How to choose the right mortgage foreclosure method?

In the event of a default, financial institutions are primarily interested in returning funds as quickly as possible. Therefore, in the majority of cases, creditors are very reluctant to go to the court, because trials may last for years.

Ukrainian legislation provides for several ways how the creditor can do this. The most common mortgage foreclosure methods are: 1) selling the property by the bank to a third party, or 2) acquiring the ownership of the mortgage by the bank and then selling it.

The first method – selling the mortgaged property by the creditor to the third party – has its own advantages. Firstly, the creditor does not need to become the owner of the real estate and account it in its book of records. Secondly, the creditor may receive the monetary funds directly from the buyer.

The risks connected with such type of foreclosure are the following:

1. review of the mortgage agreement. If it is written that such foreclosure method may be executed only through a court, the creditor cannot do so in out-of-court procedure (that was stated in the Resolution of the Supreme Court of 29 May 2019 in Case No. 310/11024/15).
2. the price of the real estate shall be determined by the independent certificated appraiser. Such price shall not be lower than the market price for the same property. In other case, the creditor will be liable to the debtor for compensating the difference between the sale price of the mortgaged property and the market price for it.

The second method is acquiring the ownership of the mortgage by the bank. This is the fastest and the most secure way for the creditor. Firstly, the bank becomes the legal owner of the property and can be sure that nothing will happen to it, like potential unauthorised actions with the real estate. Secondly, such type of foreclosure may be initiated only in out-of-court procedure (that was stated in the Resolution of the Supreme Court of 18 October 2018 in Case No. 910/17423/17).

It is worth noting that the price of the real estate should be also determined by the independent certificated appraiser. In such a case, it is important to ensure that price is equal to or lower than the amount of a debt. Otherwise, the creditor will have to return the price difference to the debtor.
There are other issues that need to be taken into account by the creditors before choosing the appropriate foreclosure method, for example, obtaining permission from the Antimonopoly Committee of Ukraine, taxation, currency regulation, etc.