Bankruptcy of individuals with a mortgage

What does stopping mortgage payments mean?

Banks respond to even minimal mortgage underpayments very quickly - usually within a few days. If there is no monthly payment at all, the strictest measures will be taken - they are written down in the loan agreement and can be reviewed at any time.

In case of arrears on a mortgage, the bank takes a number of standard actions one by one:

1. Notifies the borrower of the debt.
   As a rule, you receive daily SMS and calls from bank employees.
2. Imposes fines and penalties.
   Their size is determined by the loan agreement. A penalty is charged on the amount of the overdue payment for each day of delay, and the fine is usually expressed as a percentage of the value of the collateral.
3. Goes to court.
   If the decision is positive, the mortgaged apartment will be seized. Next, the bank can sell the property at public auction to pay off the debt.

Often, before going to court, banks turn to collection agencies.

In accordance with the Civil Code of the Russian Federation (Article 388), this requires the consent of the borrower. If he did not give it, the actions of the collectors are illegal or fraudulent - you need to clarify the company and check it through the registry, and, if necessary, send a complaint to the Federal Bailiff Service of Russia (FSSP) and law enforcement agencies.

If you don’t pay your mortgage debt at all, a delay of more than two to three months is considered critical. Until this time, the bank usually limits itself to fines, and the conflict can still be resolved peacefully.

If you do get evicted, what to do: expert opinion

The trial and the decision made not in favor of the client mean that the debtor is obliged to vacate the home. Evictions are handled by bailiffs. In the first case, the parties agree on a date for the voluntary transfer of keys. In the second, the procedure takes place in the presence of supervisory authorities (police, Ministry of Emergency Situations, prosecutors) and witnesses.

IMPORTANT! It will be possible to avoid the initiation of enforcement proceedings to foreclose on a mortgage if the citizen (defendant), after a court decision, is able to fully repay the debt to the bank within the established time frame. Also, at the initiative of the mortgagor, if there are good reasons for the delay, the court, upon application, may postpone the execution of the decision for a period of up to 1 year. If during this time the debt is repaid, the court decision will be canceled

To avoid being evicted for mortgage debts, you must independently notify the other party to the mortgage agreement in advance, always make contact with bank employees, do not try to evade payment, and provide official confirmation of loss of solvency. Most banks are loyal to such clients and make concessions, offering deferred or installment payments.

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In situations where the trial did take place, but the debtor does not agree with the verdict, you can always challenge the decision. You can appeal it in the appeal, and if necessary, in the cassation procedure.

If, nevertheless, the apartment is taken away for mortgage debts, legal experts advise:

• try to negotiate with the creditor again;
• until enforcement proceedings have begun, sell the apartment on your own and pay off your debts (but, with the permission of the bank -);
• find an experienced lawyer and find a “clue” in the contract to file a counterclaim. This is especially true for situations where banks do not engage in dialogue and refuse assistance, for example, debt restructuring. The petition will help delay time, which will make it possible to find funds to pay off the debt and avoid eviction from the apartment for mortgage debts.

IMPORTANT! If the apartment is sold at auction, the money received goes to pay off the debt, interest, fines, and the remaining funds (if any) are handed over to the debtor client.

Situations when a bank sells an apartment for mortgage debts are a common occurrence. In order to protect himself and his family from forced eviction, the borrower is obliged to make payments on the debt and accrued interest on time and in full.

However, there are often cases when a client has difficulties with payment. After all, the mortgage amount is often an order of magnitude higher than the fees for regular consumer loans. To avoid ending up on the street, citizens facing temporary financial problems are advised to negotiate with a lender.

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Author:

Mortgage specialist Maria Yurievna Sokhan

Date of publication May 13, 2020 May 13, 2020

What to do in case of delay

From the moment of the first late payment, the borrower has 3 months to peacefully negotiate with the bank to repay the debt. This is usually followed by a lawsuit from the creditor demanding the seizure of the mortgaged apartment.

