Enforced debt collection is implemented using various legal mechanisms. Bailiffs not only try to determine the real income of the debtor, seize accounts and vehicles, but also search for other property belonging to him, including real estate. In 2021, foreclosure on the debtor's only home is almost never carried out, since such an action would deprive the citizen of the right to housing. However, there is an exception to this rule.
The procedure for foreclosure on real estate
If the debt is not repaid, the creditor may file a lawsuit (or apply for a court order). After the decision is made, he receives a writ of execution and submits it to the bailiff service at the location of the debtor in order to collect the debt forcibly.
The bailiff issues a resolution to initiate enforcement proceedings. The debtor will have a period of five days to voluntarily fulfill his obligation. If this is not done, the forced collection procedure begins.
To collect funds from the debtor, cash accounts are primarily used. If they are absent or there is insufficient money for them, the FSSP employee begins a search for other property, through which it is possible to ensure payments to the creditor.
The bailiff forecloses on real estate only if it is impossible to obtain compensation from other property. Article 69 of Federal Law No. 229 “On Enforcement Proceedings” establishes that such a procedure represents a direct seizure and subsequent sale of objects.
The debtor must provide the bailiff with all information about the real estate objects he owns. In practice, this rule is practically not implemented, so the contractor, to obtain the necessary information, sends requests to the tax authority, as well as to Rosreestr. After the answer, it becomes obvious what real estate the debtor owns.
Collection is made in the following order:
- search for property through sending inquiries . The bailiff needs to determine what property the citizen actually has, what can be used to pay off the debt, and what cannot be sold;
- seizure of identified property . This measure is necessary to ensure that the debtor does not sell the objects and does not hide the income received from the bailiff. The seizure of real estate prohibits any transactions with it. The restrictive measure is registered in Rosreestr and transactions are simply not carried out, since the system does not allow this;
- putting up real estate (property) for auction . Auctions allow anyone to purchase property. In practice, objects are sold at slightly lower prices than they actually cost on the market.
Before a building, structure or site is put up for auction, it will be assessed. If the object is not sold immediately, then the price for the next stage of the auction is reduced. If the bidding is not successful, then in the end the claimant may be asked to take ownership of the object to pay off the debt, at a minimum price.
Link to document: Federal Law No. 229-FZ of October 2, 2007 “On Enforcement Proceedings”
The lawyer explained how the only housing can be pledged to the bank
As RG has already written, the courts have begun to apply in practice the fresh legal positions of the Constitutional Court of Russia regarding the debtor’s only home. In a specific case in the Vologda region, the court decided that executive immunity does not apply to the only residence if it is pledged. And now, in the same case, the court lifted the interim measures that prohibited the sale of the house while the proceedings were ongoing. So in the near future the mansion may be put up for auction.
The head of the De Jure Law Firm, Nikita Filippov, in a conversation with RG, said that in the law, in his opinion, it is necessary to establish a clear procedure for replacing expensive housing with less comfortable housing. At the same time, the procedure for eviction of the debtor and members of his family from the residential premises they occupy must be spelled out in detail while preserving for them constitutional guarantees for a decent standard of living. In other words: so that people don’t end up on the street.
— What did the Constitutional Court decide, how will practice change after this?
Nikita Filippov: In its ruling in the case of Ivan Revkov, the Constitutional Court officially allowed the courts of the Russian Federation to sell expensive real estate of debtors in exchange for providing less comfortable housing, taking into account the guarantee of the debtor’s rights to decent living.
It seems that the court’s clarifications will be reflected in practice in bankruptcy cases of the debtor, and will also be applied in the course of enforcement proceedings against the debtor by the bailiff.
— Do debtors often take advantage of the fact that it is difficult to take away their only home, and therefore live in luxurious houses and do not pay their debts?
Nikita Filippov: In the absence of clear criteria and legislative mechanisms for the sale of expensive single housing, not encumbered by a mortgage, debtors with financial difficulties took advantage of provisions on executive immunity. In practice, there have often been cases where debtors with multimillion-dollar debts deliberately purchased luxury housing for themselves in order to avoid paying off the debt. Since elite housing was the only one for the debtor, then, with the literal application of the rules on executive immunity, the court had no right to foreclose on other real estate.
— How can your only home be pledged to a bank? Isn't it prohibited for the bank to take the only home as collateral?
