Foreclosure on mortgaged property: legal mechanisms and key changes due to the imposition of martial law

This article explores key aspects of the foreclosure procedure from the perspective of protecting creditor rights.

Nature and legal characteristics of a mortgage

A mortgage is a pledge of immovable property whereby the property remains in the possession of the mortgagor or a third party (such third party being referred to as a property guarantor). A mortgage serves as a guarantee that the debtor intends to properly fulfill their obligations to the creditor. If the primary obligation is not fulfilled (either in whole or in part), the creditor has the right to foreclose on the mortgaged property.

The foreclosure procedure is governed by applicable legislation and may also be defined by the terms of the mortgage agreement.

Grounds for foreclosure on mortgaged property

Foreclosure becomes possible in case of a breach by the debtor of the terms or manner of performance of the obligation secured by the mortgage. The law provides that a creditor has the right to satisfy their claims through the sale of the mortgaged property only after properly notifying the debtor and fulfilling other procedural requirements.

To protect creditor rights, it is crucial to strictly comply with legal formalities — from properly executing the mortgage agreement to timely submitting claims to the court or enforcement authorities.

Methods of foreclosure on mortgaged property

Ukrainian legislation provides several foreclosure options, enabling the creditor to enforce their rights in the event of the debtor’s default:

• Judicial foreclosure

Foreclosure may be carried out based on a court decision. In such cases, the creditor files a claim with the court seeking foreclosure on the mortgaged property. Once a final and binding court decision is obtained, the enforcement service sells the property to satisfy the creditor’s claims.

It is important for the creditor to submit a complete set of evidence confirming the legitimacy of the claims and the legality of the foreclosure.

• Out-of-court foreclosure

There are also mechanisms allowing foreclosure without court involvement:

• Notarial writ of execution: if the mortgage agreement contains the relevant clause, a notary may issue a notarial writ of execution, which grants the creditor the right to enforce the debt against the mortgaged property without resorting to court proceedings.

• Agreement on satisfaction of mortgagee’s claims (mortgage reservation clause): such an agreement may provide for the transfer of ownership of the mortgaged property to the mortgagee or authorize the creditor to sell the property on their own behalf to any third party under a sale agreement. This expedites the satisfaction of creditor claims without judicial involvement.

Specifics of foreclosure under martial law

With the introduction of martial law in Ukraine, the legislature has temporarily restricted certain mechanisms for mortgagee rights enforcement, which directly affects the practice of foreclosure.

Specifically, during martial law, the following provisions of the Law of Ukraine “On Mortgage” have been suspended: 

• the mortgagee’s right to acquire ownership of the mortgaged property;
• the mortgagee’s right to sell the mortgaged property
• eviction of residents from mortgaged residential properties subject to court foreclosure decisions;
• sale of mortgaged property through electronic auctions or bidding platforms.

These restrictions apply primarily to: individuals, consumer loans, residential property that serves as the sole residence or is located in combat zones or has been damaged. Legal entities, individual entrepreneurs (FOPs), and commercial property are not subject to these restrictions.

For example, current court practice shows that in cases involving land plots (not designated for residential development) or non-residential buildings, courts often reject the application of the moratorium if the loan does not have consumer features.

The Supreme Court has affirmed that filing a foreclosure lawsuit is not prohibited under the moratorium. The moratorium mainly applies to out-of-court procedures and the enforcement stage (i.e., sale of the property).

Courts may grant foreclosure claims, but the execution of the judgment may be suspended if the property falls under the moratorium. Thus, creditors can record their claims even if actual enforcement is delayed.

Notarial writs of execution and agreements on satisfaction of claims are permissible only in cases where the property or the loan is not subject to the moratorium. Judicial practice demonstrates a balanced approach: courts examine whether the loan is truly consumer in nature and whether it falls under legal protections, and they allow foreclosure on property that does not meet the criteria covered by the moratorium.

Thus, despite existing restrictions, foreclosure on mortgaged property remains possible, but it depends on the legal status of the debtor, the nature of the loan, and the type of property involved. Judicial proceedings remain the most universal and secure tool for enforcing creditor rights.

In summary, while martial law imposes additional challenges in the protection of creditor rights, it does not deprive creditors of the ability to act lawfully and satisfy their claims.

Conclusion

Overall, foreclosure on mortgaged property is an effective tool for protecting the creditor’s rights in the event of the debtor’s failure to fulfill their obligations. Legislation provides for both judicial and out-of-court foreclosure mechanisms, allowing the creditor to choose the most effective option depending on the specific circumstances. At the same time, the successful enforcement of the creditor’s rights depends on compliance with the prescribed procedures, proper documentation, and accurate determination of the legal status of the debtor and the property.