Important

As soon as a delay occurs, the borrower needs to immediately notify the bank - send a written statement detailing the circumstances of their financial problems. Written evidence should be attached to it (a copy of the work record book, an extract from the medical history, etc.).

If you stop paying your mortgage and don't contact the bank, this will only worsen the situation. Then the creditor will have more reasons to quickly file a lawsuit and take away the apartment.

There are several ways to resolve a conflict with the bank and not bring the matter to court. In some cases, you can not only keep your apartment, but also have fines written off.

Option 1. Apply for a mortgage holiday

This way you can get a deferment on payments for up to six months (based on Federal Law 76 of May 1, 2021). This will give you time to improve your financial situation and return to payments. There is a nuance - vacations apply only to residential premises, they cannot be issued for apartments.

To receive a vacation, a number of requirements must be met:

• initial loan size - up to 15 million rubles;
• the mortgaged apartment is the only housing;
• vacations are issued under this agreement for the first time;
• There has been no previous restructuring.

The borrower applying for a mortgage holiday must be in a difficult life situation (loss of job, illness, disability, temporary disability, decreased income). The poor financial situation must be documented. If all conditions are met, the bank will not refuse the deferment.

Detailed information about mortgage holidays, their conditions and the procedure for obtaining them can be found in the article “I urgently need a mortgage holiday! What to do?".

Option 2. Restructure the mortgage

Restructuring means changing the terms of the loan in favor of the borrower. It should not be confused with refinancing. Unlike the latter, restructuring is carried out only in the bank where the mortgage was issued, and is possible in case of delay. For the bank this is a voluntary procedure; forcing it to make no concessions will not work - you will have to negotiate.

With restructuring you can:

• receive a deferment of principal payments for a specified period (usually 3–6 months) with the condition of changing the schedule and recalculating interest;
• reduce the monthly payment by increasing the loan term;
• add the overdue debt to the principal amount.

During restructuring, the bank may agree to cancel the accrued fines and penalties, or at least part of them. The final decision depends on the policy of the organization and the specific situation in which the borrower finds himself. The main thing is to be able to convince the lender that the difficulties are temporary and solvency will be restored within the agreed time frame.

Instructions for completing a restructuring in a bank with examples and sample applications can be found in the article “How and why to restructure a mortgage.”

Option 3. Terminate the loan agreement without court

If it is necessary to terminate the contract, it makes sense to negotiate with the bank. If the majority of the mortgage debt is paid off, he may agree to do so out of court.

Upon termination of the contract, the borrower will be obliged to repay the entire remaining debt with accrued interest - the best option would be, with the consent of the lender, to independently sell the apartment at market value and pay off the debt. This will allow you to earn more money than when selling real estate by a bank through public auction.

What actions to take to prevent eviction

It is the borrower’s responsibility to avoid delays on any loan product, including a mortgage. If situations arise related to a decrease in official monthly income, it is recommended not to bring the matter to litigation, but to use one of the legal ways to support clients who find themselves in difficult financial situations:

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1. Debt restructuring. Suitable for those who are ready to fulfill financial obligations, but on a smaller scale. This method is a kind of installment plan. The loan term increases, and the amount of monthly payments decreases.
2. Credit holidays. An option for those who suddenly find themselves in a difficult situation. According to the program, the bank provides deferred payment for up to 6 months (). Then payments are resumed in the same amount. In other words, the payment schedule is shifted to six months and payments on the body of the debt are suspended for a specified period of time.
3. State programs. For example, foreign currency mortgage. If the exchange rate of the national currency (ruble) collapses, borrowers have the right to debt relief.
4. Forgiveness (write-off) of part of the debt, interest, full/partial cancellation of fines. Such situations are extremely rare. To do this, the client will have to collect a serious evidence base of decreased solvency. You may need to seek the services of qualified lawyers.

To avoid being evicted for mortgage debt, you must notify the bank that temporary financial difficulties have arisen and take advantage of a suitable customer support program. You also need to collect a package of documents. Depending on the factors that influenced the decrease in income, it may include:

• work book with a notice of dismissal;
• certificate of incapacity for work;
• death certificate;
• a copy of the court verdict on choosing a preventive measure in the form of detention;
• order from work about job reduction, etc.

