Foreclosure on the debtor's property
Chapter 7 of the Law on Enforcement Proceedings regulates the procedure and procedure for foreclosing on the debtor's property.
The procedure consists of the following steps::
identification;
arrest;
estimation;
keeping;
sale of the debtor's property.
Paragraph 1 of article 55 of the Law on Enforcement Proceedings indicates that foreclosure on the debtor's property includes its seizure and (or) its compulsory sale or transfer to the recoverer.
Due to the social significance of this stage of enforcement proceedings, these actions are often the subject of appeal.
In accordance with article 68 of the Law on Enforcement Proceedings, the bailiff, within ten working days from the moment of arrest and identification of the property belonging to the debtor, issues a resolution on the appointment of an appraiser by:
self-appointment of an appraiser;
appointment of an appraiser at the suggestion of one of the parties to the enforcement proceedings;
instructions from one of the parties to the enforcement proceedings to assess the debtor's property.
Payment for the assessment of the debtor's seized property is assigned to the parties to the enforcement proceedings and is subsequently reimbursed at the debtor's expense.
This stage does not cause difficulties in resolving disputes.
Typical errors at this stage of execution are:
acceptance of an unreliable assessment report;
violation of the auction procedure;
bidding more than twice.
In practice, cases of disagreement with a certain value of the debtor's property and with the conducted auctions are the most difficult.
When performing enforcement actions, bailiffs must comply with the recommended validity period of the assessment report.
For example, as part of the enforcement proceedings, the debtor's apartment was seized. On March 5, 2021, a decree was issued appointing a specialist to assess the seized property and a report on the market value of the property was prepared. On April 9, 2021, the court granted a stay of execution of the court's decision until September 1, 2021.
Due to its non-fulfillment, on October 7, 2021, the CHSI issued a resolution on the transfer of the seized property for sale with a selling value of 10,778,000 tenge. The courts declared the actions of the CSI illegal, since more than six months had passed since the assessment of the apartment (March 5, 2021) before the contested decision on the transfer of the apartment for sale (October 7, 2021), therefore, the amount indicated in the property assessment report at the time of the decision of March 5, 2021, was outdated (6001-22-00-6ap/100).
However, not in all cases the recommended duration of the assessment report is 6 months.
In accordance with paragraph 2 of Article 74 of the Law on Enforcement Proceedings, the bailiff, after the seizure and assessment of property and before the sale of property, simultaneously with reviewing the assessment report, grants the debtor, upon his written request, the right to independently sell the seized property within a period of no more than one month at a cost not lower than seventy-five percent of its estimated value, indicated in the assessment report, which has been completed no more than one year ago.
This provision provides for a longer period of validity of the assessment report in cases where the debtor exercises its right to independent implementation.
By virtue of paragraph 3 of Article 68 of the Law on Enforcement Proceedings, a party to enforcement proceedings who does not agree with the assessment may apply to the expert council for an opinion on the assessment in accordance with the Law of the Republic of Kazakhstan "On Evaluation Activities in the Republic of Kazakhstan" or appeal it to the court in accordance with the procedure established by the legislation of the Republic of Kazakhstan on administrative proceedings. A negative opinion of the expert council or the court's recognition of the assessment report as invalid is the basis for the appointment of a new assessment by the bailiff. If a negative opinion is issued by the expert council, the payment made by the customer for the examination of the assessment report is reimbursed by the appraiser who prepared the assessment report or by the legal entity with which the appraiser has concluded an employment contract.
The interpretation of this rule causes difficulties and varying application in local courts.
Previously, before the introduction of the APPC, in case of disagreement with the assessment according to part 6 of Article 250 of the CPC, the actions of the bailiff were subject to appeal.
Currently, due to the introduction of the APPC in case of disagreement with the assessment report, the plaintiffs are challenging both the report itself and the actions of the bailiff to accept the report.
The procedure for verifying the reliability of the assessment report by the expert council is regulated by Article 11 of the Law "On Assessment Activities in the Republic of Kazakhstan".