Nikita Filippov: Russian legislation does not establish prohibitions on concluding civil contracts with credit organizations, secured by the pledge of a single residence or rights of claim in relation to such residential premises, depending on the purpose of issuing funds. The risks of providing a single home as collateral, regardless of the purpose of the loan, rest with the borrower himself (Article 421 of the Civil Code of the Russian Federation).
In judicial practice until 2012, courts recognized the nullity of a pledge agreement for a single home, concluded to secure the fulfillment of obligations under a non-targeted loan. However, the explanations of the higher courts, having established a violation of the interests of creditors in this case, prevented such a vicious practice (for example, Resolution of the Supreme Court of the Russian Federation dated May 29, 2012 No. 80-B12-2, Resolution of the Presidium of the Supreme Arbitration Court of the Russian Federation dated November 26, 2013 in case No. A65- 15362/2009-SG4-39).
— How did the practice with the arrest of the only home previously develop, were there any precedents?
Nikita Filippov: Current practice allows for seizure in order to ensure the safety of the debtor’s only home. According to the Supreme Court of the Russian Federation, despite the fact that the law prohibits foreclosure on the debtor’s only home under writs of execution, it is possible to seize such housing, because seizure is not a foreclosure (Definition dated January 11, 2016 No. 78-KG15-42).
The significance of the arrest is that the debtor will not be able to sell, donate or mortgage the only housing under the contract, and third parties will not be able to claim it. That is, we are talking about preventing abuse of rights on the part of the debtor or third parties.
— Is there a danger that now all debtors will be thrown out into the street?
Nikita Filippov: The legislation of the Russian Federation establishes executive immunity in relation to the claims of creditors to the debtor’s only residential premises or a share in the right of common or joint ownership in a residential premises. By virtue of the letter of the law, foreclosure on the only housing owned by a citizen by right of ownership is possible only if it is pledged under a mortgage agreement or a mortgage by force of law, and the legislation on mortgage allows foreclosure on it.
Foreclosing on the only home of a debtor not encumbered by a mortgage was previously not allowed in judicial practice, since it was fully covered by executive immunity.
In the ruling in the case of Ivan Revkov, the Constitutional Court of the Russian Federation recognized the possibility for creditors to foreclose on the debtor’s expensive only home, unencumbered by a mortgage, as part of the debtor’s bankruptcy case.
As the Constitutional Court of the Russian Federation noted, the purpose of executive immunity is not to preserve the debtors’ right of ownership of the only housing, but to prevent violation of the constitutional human right to housing, guarantees of providing the debtor and his family members with housing sufficient for a decent his residence.
In this decision, the Court concluded that the refusal to apply executive immunity does not mean that the debtor will be deprived of the right of ownership of the residential premises. Instead of expensive housing, the debtor and members of his family may be provided with premises of a smaller area within the same settlement where these persons live. This condition can be ensured, in particular, if replacement housing is provided by the creditor in the manner established by the court in the bankruptcy proceedings of the debtor or in the course of enforcement proceedings.
— What changes in legislation do you think are needed to regulate this area?
Nikita Filippov: The first thing that needs to be done is to bring the provisions of the Code of Civil Procedure of the Russian Federation, the bankruptcy law, and the legislation on enforcement proceedings into compliance with the requirements established in the resolution of the Constitutional Court of the Russian Federation in the case of Ivan Revkov. It is necessary to establish at the legislative level clear limits of the effect of executive immunity in relation to the only housing of debtors, as well as criteria under which the court can foreclose on such real estate.
As a second innovation, we consider it necessary to propose to the legislator to establish a clear procedure for replacing expensive housing with less comfortable housing, including the procedure for eviction of the debtor and members of his family from the residential premises they occupy while preserving their constitutional guarantees for a decent standard of living. The key issues that determine the procedure for providing another residential premises, in our opinion, are: change of place of residence by the debtor within one locality, the presence of minor children preventing their eviction from the occupied residential premises; the presence of social institutions and the distance to work of the debtor and his family members; footage, layout, current repairs of the premises provided, etc.
— How often do foreclosed apartments (which are not the only home) be sold? Where can I buy them? Will the seized apartment have a price lower than on the market?
Nikita Filippov: Buying seized property of debtors can be a profitable activity for a potential buyer, since such property can be sold at auction at a discount of up to 80% of its market value. In accordance with the legislation on enforcement proceedings, the sale of seized real estate takes place at public auctions in electronic form. The organizers of public auctions are specialized trading platforms that have the right to conduct auctions for the relevant type of property. As a rule, it is the Federal Property Management Agency. All information about ongoing auctions is published by the territorial bodies of the Federal Property Management Agency on the official websites torgi.gov.ru and fssprus.ru, as well as in printed publications.