These papers may also be needed in court if the problem cannot be resolved peacefully.

If the bank does not make concessions

If the bank refuses mortgage holidays and restructuring, the borrower remains with a small chance to change the terms of the mortgage loan agreement (or terminate it) due to a significant change in circumstances

according to Art. 451 of the Civil Code of the Russian Federation.

Important

Amendment of the contract due to a significant change in circumstances is permitted by a court decision in exceptional cases when termination of the contract is contrary to the public interests or will entail damage for the parties that significantly exceeds the costs necessary to execute the contract on the terms changed by the court.

The contract must be changed or terminated in court. This is a complex process that requires the assistance of a qualified lawyer - borrowers who are already experiencing financial difficulties rarely resort to such a measure. At the same time, cases of positive court decisions with termination under Art. 451 of the Civil Code of the Russian Federation are extremely rare.

Under what circumstances can an apartment be taken away?

The right to withdraw and sell a mortgaged apartment is established by the Civil Procedure Code of the Russian Federation (Article 446) and Law No. 102-FZ “On Mortgage (Pledge of Real Estate)” (Article 50). When taking housing for debts, banks are guided by the Civil Code of the Russian Federation (clause 3 of Article 348).

There are two conditions for foreclosure of pledged property:

• if the debt is more than 5% of its value;
• if payments are overdue for more than three months.

If these conditions are met simultaneously, the creditor can go to court and demand the seizure of the property. In other cases, foreclosure is first applied to cash and movable property.

Previously, creditors could take away the mortgage debtor’s housing, referring to clause 4 of Art. 348 of the Civil Code of the Russian Federation, but the Supreme Court of the Russian Federation made clarifications when banks should not take away a mortgaged apartment:

• if the debtor committed an extremely minor violation;
• if the amount of the pledgee's claims is disproportionate to the value of the pledged asset.

Important

Your only home can also be taken away for mortgage debt. The fact that children, large families, disabled people and other socially vulnerable citizens are registered in the apartment will not be an obstacle to eviction. According to Art. 95 of the Housing Code of the Russian Federation, after eviction, tenants must be relocated to the premises of the maneuverable fund.

Banks resort to repossession of an apartment as a last resort - this takes a long time and does not guarantee that after the sale it will be possible to repay the entire debt. Borrowers rarely agree to give up their property voluntarily, and legal proceedings require resources and last on average 3-6 months.

How does the foreclosure procedure work on mortgaged housing?

Eviction for mortgage debt is preceded by an attempt to resolve the issue amicably. To do this, banks offer clients one of the options for resolving the dispute out of court. Relaxations include credit holidays, debt restructuring, participation in programs with government support, etc.

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If it is not possible to find a solution that satisfies all participants in the process, the bank prepares and submits documents to the court. The algorithm is as follows:

1. Consideration of a claim in court.
2. If the decision is positive in favor of the lender, open tenders for the mortgage are announced.
3. If the apartment cannot be sold at public auction, it is placed on the bank’s balance sheet. Subsequently, the financial institution can keep it for itself or sell it at its own discretion ().

Also, the obligation to pay the balance of the mortgage debt rests with the client even if the bank repossesses the home. We are talking about the difference between the assessment amount of the apartment (house) and the amount under the mortgage agreement. At the same time, the amount of debt stops growing, and fines stop accruing.

Visually, the situation may look like this: citizen Mikhail P. has a debt of 1,500,000 rubles. The bank took away his apartment for mortgage debts, put it on its balance sheet and valued it at 1,200,000 rubles. The difference in value between the amounts is not in favor of the debtor, therefore, he will have to pay the balance of the debt in the amount of 300,000 rubles.

IMPORTANT! Eviction due to mortgage debt is permitted by law only on the basis of a court decision.

