A review of previous case law.
- Ivan Nikolaev, attorney-at-law,
Content
I. The solution and problems
Amendments to the Code of Civil Procedure were promulgated in the State Gazette, No. 100 of 20.12.2019, which created a new paragraph 4 in Article 433, stating that "The lifting of attachments and the cancellation of foreclosures in respect of property sold in the course of enforcement proceedings shall have prospective effect.". This amendment of the procedural law was dictated by the Interpretative decision of 10.07.2018 in case No. 1/2015 of the SCCOTCby which the Supreme Court ruled that foreclosures after public sale are not lifted. But what actually were the problems?
In the operative part of item 3 of the interpretative decision of 10.07.2018 in case No. 1/2015, SCCOTC, it was accepted that "foreclosures shall not be deleted after a public sale of the property, except in the cases expressly provided for by law". This decision has led to numerous cases in practice in which purchasers of immovable property at public sales find themselves in a situation where they cannot have the foreclosures registered on the property's lot deleted, for example, because the judges of registry held that they did not have standing to seek such deletion and because the courts held that the grounds for deletion provided for by law were lacking. Most of the problems of practice and the controversy arose due to a misunderstanding of the reasoning of the interpretative decision and its purpose - that the injunction should retain the effect it has had since its imposition, since its deletion has retroactive effect1, and between the entry and the deletion there may be other entries (including claims to be granted), the sale may be declared void, etc. - all dangers that threaten both the buyers and the claimants. But at the same time, existing foreclosures are perceived as encumbrances in rem2, although they have only actions against the debtor and do not directly concern the buyer3. But this was perceived as a turnover problem, as there were massive refusals by banks to mortgage properties acquired at public sales with unliquidated foreclosures, and this in turn led to a flight from participation in public sales conducted not only by bailiffs4.
II. The practice
Several main opinions on the application of the Interpretative Judgment quickly emerged. First of all the practice of judges of registry to refuse deletion was overcomesince the buyers at the public sale were not legitimate to request such action within the meaning of Art. 31 para. (1) of the Rules on Entries, adopting the solution in the reasoning of the Interpretative Decision, that the purchaser of the public sale or his subsequent assignee may request, after the entry into force of the award decree, to delete the foreclosure order enteredif it is not opposed and does not defend rights, and the formal refusals of the judges of registry are unlawful (Order No. 141 of 17.07.2018 in case No. 3974/2015, d. c., II d. o. of SCC; Ruling No. 9084 of 11.04.2019 in Case No. 4635/2019 of Sofia City Court; Ruling No. 1136 of 12.06.2019 in Case No. 1201/2019 of Plovdiv District Court; Ruling No. 466 of 09.11.2019 in Case No.356/2018 of the District Court - Shumen; Ruling No. 466 of 30.01.2019 in c. g. case No. 27/2019 of the District Court - Yambol; Ruling No. 40 of 12.02.2019 in c. g. case No. 78/2019 of the District Court - Sliven, etc.).
Further, it is settled practice that although purchasers have standing to seek the expungement of foreclosures, if it is established that subsequent foreclosures have been imposed since the first foreclosure under which the public sale was conducted, the foreclosures cannot be expunged, if the claimants whose rights they are defending were not included in the distribution and remained unsatisfied (Order No. 177 of 12.10.2018 of the SCC in Case No. 1418/2018, II CC; Order No. 86 of 17.05.2019 of the SCC in Case No. 1590/2019, I CC.). The same should apply to the first foreclosure, if it defends the rights of joined claimants also left unsatisfied, since according to Art. 457, par. 1 of the CCP, they have the rights of the original claimants, which view is supported in Ruling No. 86 of 17.05.2019 in Case No. 1590/2019, SCC, 1st D.; Ruling No. 162 of 04.10.2019 in Case No. 3523/2019, SCC, 1st D.; Ruling No. 141 of 17.07.2018 in Case No. 3974/2015, SCC, 2nd D.. In the same sense is Ruling No. 407 of 20.09.2018 in Case No. 3316/2016, SCC, IV SC.which partly provides other solutions to the problems, namely that the conditions for the deletion of the encumbrance on the property should be established in the course of the enforcement proceedings, including pursuant to Article 435(4) of the CCP by appealing the bailiff's actions, or in the proceedings before the registry judge by submitting the necessary documents, pursuant to Article 31(2) of the Registration Rules.
A practice was also formed according to which refusals of bailiffs to delete foreclosures after public salesif the above conditions are present, are unlawfulsince the buyer has the right to waive the protection of foreclosure – Judgment No. 40 of 12.02.2019 in case No. 78/2019 of the District Court - Sliven; Judgment No. 182 of 29.07.2019 in case No. 501/2019 of the District Court - Dobrich. A practice was also formed in the opposite sense, namely that appeals by buyers at public sales against refusals by bailiffs to delete the attachments are inadmissibleas the actions (refusals) themselves are not subject to appeal - Order No. 18278 of 26.07.2019 in Civil Case No. 7068/2019 of Sofia City Court; Order No. 11381 of 13.05.2019 in Civil Case No. 5522/2019 of Sofia City Court.