Can real estate always be foreclosed on?
The bailiff will not collect the debt through the sale of real estate if it is possible to obtain funds otherwise.
For example , if you have a bank account, securities, transport and their sufficient value to pay off obligations, the real estate may not be touched.
At the same time, foreclosure is not applied to the debtor’s only home (Article 446 of the Code of Civil Procedure of the Russian Federation). So, if housing is used for the residence of the debtor himself, as well as his family, then its seizure is a violation of the right to housing, that is, a violation of constitutional law and legal norms, which is unacceptable.
The land plot on which the debtor’s only residence is located is also not subject to recovery. This is due to the fact that the land always follows the fate of the structure (Article 552 of the Civil Code of the Russian Federation, Article 35 of the Land Code of the Russian Federation).
In fact, non-residential real estate can always be sold within the framework of enforcement proceedings, but residential real estate - only when it is not the only one for the debtor and his family. However, there is an exception to this rule.
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• Article 446 of the Code of Civil Procedure of the Russian Federation
• Article 552 of the Civil Code of the Russian Federation
• Article 35 of the Land Code of the Russian Federation
Luxury accommodation
But even if the only home is not encumbered with a mortgage, in case of bankruptcy there is a risk of losing it.
The Constitutional Court, in Resolution No. 11-P of May 14, 2012, indicated that executive immunity cannot extend to residential premises, the characteristics of which exceed the reasonable needs of citizens for housing.
Otherwise, the balance of interests of creditors and debtor will be upset. The Constitutional Court left the decision on the question of what criteria to define “luxury” housing, as well as the determination of the procedure for foreclosure on such housing, to the legislator.
To date, no corresponding changes have been made to the Code of Civil Procedure of the Russian Federation.
Judicial practice develops its own criteria according to which a single residential premises can be considered “luxurious” and clearly exceeding the reasonable need for housing. But they differ in different regions and in different courts.
In one case, the court decided that a plot of land with an area of 862 sq.m. with an unfinished construction site located on it - a residential building with a total area of 472.5 sq.m. cannot be excluded from the bankruptcy estate. Moreover, the building was previously used as a hotel.
In addition, on the same site there is a residential building of a smaller area, which can be used for residence of the debtor and his family (Resolution of the Arbitration Court of the West Siberian District of June 30, 2021 in case A03-9949/2017).
In another case, the district arbitration court indicated that executive immunity cannot extend to a residential building with an area of almost 900 square meters and a land plot with an area of one and a half thousand square meters. The judges decided that the lack of legislative regulation of foreclosure on the only housing does not exclude the purchase of other housing for the debtor or the search for other solutions (Resolution of the Volga District Court of November 27, 2018 in case A65-23235/2015).
But in the Ruling of October 29, 2021 in case A71-16753/2017, the Supreme Court of the Russian Federation stopped the practice of lower courts in purchasing smaller housing for debtors instead of “luxury” ones.
The Supreme Court recalled that the Constitutional Court of the Russian Federation excluded the possibility for law enforcement officials to resolve this issue before changes are made to the legislation.
In addition, in this case, the higher court judges emphasized that housing with an area of 40 square meters, even for one person, cannot be considered luxurious. But what the courts should do and how to deal with the only housing that clearly exceeds the reasonable need of the debtor’s family for housing, the Supreme Court did not say before amending the legislation, the question remains open.
Foreclosing on the only home
In some cases, it is still possible to foreclose on your only home. We are talking about a mortgage, that is, in those situations where an apartment (or a residential building) is the subject of pledge (clause 1 of Article 446 of the Code of Civil Procedure of the Russian Federation).
In case of bankruptcy of citizens, the situation is similar. The Supreme Court of the Russian Federation confirmed this position and indicated that foreclosure is possible on a single residence, even if it was not the subject of a pledge.
Previously, the debtor could sell other real estate, leaving in ownership an object that was regarded as “luxury”. The courts of previous instances considered that it was impossible to foreclose on such an object, but the Supreme Court assessed it differently and decided that only living space that is vital for the debtor’s residence is not subject to foreclosure. But a luxurious mansion cannot be classified as such an object, so it can be sold as part of debt collection, with the provision of a minimum living space to the debtor.
