Who gets paid first: the bank or the state?

The priority is strictly determined by the date of registration in the Public Registry. If the bank's mortgage was registered before the tax mortgage, the bank gets paid first. If the tax lien was registered first, the state takes priority.

Can I buy an apartment with a tax mortgage on it?

You can, but it is highly risky. A tax mortgage is attached to the property itself, not just the previous owner. If the previous owner does not pay their tax debt, the state can force the auction of the apartment you just bought.

How can a tax mortgage be removed?

A tax lien or mortgage can only be legally removed by fully paying the tax debt, or by reaching a restructuring agreement with the Revenue Service and providing alternative collateral.

Realization of Property Encumbered with Tax Lien / Mortgage

Introduction: The Essence of Tax Liens and Mortgages

The realization of property encumbered with a tax lien and mortgage is one of the most complex and specific areas of enforcement law. When an individual or a company accrues a tax liability (unpaid taxes) to the state, the Revenue Service has the right to place a tax lien (on movable property) or a tax mortgage (on real estate) on the debtor's property to secure the debt. This right arises automatically as soon as the tax obligation is incurred and is registered in the relevant registry. The forced realization of such property is carried out so that the state budget can recover its rightful funds. The problem and complexity lie in the fact that often, on the exact same property, alongside the tax burden, there is a regular mortgage or pledge belonging to private creditors (banks, individuals). Therefore, the property realization process requires strict adherence to the priority of claims and the active protection of private creditors' interests to ensure the state does not take all the proceeds from the auction.

What this Enforcement Service Includes

The service involves a complex set of legal actions related to the forced sale of property bearing a tax burden. The service covers the complete monitoring of the process—starting from the submission of the tax claim by the Revenue Service to the National Bureau of Enforcement, concluding with the realization of the property at auction and the distribution of funds. In the case of private creditors, lawyers ensure the confirmation of the creditor's privileged rights to protect the priority of registration in the Public Registry. The service includes a critical analysis of the property appraisal process, verifying the legality of the auction proceedings, and, if necessary, conducting negotiations with the Revenue Service to restructure the tax liability or lift the tax lien (if the debtor pays a certain amount). This is a process where the public interest of the state collides with the financial rights of private individuals.

Common Practical Scenarios

In practice, the most common scenario unfolds during the bankruptcy or serious financial crisis of business companies. For example, a company has a bank loan secured by a mortgage on its industrial space, while simultaneously accumulating unpaid VAT or profit tax liabilities. The Revenue Service places a tax mortgage on the same property and initiates enforcement. At this point, the bank (or private creditor) is forced to intervene in the process so that its share is not lost during the property sale. Another scenario is when an individual buys real estate on which a tax mortgage is registered due to the seller's tax debts. If the buyer does not check this in time, the state is authorized to sell this property at auction against the will of the new owner. In such times, the involvement of a lawyer is vitally necessary to save the property.

Georgian Tax and Enforcement Legislation

The primary act regulating tax liens and mortgages is the Tax Code of Georgia, while enforcement procedures are defined by the Law of Georgia on Enforcement Proceedings. According to the Tax Code, the state's right to a tax lien/mortgage arises from the moment the liability occurs. However, relative to other creditors, the priority order is determined by the date of registration in the Public Registry. This is a crucial nuance: if a private individual or a bank registered their mortgage before the registration of the tax mortgage, upon the sale of the property at auction, the private creditor is satisfied first, and only the balance goes to the budget. If the opposite is true, the budget debt is covered first. The enforcement of the tax authority's claim is always carried out by the National Bureau of Enforcement (a state structure) and not by a private enforcer, adding additional specificity to the process.

Stages of Property Realization and Auction

The realization process begins with the Revenue Service applying to the National Bureau of Enforcement. The enforcer attaches the property and appoints an expert appraisal to determine the market price. Private creditors receive notification at this stage and are required to present documents confirming their claims. The property goes to a public electronic auction. If the property is not sold at the first auction, a second auction is scheduled with a reduced price. After the conclusion of the auction, the enforcer drafts a fund distribution project (an order), distributing the received funds to cover enforcement costs, tax liabilities, and other registered creditors in strict compliance with the priority order established by law. In case of a violation of priority or incorrect distribution, the parties have the right to appeal the enforcer's actions in court.

Problematic Issues and Priority Disputes

Most disputes and problems during the realization of property encumbered with a tax mortgage are related precisely to the priority order of satisfying claims. Often, the tax debt is so large that the proceeds from the property's realization only cover the budget debt, leaving subsequent-tier private creditors empty-handed. A qualified lawyer verifies the legality of the tax lien registration, analyzes whether the tax claim is past the statute of limitations, and fights to advance the client's (private creditor's) claim. Furthermore, selling property bearing a tax burden is difficult because potential buyers are wary of property disputes involving the state, which leads to an artificial drop in the property's price at auction, harming both parties.

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