale of the mortgaged property on behalf of the lender to third parties;
  • sale of the mortgaged property by a court decision through electronic auctions.

Let examine details of the option of acquiring property rights by the lender in accordance with Article 37 of the Law of Ukraine "On mortgage".

Its scheme is the following:

Notification of the debtor - 30 days - a notary - "entering on balance" = the lender becomes the owner of the mortgaged property

1. The lender sends a notice to the debtor about violation of the credit and/or mortgage agreement.

2. If during a specified period, which is 30 days, the claim of mortgagee remains unsatisfied, the lender is entitled to decide on foreclose on the mortgage by settlement out of court on the basis of a contract.

3. The lender submits the necessary package of documents for the state registration to a notary public, who decides on the re-registration of ownership for the lender.

Notary, as the state registrar, as evidenced by article 9 of the Law of Ukraine "On State Registration of Proprietary Rights to Real Property and Their Encumbrances". In addition, as of January 1, 2016 a new edition of the Law of Ukraine "On state registration of immovable property" came into force

This Law of Ukraine has identified a number of changes regarding the state registration (acquisition of title). Please note that this Law of Ukraine determines the Mortgagee as a legal successor and Notary public as the state registrar.

Acquisition of the ownership for the mortgaged property by the mortgagee is performed in accordance with applicable provisions of the mortgage contract, which is voluntarily and without any forcing of any kind among creditors and debtors, thus it is completely legitimate. If we thoroughly examine the content of the mortgage agreement, we will find a respective clause (or "Zasterezhennia" in the Ukrainian language), or different versions of content similar to clause. This Clause is equivalent as for its legal consequences for the contract on claims satisfaction and provides the transfer of ownership for the mortgage to the lender as fulfillment of the principal obligation. Therefore, by signing such a contract, you voluntarily agree to such conditions.

Example of Mortgage contract and Clause (Zasterezhennia):

As of today, the jurisprudence regarding the appeal as for state registration of title of the mortgagee for the subject of the mortgage is not unambiguous. Separately, we draw your attention to the fact that judgments of courts of first  and appeal instance in favor of the debtor are not final and solving the issue of the abolition of state registration, because they are disputed in the court of cassation and the Supreme Court of Ukraine.

Summing up, we can say that the method chosen by the debtors as for protecting of violated rights (in opinion of the debtor) by appeal to the court to cancel the registration of ownership of the mortgaged property for the lender is a temporary postponement of fulfillment of obligations under the loan agreement. Moreover, the positive decision of the court in favor of the debtor in any case is not waiver for the lender to re-apply to the state registrar for re-registration of rights ownership for the mortgaged property. Thus, in spite of the court judgment, the lender not once can "enter on balance" the subject of mortgage.

Thus, the positive decision of the court:

1. Only a temporary delay until next actions of the lender

2. Does not release the obligations under the loan agreement

3. The lender may again "enter on balance" the mortgage item.