Apartment appraisal and auction

The seized apartment is initially put up for public auction at the collateral value specified by the bank when issuing the loan - it is almost always lower than the current market value. The borrower can obtain a revaluation of the property by submitting an expert opinion or appraiser's report at the time of the trial.

If it was not possible to sell the apartment in the first month of bidding, the cost of housing is reduced by 15%, after which a new auction is scheduled. At the end of the second month, the bailiffs reduce the price to 25% of the original price. The price will not change anymore, the auction will continue or the unsold property will be returned to the bank - but it rarely comes to this. Usually an apartment is bought 1–2 months after the start of bidding.

Debt repayment after sale

The proceeds from the auction will be used to pay for:

• principal amount of the loan;
• accrued interest;
• legal and other costs for collection.

After selling the apartment at auction, paying off all debts and paying expenses, a certain amount may remain - in this case, it will be returned to the borrower through the bailiffs.

If the money from the sale of the mortgaged apartment is not enough to cover the entire debt, then its balance is written off on the basis of the Law “On Mortgage...” (Clause 5, Article 61). The borrower's obligations cease here.

How courts make decisions on mortgage apartments

1. If a bankruptcy procedure is opened against a citizen who owns several apartments or houses, the claims of creditors can be satisfied, including at the expense of residential real estate.
2. The judge will independently determine which housing to leave to the bankrupt, and which to sell at auction to pay off creditors’ claims.
3. It is necessary to take into account the interests of both creditors and the debtor himself along with his dependents.
4. If the debtor has re-registered the apartment in the name of his relatives and the bank wants to challenge this transaction, then provided that he and his family members live together in the disputed housing, and this housing is the only one they have, indicates that there are no signs of harm to the creditors by the transaction, which is the basis for refusing to satisfy the request to declare it invalid in a bankruptcy case.
   In other words, if members of the debtor’s family did not own any housing before the transaction to transfer real estate in their favor, then the court cannot cancel the transaction and invalidate it.
5. In accordance with Article 446 of the Civil Code of the Russian Federation, it is impossible to take away the only housing from debtor citizens, even during bankruptcy proceedings. After all, so-called property immunity is legally established for him. The exception to this rule is mortgage debt. If the only home purchased by the debtor with a mortgage and is secured by the creditor bank, it can be seized in favor of the creditor. Including during the bankruptcy process. To do this, the court must make an appropriate decision.

Memo - how to behave as a mortgage debtor

• Notify the bank in writing immediately after it becomes clear that it is no longer possible to service the loan - it is better to do this before the next monthly payment.
• Discuss with the bank possible options for a peaceful resolution of the issue - mortgage holidays, restructuring, out-of-court termination of the contract with the sale of the apartment by the borrower himself at the market price, and not through auction.
• If the bank does not make concessions and demands the debt, you can try to change the agreement through the court due to a significant change in circumstances under Art. 451 of the Civil Code of the Russian Federation, but the chance of success is low.
• If a bank forecloses on a mortgaged apartment during a trial, it is possible to obtain a revaluation of the collateral value of the property by submitting an expert opinion or an appraiser's report. This will allow you to get more money for housing and, possibly, return the difference when covering the debt.

How does a bank seize an apartment for non-payment of the mortgage?

You may find yourself on the street, even if the mortgaged apartment is your only home. In the case of a secured loan, the constitutional guarantee of the right to housing does not apply.

According to the Mortgage Law, the bank has the right to terminate the contract if monthly payments are not paid for three months. And also if deadlines are violated more than three times in a year.

In order to take the apartment, the bank only needs to prove two facts:

- he provided you with a loan,

- you have violated contractual obligations.

The creditor notifies the debtor of his actions one month in advance. You can cooperate and reach an agreement with the bank out of court. Or choose a lawsuit, then the apartment is put up for auction by court decision. The good thing about resolving a conflict in court is that it can grant a deferment of collection for up to one year.

The selling price of an apartment is determined at auction or is the result of an agreement between the two parties. Proceeds from the sale will be used to cover debt and related costs.