According to article 11 of the Law "On Valuation Activities in the Republic of Kazakhstan", in the event of a dispute about the reliability of the market value or other value of the valuation object specified in the valuation report, including in connection with another existing valuation report of the same object, an expert examination of the valuation report may be conducted. The evaluation report is reviewed by the expert council of the Chamber of Appraisers, of which the appraiser who conducted the evaluation is a member. The examination of the assessment report is carried out on the initiative of the customer and (or) a third party challenging the assessment report. The examination of the evaluation report is carried out at the expense of the party initiating the examination of the evaluation report. The examination of the assessment report is carried out on the basis of an agreement between the person challenging the assessment report and the Chamber of Appraisers.
Another way to appeal the assessment report is to go to court.
In accordance with paragraphs 15, 16, of the Rules, seized property is not put up for electronic auction without proper notification or familiarization of the debtor and the recoverer about the assessment and providing them with ten calendar days to appeal the assessment results. The calculation of the specified period begins from the date of notification or familiarization of the debtor and the recoverer about the assessment.
The question arises as to how the court should establish the reliability of the disputed assessment.
Different practices have developed in the regions.
The courts verify the legality of the accepted assessment report in the following ways:
appointment of an expert examination of the assessment report with referral to the expert council;
attracting a specialist;
the appointment of a forensic commodity examination for the independent determination of the value of the valuation object;
they independently verify the legality of the report and its compliance with the Valuation Standards "Valuation of real estate", approved by the Order of the Minister of Finance of the Republic of Kazakhstan dated May 5, 2018 No. 519.
For example, the valuation report estimated the market value of the disputed property at 137,170,000 tenge. The courts recognized the actions to adopt the report as illegal, since the debtor was not familiar with the assessment report, which led to a violation of his right to appeal the results and provide an alternative assessment report on the disputed property. Also, the appraiser did not include one of the three land plots adjacent to the store building in the assessed property, and the revenue assessment method was not applied (6001-22-00-6ap/237).
When analyzing the assessment reports provided by the parties to the enforcement proceedings, bailiffs need to ensure that the rights of the parties to the enforcement proceedings are respected.
For example, as part of the enforcement proceedings, the CSI ordered the debtor to provide a report on the valuation of his property, but refused to accept the report. The courts, having analyzed the report provided by the debtor, determined that the report correctly reflects the real market value of real estate. The reliability of the assessment report is beyond doubt, as the specialist has submitted documents confirming his qualifications and membership in the Chamber of Appraisers. The courts declared the assessment report accepted by the CSI invalid, obliging them to accept the report provided by the debtor (6001-22-00-6ap/566).
In accordance with article 5 of the CPC, the task of administrative proceedings is the fair, impartial and timely resolution of administrative cases in order to effectively protect and restore violated or disputed rights, freedoms and legitimate interests of individuals, rights and legitimate interests of legal entities in public relations.
Therefore, the appeal to the court with a claim is dictated by a violation of the rights of a person.
The legal consequences of an assessment report arise for a party to enforcement proceedings only from the moment this report is accepted by the bailiff to perform enforcement actions.
Thus, in case of disagreement with the assessment report, the actions of the bailiff on the adoption of this report are subject to appeal.
Based on the content of article 68 of the Law on Enforcement Proceedings, if a party to enforcement proceedings does not agree with the assessment, two methods of protection are provided.:
- contacting the expert council;
- appeal to the court.
When applying to the court, a legal assessment of the legality of the assessment report adopted by the bailiff must be given during the consideration of the case.
The court has the right to involve a specialist of the Chamber of appraisers in the case or independently analyze the assessment report adopted by the bailiff.
Referral of the case to the expert council leads to a delay in the consideration of the case and actually replaces another way of protecting the rights of the party who does not agree with the accepted assessment report.
In addition, court rulings on the referral of cases to the expert council are returned to the court without execution, since no payment has been made for the services of the expert council.
The appointment of commodity expertise by the courts also does not correspond to the tasks of administrative proceedings.
