Housing, and not a penny more – Kommersant

The Supreme Court of the Russian Federation (SC) will decide whether a bankrupt mortgage borrower should answer to the mortgage bank with all his property or only mortgaged housing. According to the mortgage law, in the event of the sale of the collateral or the bank leaving it behind, the citizen’s debt to him is considered repaid. But bankruptcy law entitles the secured creditor to remain on the register and claim other assets of the bankrupt if the value of the collateral does not cover the entire debt. Which rules take precedence will be decided by the Supreme Court. Lawyers say that the dispute has an acute social significance, and now in practice “there is a strong bias” in favor of creditor banks.

The Supreme Court will consider a dispute on the rights of a secured creditor in the bankruptcy of citizens. In August 2007, Alesya Kovaleva and her husband Alexander Danyaev took out a mortgage in a Moscow bank, borrowing $605,000 to buy a house in the Moscow region. A residential building with a plot was immediately mortgaged on a loan. Subsequently, the spouses were unable to pay the debt, and VTB (the assignee of the Bank of Moscow) initiated the bankruptcy of Alesya Kovaleva, claiming 44.2 million rubles. principal debt, 33.66 million rubles. percent and 8.65 million rubles. penalties. The court recognized the debt as justified and attributed it to the general obligations of the spouses. As part of the bankruptcy, the mortgaged property could not be sold at auction, and the bank decided to keep the property.

After that, the financial manager of the debtor asked to stop the bankruptcy proceedings. In September 2022, the Arbitration Court of the Moscow Region granted the request, recognizing that the claims of all registered creditors were paid off. But VTB challenged this on appeal and secured the annulment of the decision. The appeal agreed that the total debt to the bank is much more than the 19.51 million rubles it received from the sale of collateral, and since there is no evidence of the impossibility of repaying the remaining debt at the expense of non-collateral property, this amount is included in the third line of the register of creditors. As a result, the case was sent back to the first instance to check whether the bankrupt had other assets to pay off the debt to VTB. The Court of Cassation upheld this decision.

The debtor’s husband Alexander Danyaev applied to the Supreme Court. He believes that paragraph 5 of Art. 61 of the law “On Mortgage”, according to which the debt is terminated in the event of the sale of the collateral or the bank leaving the property behind. The appeal with cassation, according to the applicant, erroneously gave preference to the provisions of the bankruptcy law (Articles 18.1 and 213.27), which allow the secured creditor to remain in the register if the value of the collateral is insufficient to pay the entire debt. The dispute was referred to the economic board, the hearing is scheduled for June 19.

Lawyers say that in bankruptcy practice there is now a “strong bias in favor of banks” – this position can be traced in the arbitration courts of many regions, including the Moscow District. Orchards adviser Vadim Borodkin emphasizes that the case has “important social and precedent value” and “may reverse the negative practice for bankrupt citizens who not only lose the object of the mortgage, but also remain debtors, losing other property.”

At the same time, according to the logic of the legislator, “a citizen is a less socially protected category”, therefore it is unacceptable to shift negative consequences onto him, including due to changes in the cost of housing, says Elena Kravtsova, partner of ProLegals. Banks, on the other hand, are protected by the fact that initially they issue a loan for an amount less than the value of the mortgaged housing, and in case of non-payment of the debt, they have the opportunity to purchase this property at a price below the market price, Mr. Borodkin explains. If a bank provides a loan for the purchase of housing, then “it independently bears the risks in the event of the sale of property for an amount less than the loan debt,” Elena Kravtsova believes. In addition, she clarifies, financial institutions “have the opportunity to use the institute of insurance against the risks of reducing the value of collateral.” Meanwhile, if the Supreme Court supports the arguments of the complaint, then banks may try to “recoup by increasing the interest rate and including other contractual conditions that worsen the position of borrowers,” Vadim Borodkin admits.

Discrepancies in practice arose because of the conflict between bankruptcy and mortgage norms. However, Alexey Sharov, managing partner of Averta Group, notes that in June 2015, the law “On the regulation of insolvency (bankruptcy) features in the territories of the Republic of Crimea and the federal city of Sevastopol” was adopted. Despite the name, the lawyer clarifies, the law contains a number of general rules, including the application by arbitration courts of mortgage legislation in bankruptcy cases of citizens throughout Russia since October 2015. In his opinion, these changes provide protection to bankrupt citizens, limiting their liability to the bank only to the subject of mortgage.

Sberbank (the largest bank in the Russian Federation in terms of mortgage lending) believes that “within the framework of bankruptcy, the creditor’s claims must be satisfied not only at the expense of funds from the sale of pledged property, but also at the expense of other property, if these funds were not enough.” But they admit that “legislation does not contain an unambiguous answer to this question,” so they are waiting with interest for the decision of the Supreme Court.

Ekaterina Volkova, Anna Zanina