No roof. The Ministry of Justice threatens citizens with deprivation of their only housing for debts
In February, the portal of legal acts will end the discussion of amendments to the Civil and Family Codes and to the federal law “On Legal Proceedings”, which allow the only housing to be taken away for debts . The author of the law, the Ministry of Justice, justifies its initiative by the decision of the Constitutional Court: now the only dwelling is inviolable , but the Constitutional Court indicated that an exception can be made for cases where the size of housing exceeds the average. They, by the way, are small: from 14 to 18 square meters of total living space per person .
Practical features and problems
Quite often, the debtor’s only housing is an object that clearly exceeds his needs. For example, a person with a debt of two million rubles lives in a private house in the city center with an area of 200 square meters and a cost of 20 million rubles. Obviously, such real estate is more than the minimum a person needs to live.
In this case, the house clearly exceeds the value of the existing debt. The amount from its sale would be enough for the debtor to purchase other housing and to pay the creditor. But the possibility of selling the property and purchasing other housing is not yet possible in practice.
Firstly , in municipalities there is often simply no available housing stock. At the time of sale of housing and before purchasing a new one, the debtor and his family members must live somewhere. The solution could be the provision of a municipal apartment, but they are not available as such, at least in the public domain.
Secondly , there is simply no clear legislative mechanism for such actions. It is not yet clear what the difference in the cost of existing housing and the one needed for living should be to implement the procedure, how to take into account the area of residence, infrastructure, cadastral value and other parameters.
However, the sale of a single residence at auction is permitted if it is the subject of a pledge. And here a certain contradiction arises. On the one hand, the right to housing is also violated, but on the other, the pledge agreement is a voluntary transaction, the conditions of which must be fulfilled.
When housing is not recognized as the only one
If the debtor has several residential premises, then the decision on which of them to exclude from the bankruptcy estate remains with the court.
In one case, the court refused to recognize an apartment worth more than 20 million rubles as the only housing, given that the debtor also had a house worth one million rubles (Resolution of the Arbitration Court of the North-Western District of October 4, 2017 in case A56-71357/2015).
In addition, the courts take into account where the debtor and his family members actually live. If other persons live in the debtor’s apartment, and he is registered and lives in another premises that is not his property, then the courts may include the disputed apartment in the bankruptcy estate (Resolution of the Court of Justice of the West Siberian District dated September 18, 2017 in case A03-4289/2016) .
Registration in more expensive housing just before bankruptcy will also not help, if the debtor previously lived in another premises and was registered there. Courts perceive such actions as abuse of rights.
How to challenge foreclosure on your only home
If foreclosure is carried out on housing, which is actually the only one for the debtor, you need to act depending on the circumstances. So, if the procedure was initiated by a bailiff, then the procedure is as follows :
- obtain a foreclosure order. The bailiff will send it by mail to the debtor after delivery. If the document has not been received, you can apply for it in person or apply for issue by mail;
- study the text of the resolution;
- prepare the text of the complaint. It is not recommended to write too long complaints; it is best to use a business style and present your arguments as briefly as possible;
- send a complaint against the actions of the bailiff to the court, a higher authority or the prosecutor's office.
The complaint must indicate that the foreclosure is illegal and the debtor does not have any other real estate. If the object is the subject of a pledge agreement, it should be indicated that the debtor has other property sufficient to fulfill the obligation. Otherwise, the complaint may not bring the desired result.
Download the application to appeal the bailiff's decision (sample/form)
The creditor can also file an application for foreclosure in court, as part of a lawsuit. Most often, such a claim is prepared with a simultaneous demand for collection of the debt amount, but can be filed separately.
The defendant has the right to file an objection to the statement of claim, present his arguments and evidence. It is not recommended to ignore the court, as this will not bring the desired result. Ultimately, the court will make a decision even if there is no defendant.
Legal assistance in preparing an objection/statement >>
The debtor can challenge the cost of assessing the property that is planned to be sold. To do this, it is necessary to conduct an independent assessment and file a corresponding application with the court. If necessary, an independent examination will be appointed.
Let's sum it up
The only housing, as a rule, cannot be the subject of foreclosure: it is not sold at auction to satisfy the needs of the creditor, since this would violate the citizen’s constitutional right to housing. However, if such housing is the subject of a pledge, or the court considers that its area exceeds the minimum required for living, then in such cases the sale is allowed. In other cases, real estate is used as part of enforcement proceedings in accordance with the general procedure.
Read: Can a creditor challenge a sale of property by a debtor?