The determination of the market value of the seized property is within the authority of the bailiff. The methods are defined by paragraph 1 of Article 68 of the Law on Enforcement Proceedings.
Consequently, the actions of the bailiff in accepting the contested assessment report are subject to review by verifying the legality of this report.
These recommendations should be reflected in the NP of the Supreme Court "On the application by courts of certain norms of legislation on enforcement proceedings."
For example, the SCAD of the Supreme Court found the conclusions of the local courts on forcing the ICJ to accept the expert opinion drawn up by the court to be unfounded. When considering an administrative claim to appeal the actions of a bailiff, local courts have appointed a commodity expert examination of the object being sold. The Cassation Board, canceling judicial acts in this part, found that the appointment of a commodity examination by the court does not meet the objectives of administrative proceedings, delays the consideration of the case, is a procedurally unjustified decision leading to unnecessary court costs. Determining the market value of seized property is within the authority of a private bailiff, and their methods are defined in paragraph 1 of article 68 of the Law.
Due to the shortened recommended validity period of the assessment report (6 months), taking into account the appeal of actions to accept the assessment, bailiffs are forced to re-evaluate the case even after the court has reviewed the case. These actions impose additional costs on the debtor, violate the rights of recoverers to timely execution.
Based on this, in the case of forced sale of property, the recommended validity period of the assessment report should be extended to one year.
By virtue of paragraphs 1, 2 of Article 74 of the Law on Enforcement Proceedings, the sale of seized property, except for property withdrawn from circulation by law, regardless of the grounds for arrest and types of property, with the exception of property specified in paragraph 3 of Article 77 of this Law, is carried out by a bailiff at auction in the form of an electronic auction on a single electronic trading platform the state automated information system of enforcement proceedings or on a single electronic trading platform, the choice of which is carried out by the Republican Chamber in accordance with the procedure, determined by the authorized body.
The bailiff, after the seizure and assessment of the property and before the sale of the property, simultaneously with familiarization with the assessment report, grants the debtor, upon his written request, the right to independently sell the seized property within a period of no more than one month at a value not lower than seventy-five percent of its estimated value indicated in the assessment report, from the date of which it has passed not more than one year. The debtor's receipt of a permit for the sale of property is not a reason for suspending the procedures for the sale of property. The period of independent sale of housing is three months, during which the property cannot be put up for auction. The right to self-dispose of seized property may be used by the debtor no more than once in one enforcement proceeding.
This rule is applied by the HSI, there are no problematic issues.
For example, enforcement proceedings on foreclosure on land plots were under way. The CSI denied the debtor's right to self-realization. This refusal of the CSI was found to be inconsistent with the norms of the Law on Enforcement Proceedings, since the plaintiff, with the written permission of the bailiff and within the prescribed period, has the right to sell the pledged property at a value not lower than the estimated value established by the court decision (6001-22-00-6ap/575).
The largest number of administrative claims at this stage of enforcement proceedings is related to the appeal of the auction results.
The high social significance of this stage of enforcement proceedings causes the debtors to disagree with the sale of their property.
According to paragraph 14 of the Rules, the decision to put the seized property up for electronic auction is made by the bailiff, who issues an appropriate resolution.
For example, the courts cancelled the protocol on the results of the electronic auction, as it was signed by the EDS of the bailiff, who was not a participant in this enforcement proceeding. Thus, during the consideration of the case, it was established that after the transfer of property for sale, enforcement proceedings were transferred to another CSI (6001-22-00-6ap/156).
Paragraph 4 of article 85 of the Law on Enforcement Proceedings establishes that within the framework of enforcement proceedings, the procedure for the sale of seized property through an electronic auction may not be conducted more than twice. If the property is not sold through an electronic auction and the recoverer refuses to retain the property, foreclosure on the property is terminated and further measures are taken to foreclose on other property of the debtor.
Within the framework of enforcement proceedings, the procedure for the sale of seized property through an electronic auction may not be conducted more than twice.