Despite the described attempts to standardize the practice, according to what was accepted in The interpretative solution, absurd decisions also appeared in law enforcement, which, in wandering between the provisions, reached absurd conclusions, such as the opinion that the seizure imposed at the request of a creditor cannot be lifted after the sale again at his explicit request, because: "The fact that the seizure was entered precisely at the request of the enforcement creditor does not give him the right to dispose of the right of the third party, who acquired it from a public sale, to benefit from the seizure imposed in the IME proceedings." - Ruling No. 2684 of 12.09.2019 on civil case No. 1685/2019 of the District Court - Varna.
III. The changes
At first glance, it is strange that the Motives for the Submission of the Draft Law on Amendments and Supplements to the Civil Procedure Code, signature 954-01-11/28.02.2019, lack not detailed, but any explanations as to why it is necessary to supplement Art. 433 of the Civil Procedure Code with the new provision of para. 4, which states that "The lifting of attachments and the cancellation of foreclosures in respect of property sold in the course of enforcement proceedings shall have prospective effect.". This dismissive attitude is perhaps explained by the fact that the entire bill is focused on injunctive relief and unfair clauses in consumer contracts.
However, the lack of reasons also leads to the lack of adequate opinions on the draft law. For example, in the legal opinion with entry No. PG-9194-N-18/13.03.2019 on the Draft Law on Amendments and Supplements to the Civil Procedure Code, signature 954-01-11/28.02.2019 by the Law Firm "L. and p.", on p. 8, § 11, the opinion is expressed that the proposed amendment under "expediency" is "devoid of meaning to exist in the legal world". This was so because "In law, precautionary measures only have effect going forward. The same applies when they are lifted.".
Another opinion on the bill states that The settlement of the consequences of the deletion of the foreclosures should be interpreted as a legislative signal that the foreclosures are in fact subject to deletion in any case., i.e. as such for a departure from the decision adopted by the cited interpretative decision5. In my opinion, however, the opinion6that "the text needs refinement" is most correct, although it was also not taken into account, and the text was adopted almost without discussion in its initial version.
The meaning of the new provision lies in interpretative decision of 10.07.2018 on interpretative case No. 1/2015, OSGTK of the Supreme Court of Cassation and the corresponding contradictions in its application in practice. The generally accepted opinion is that the effect of foreclosure is broader than that of a mortgage, since the seizure provides the creditor with the opportunity to both be satisfied with the seized property and retain it in the debtor's patrimony and limits subsequent dispositions in order to secure the execution of other claims besides monetary ones. The norm of Art. 175, para. 1 of the Obligations and Contracts Act (OCA) applies only to mortgages and other real encumbrances, which the seizure does not. It follows from this that selling the property at public sale actually extinguishes the mortgages, but does not erase the imposed foreclosures by their extinguishment or cancellation.
The meaning revealed by the motives of the interpretative decision, is that the foreclosures actually "protect" the rights of the original and joined creditors, as well as the buyer at the public sale, from all subsequent foreclosure entries, according to Art. 453 of the Civil Procedure Code - the creditor and the joined creditors cannot be opposed to the transfer and establishment of real rights that were not registered before the foreclosure, decisions on claims subject to registration that were not registered before the foreclosure, rental and lease contracts, as well as all agreements granting the use and management of movable and immovable property, as well as mortgages registered after the foreclosure, on the basis of Art. 452, para. 1 of the Civil Procedure Code. Foreclosures registered after the first foreclosure, in turn, protect the rights of the joined creditors with respect to the foreclosed real estate. But the injunction can be unopposed to the listed acts only if it is registered.In this sense, as indicated, the deletion of the injunction until the amendments to the Civil Procedure Code had retroactive effect. (Decision No. 373 of 05.07.2019 on case No. 1383/2019, case number, II division of the Supreme Court of Cassation; Decision No. 105 of 25.01.2018 on case No. 4833/2016, case number, II division of the Supreme Court of Cassation; in the same sense are the reasons for the interpretative decision of 10.07.2018 on case No. 1/2015, OSGTK of the Supreme Court) – after its lifting, the next act subject to registration becomes the first in order. In this sense, if the public sale deleted the seizure, including the subsequent registered seizures, it was permissible to arrive at a hypothesis in which the property returns to the debtor's patrimony, but without registered seizures, "untying his hands" to dispose of it. Another possible hypothesis that the Interpretative Decision aimed to secure is in the case of claims registered after the seizure. The reverse effect of the deletion led to a hypothesis in which, in practice, before the registered decree for assignment, there is a registered claim, which, by virtue of the law, is first in order and unopposed against the subsequent transfer at public auction. This also applies to the debtor's subsequent dispositions after the seizure - if it is expunged, they actually become enforceable against the award decree, since property with third-party rights over it has been sold. In the name of legal certainty, security in turnover and effective judicial enforcement, the aforementioned dangers of the opposability of the order of entries were "preserved", as it was ruled that after the public sale, the foreclosures are not deleted, because by law they continue to protect rights, and their deletion has retroactive effect.
