The liability of mortgage bankrupts to banks was limited to an apartment

Bankrupt mortgage lenders will be written off the debt on the loan if the bank took the mortgaged housing, even in cases where the value of the property does not cover the entire debt. The bank will not be able to claim other property of the debtor. The decision was made by the Supreme Court of the Russian Federation (SC). There is only one condition: the value of the collateral must not be less than the loan amount at the time of issuance. The ratio of the amounts in the future does not matter. These rules will also apply to cases where mortgage housing is sold at auction.

The Supreme Court supported citizens-debtors in the issue of settlement of mortgage loans. In August 2007, Alesya Kovaleva and her husband took a $605,000 loan from the Bank of Moscow secured by a house with a plot in the Moscow region. Due to delays on the loan, VTB (the assignee of the Bank of Moscow) bankrupted the borrower.

As part of the bankruptcy, the auction for the sale of the mortgaged real estate did not take place due to the lack of applications, and the bank decided to keep the property. Considering the debt repaid and given the absence of other creditors, financial manager Alesya Kovaleva asked to stop the bankruptcy case. The Arbitration Court of the Moscow Region granted the petition, but on the basis of VTB’s complaint, the Court of Appeal overturned the decision.

The appeal considered that the debt had not been repaid in full, since the bank’s claims in the register amounted to 86.5 million rubles, and the value of real estate according to the act of acceptance and transfer was only 19.5 million rubles. According to the bankruptcy law, the resolution notes, the secured creditor has the right to include the remaining outstanding amount in the third stage of the register, that is, it can claim other property of the debtor. Cassation supported this position (see Kommersant of May 24).

The spouse of the debtor Alexander Danyaev filed a complaint with the Supreme Court, insisting on the termination of obligations to VTB and the bankruptcy case itself. As a result, the Supreme Court decided the dispute in favor of the debtor, upholding the decision of the first instance (the ruling was published on June 27). Explaining its position, the Board of Economics noted that the law “On the Settlement of Insolvency (Bankruptcy) Peculiarities in the Territories of the Republic of Crimea and the Federal City of Sevastopol”, adopted in 2015, ordered the courts to apply the norms of mortgage legislation in bankruptcy cases of citizens throughout Russia from October 2015. This means that if the bank leaves the property behind, the obligations of the citizen are terminated.

At the same time, the Supreme Court clarified, the debt is considered repaid if the amount of the loan at the time of its issuance was less than or equal to the value of the pledged property specified in the agreement. At the time of issuing a loan to Alesya Kovaleva in 2007, the cost of a house with a plot was $615 thousand, and the loan amount was $605 thousand, and by 2019, when the bank went to collect the debt, its amount with interest reached $952.5 thousand. Considering that there was no borrower liability insurance, a bankruptcy case was initiated after October 1, 2015, “reserving the subject of mortgage by the bank” entails repayment of the loan debt, the board explained. The bankruptcy case was dismissed.

VTB assured that the bank “always operates within the legal framework and is ready to execute a court decision that has entered into force.” Kommersant’s source in the banking market believes that “the practice will not change radically,” given that about 99% of debtor citizens are already freed from all debts upon completion of bankruptcy.

However, lawyers note that earlier the courts in such cases usually took the side of banks, but now the practice will change. The position of the Armed Forces protects borrowers-citizens who bought housing through a mortgage, says Zoya Galeeva, managing partner of the Center for Working with Troubled Assets. According to her, if the purchase of housing was carried out on credit funds, the value of the collateral at the time of concluding an agreement with the bank could not be less than the amount of the loan issued for its purchase, therefore, there are no risks for borrowers.

The arbitration manager Sergey Domnin emphasizes that this is the first case of the application of the norms of Art. 61 of the Law “On Mortgage” in cases of bankruptcy of citizens and the decision of the Supreme Court will be “practical”. In addition to cases of leaving the bank property for itself, the debt will be considered repaid and when selling mortgage housing from bankruptcy auctions, he clarifies.

Anton Krasnikov, a partner at Sotheby’s law firm, says that the Supreme Court “brought certainty” to the procedure for repaying mortgage obligations in the bankruptcy of citizens, and creditors “should carefully monitor changes in legislation.” In his opinion, the decision of the Supreme Court “will encourage creditors to more actively diversify the risks of insolvency of their borrowers-citizens”, for example, through additional security of obligations (guarantees of third parties), liability insurance of the debtor or financial risk of the creditor.

However, differences in interpretation remain. Mr. Domnin believes that the position of the Supreme Court is applicable to all such cases, regardless of when the mortgage loan was taken and whether the borrower had insurance: “It does not matter for recognizing the loan as repaid.” But according to the head of the bankruptcy practice of the law firm “Lemchik, Krupsky and Partners” David Kononov, the current version of Art. 61 of the Law “On Mortgage” implies insurance of the borrower’s liability to terminate obligations to the bank and “in the absence of such insurance, although it is not required by law, the debt may not be written off.”

Anna Zanina