If the property is not sold through an electronic auction and the recoverer refuses to retain the property, foreclosure on the property is terminated and further measures are taken to foreclose on other property of the debtor. In this case, the seizure of such property is lifted only after the termination of enforcement proceedings on the grounds provided for in Article 47 of this Law on Enforcement proceedings.
For example, the decision of the International Arbitration Court defines the procedure and method of its execution, it is explicitly prescribed to foreclose on the pledged property owned by A. and T. The pledged property is foreclosed. Auctions for the execution of this decision were held 4 times. The courts decided that the transfer of the seized property to auction for the fifth time directly violates the norm of the Law, since it does not imply a double understanding of its meaning and is imperative (6001-21-00-6ap/5).
Thus, based on the literal interpretation of the norms of the Law on Enforcement Proceedings, auctions for the sale of property within the framework of fulfilling the requirements of one enforcement document can be held no more than twice.
The return of an enforcement document by one bailiff and the subsequent initiation of enforcement proceedings by another bailiff does not give rise to the right to bid more than twice.
The parties to the enforcement proceedings will also appeal the bidding, citing a violation of the procedure and the participants' interest in the outcome of the bidding.
In accordance with paragraph 20 of the Rules, a person becomes a participant in an electronic auction from the moment the application for the EET is received.
Paragraph 2 of article 80 of the Law on Enforcement Proceedings stipulates that bailiffs and judges who issued a decision on this enforcement proceeding, an appraiser who assessed the seized property, as well as their close relatives, spouse, debtor cannot participate in an electronic auction as buyers.
This list is exhaustive and is not subject to extensive interpretation.
For example, the SCAD of the Armed Forces changed the judicial acts of local courts, recognizing the auctions as legitimate. The Board found that there were no violations during the bidding process. The property was sold for a value exceeding that provided by the debtor himself, no connection was established between the participants, the court decision has not been executed for a long time (6001-22-00-6ap/658).
However, if there is acceptable and reliable evidence of the bidders' interest in reducing the cost and violating the bidding procedure, the claim must be satisfied.
For example, the debtor's property in the form of a shopping mall and an apartment building has been transferred for sale. The only bidders, H. and A., were previously married, have children together and are registered at the same address, which casts doubt on whether the electronic auction was conducted in compliance with the principle of competition between potential buyers and they deliberately lowered the starting price. SCUD indicated that the participants H. and A. acted in bad faith during the bidding process (6001-22-00-6ap/752).
Thus, in accordance with paragraphs 1 and 2 of Article 85 of the Law on Enforcement Proceedings, when an electronic auction is declared invalid, the recoverer has the right to retain the property at the valuation value by submitting an application to the bailiff within five working days from the date of recognition of the electronic auction as invalid. The absence of a claim by the recoverer to retain the property is recognized as the recoverer's refusal to accept the property.
If the recoverer refuses to accept the property, the bailiff appoints an electronic auction procedure by re-placing the relevant application on a single electronic trading platform.
According to paragraph 5 of Article 319 of the Civil Code, when declaring auctions invalid, due to the participation of less than two buyers in them, the mortgagee has the right either to convert the pledged property into his own at its current estimated value, established by a court decision or a trustee on the basis of an assessment report, or to demand the appointment of new auctions.
It follows from the meaning of Article 319 of the Civil Code and Article 85 of the Law on Enforcement Proceedings that the bailiff is obliged to find out from the mortgagee whether he wishes to exercise his right to foreclose on the mortgaged property.
Transparency of the actions performed is important during this procedure. The debtor must be duly notified of the recoverer's intention to retain ownership of the property.
The organizer of the auction (the site) is also obliged to take measures to notify the auction in the media and other online platforms for the sale of property in order to attract the largest number of participants.
The organizer of the auction (the site) is also obliged to take measures to notify the auction in the media and other online platforms for the sale of property in order to attract the largest number of participants.
ANALYSIS of the Supreme Court of the Republic of Kazakhstan on the judicial practice of considering administrative cases challenging decisions, actions (inaction) of bailiffs for the second half of 2021 and the first half of 2022.
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