The new provision of Art. 433, para. 4 of the Civil Procedure Code, which states that "The lifting of attachments and the cancellation of foreclosures in respect of property sold in the course of enforcement proceedings shall have prospective effect.", actually solves the described problem with the reverse effect of deleting the prohibitions. The meaning of the provision is that regardless of the deletion of the injunction after the public sale, its initial entry continues to be opposable to all those acts entered after it until its deletion upon the public sale. The effect of this change actually continues to reflect the reasons for the interpretative decision. The buyer of the public sale “enters” simultaneously into the legal position of both the debtor, by acquiring his rights over the property, and into the legal position of the creditors – in the sense that everything that cannot be opposed to the creditors, according to Art. 451 and 452, 453 and Art. 496, para. 2 of the Civil Procedure Code, is not enforceable against him. The registered foreclosure ensures earlier enforceability of the buyer’s right of ownership under the public sale for the period from the date of registration of the foreclosure against persons who registered their acts regarding the real estate after that moment, until the registration of the award decree, and accordingly currently and until the deletion of the foreclosure.
The new provision of Art. 433, para. 4 of the Code of Civil Procedure is not a derogation from interpretative decision of 10.07.2018 on interpretative case No. 1/2015, OSGTK of the Supreme Court of Cassation, but a normative solution to the problems it describes and in the solution of which it is actually decreedWhen granting effect only in the future to the injunctions that are deleted after a public sale, the legislator "preserves" the effect between their imposition and the entry of the award decree. This preservation of effect actually allows the purchasers of the property to "waive" the protection of the foreclosure going forward. (as the aforementioned practice assumes), and this would not endanger the rights of the creditors, since upon cancellation of the public sale, the property would in fact return to the debtor's patrimony, when the deleted seizure is still in effect, within the meaning of Art. 433, para. 4 of the Civil Procedure Code. Therefore, the operative part of item 3 of interpretative decision of 10.07.2018 on interpretative case No. 1/2015, OSGTK of the Supreme Court of Cassationthat after the public sale the foreclosures are not deleted, no longer complies with the current law, and the decision in this part has lost its effect.
IV. Implementation ahead
Preservation of the consequences of the imposed foreclosure upon its lifting first of all, it defends the rights of creditors and buyers at the public sale, even when it is cancelled. The consequence of maintaining the effect of the seizure under Art. 433, para. 4 CPC would therefore exempt the bailiffs from liability, since the lifting of the seizure would not be unlawful, on general grounds under Art. 441 CPC. This also follows from the fact that in principle, after the real estate is cashed, it is exempt from execution. However, even if it is returned to the debtor's patrimony, the seizure will be considered imposed, even if it has been deleted. It can even be said that in this hypothesis, it will not be necessary to impose a new injunction when directing enforcement to it, but the practice in this direction has yet to be formed.
Upon the deletion of the injunction, which is effective for the future, each subsequent registered act will be subsequent to the deletion, and there will be no competition between them. Even if there are registered acts after the decree of assignment until the deletion, they are still subsequent to the injunction, and cannot be opposed to it.
The practice established to date should also remain relevant in some of the hypotheses discussed. First of all, this positively concerns the legitimacy of buyers at public sales to request the deletion of foreclosures and to appeal the refusals of the registration judges. The case law regarding the legitimacy of buyers to appeal the refusals of bailiffs to lift foreclosures is not affected by the regulatory change, and should undergo further development.
However, the practice of the courts, including item 3 of the operative part of the interpretative decision, concerning all unsatisfied creditors, creditors joined by law and with subsequent foreclosures, as well as creditors joined to the first foreclosure, should be abandoned as outdated. By law, in view of the new provision of Art. 433, para. 4 of the Civil Procedure Code, their rights are protected, and the preservation of the foreclosures would be meaningless, unless the buyers themselves request their preservation. This applies to both the first foreclosure and all subsequent ones, due to the language of the provision and the plural used – “the removal of the prohibitions".
From here follows the general conclusion that buyers of public sales can request their deletion both from the bailiffs and directly from the registration judges, regardless of the presence of unsatisfied creditors. The deletion of the foreclosures would not prejudice the rights of creditors or buyers. However, the deletion of the foreclosures should not be carried out ex officio just because of the public sale, even after the change in the Civil Procedure Code, but should be explicitly requested by a legitimate party, as stated in interpretative decision of 10.07.2018 on interpretative case No. 1/2015, OSGTK of the Supreme Court of Cassation.
Ivan NIKOLAEV, attorney-at-law
