Mortgage Foreclosure Defense: Where the Dispute Begins
Foreclosure of a mortgaged immovable begins when the owner delays satisfaction of the claim secured by the mortgage. It is from this moment that the relationship between the creditor (the mortgagee) and the owner becomes complicated, and the question arises: how can the owner protect the property securing the loan. At this stage Georgian civil legislation contemplates several distinct directions, and each of them is activated at a different time and with different instruments.
If the owner delays satisfaction, the mortgaged immovable may pass into the ownership of the creditor, provided the creditor and the owner apply to the registering body with a joint application to that effect. This decision is voluntary and occurs only by agreement of both parties. Where such a deal has not been concluded and the property does not pass into the creditor's ownership, a notary will issue an enforcement sheet on condition that an agreement exists between the parties and the notary has explained in writing in the notarial act the legal consequences of issuing the enforcement sheet — enforcement on the basis of such a sheet is carried out in accordance with the law on enforcement proceedings.
When the Claim Is Deemed Satisfied: Coverage Rules
Upon the transfer, the claim secured by the mortgage is deemed satisfied even where the value of the mortgaged immovable does not fully cover the amount of that claim, unless otherwise provided by law or agreement of the parties. This means that under the default rule the creditor can no longer claim the shortfall part of the claim not covered by the value of the property — which is why it is important for the owner that no other agreement has been accepted.
A special coverage rule applies where the lender is not a subject supervised by the National Bank of Georgia and the loan was granted to a natural person, including an individual entrepreneur: in that case the claim is deemed satisfied even where the value of the mortgaged items and the objects of pledge does not fully cover the secured claim, and a different agreement between the parties is impermissible. A natural person thus enjoys additional protection against a non-bank creditor.
The Demand for Realization and the Auction
If the debtor does not satisfy the claim, the mortgagee is entitled to demand realization of the immovable, unless the mortgage contract provides otherwise. Realization is carried out under the rules established by civil legislation and the law on enforcement proceedings. The parties may agree on a different procedure for holding the auction, but only taking into account the individual requirements established by law — which is why having a specialist check such a clause in the contract is essential.
At the auction stage time is a critical factor: if no appropriate offer is made during the first auction, the specialist schedules a second auction within a period of 10 days. In other words, very little time remains between the first and second auction, and every decision — cancellation, refinancing or settlement — must be taken within this short window.
Avoiding the Auction
The most direct route to averting foreclosure is connected with satisfying the claim before the auction. The owner, or any person with the owner's consent, as well as a third party whose right may be violated as a result of the auction, has the right to avoid the auction by satisfying the claim before it is held. This instrument is particularly important for those for whom the property is a mainstay but who temporarily cannot pay: covering the debt through the intervention of a third person is a lawful route.
At the same time, the fact of violation of a third party's right is established by a court. This means that if the auction threatens a person who has their own right over the property, the basis of their protection is established by a court decision, and an application to the court in this respect creates an independent line of defense.
Protection of the Owner Who Is Not the Personal Debtor
Separate protection belongs to the owner who is at the same time not the personal debtor of the claim secured by the mortgage. In that case the owner may nonetheless raise against the mortgagee the defenses that only the personal debtor has, including defenses arising from the set-off of monetary obligations and from the dispute of the claim. In other words, the property protects its owner even when the debt belongs to someone else: a parent's apartment, for example, should not fall into foreclosure because of a child's debt, where the parent is not the personal debtor.
In such a case the rule on notice is also significant: if the term of performance of the claim depends on notice of termination of the legal relationship, the termination is genuinely deemed to have occurred only when the owner declares it to the creditor, or the creditor to the owner. A non-debtor owner should therefore receive every notification in writing and with confirmation.
Distribution of Proceeds and Further Steps
Where foreclosure nevertheless takes place, the rule on distribution of the proceeds matters: out of the income received from the realization of the mortgaged immovable, claims must be covered in the following order: the costs, then the creditor's claim in full. If the proceeds do not fully cover the costs, the obligation to pay the difference lies on the creditor. This rule determines what remainder is left for other claims and to what extent the owner has the possibility of claiming the residual value remaining after realization.
A correct strategy of mortgage foreclosure defense begins with an analysis of the contract and the payment history and ends with the choice of the appropriate instrument at the concrete stage — averting by satisfaction, raising defenses, or challenging the lawfulness of the auction. Every one of these steps requires timely and documented action. The attorneys of Legal.ge will assist you in defending at every stage of mortgage foreclosure.