The pledgee (creditor) must be clearly guided by the rules for the forced extrajudicial sale of the pledged property, if the pledger (borrower) does not properly fulfill obligations. When can forced extrajudicial sale of pledged property be carried out? What is required for forced out-of-court implementation? What documents need to be prepared and when?
Realization (sale) of the pledged property, provided for by Article 319 of the Civil Code of the Republic of Kazakhstan (General Part), is carried out by sale at public auction.
Article 20 of the Law of the Republic of Kazakhstan "On Mortgage of Real Estate" provides for ways to implement mortgages. If the debtor fails to fulfill the principal obligation, the pledgee has the right to satisfy his claims by:
- implementation of a mortgage in a judicial proceeding;
- implementation of a mortgage out of court, if it is provided for by legislative acts or in the contract, or subsequent agreement of the parties;
- conversion of the pledged property into one's own property in the event that the auction is declared invalid.
WHAT IS THE PROCEDURE FOR THE SALE OF MORTGAGED PROPERTY?
Features of the sale of pledged property in a compulsory extrajudicial procedure are established by the Civil Code of the Republic of Kazakhstan and the Law "On Mortgage of Real Estate". At the same time, the rules and procedures established by this Law for the sale of mortgages apply to the sale of property in the performance of other types of pledge (for example, movable property), unless otherwise provided by the Civil Code.
CONSEQUENCES OF NON-COMPLIANCE WITH THE RULES OF EXTRAJUDICIAL IMPLEMENTATION
Compliance with the established procedure and sequence of out-of-court sale of pledged property by holding an auction is important, because non-compliance with these rules for out-of-court sale of pledged property can lead to the recognition of the auction as invalid if it is challenged by the pledgor, and therefore to a delay in the procedure for repaying the debt.
WHEN IS THE MORTGAGEE ENTITLED TO SELL THE PLEDGED PROPERTY OUT OF COURT?
In accordance with paragraph 2 of Article 318 of the Civil Code, the pledgee may independently sell the pledged property in a compulsory out-of-court procedure by holding a tender (auction), if this right is provided for by the pledge agreement. The pledgee bank has the same right to sell the collateral that secures the loan.
Cases when the out-of-court realization of a pledge is not allowed are established by law .
WHO CONDUCTS THE EXTRAJUDICIAL SALE OF THE PLEDGED PROPERTY?
According to Article 320 of the Civil Code and Article 25 of the Law "On Real Estate Mortgage", when selling pledged property in a forced out-of-court procedure, auctions are held by a trustee, which is a legal entity or a citizen who has a power of attorney from the pledgee to sell the pledged property.
Paragraph 2 of Article 24 of the said Law stipulates that the trustee may be determined by the parties in the mortgage agreement. If the trustee is not specified in the mortgage agreement, it is appointed by the mortgagee.
PROCEDURES TO BE FOLLOWED BY A TRUSTEE WHEN SELLING THE PLEDGED PROPERTY
The trustee, in accordance with paragraph 2 of Article 320 of the Civil Code, must perform the following procedures:
- draw up notifications to the pledgor of non-fulfillment of obligations and register it with the body where the pledge agreement was registered;
- if the requirements arising from the notice are not satisfied, but not earlier than 30 days from the date of its sending to the pledgor, draw up notices of auctions for the pledged property, register it with the body where the pledge agreement was registered, and hand it to the pledgor or send it to the pledgor by registered by letter to the address specified in the pledge agreement;
- Officially publish a bidding announcement in the local press. Paragraph 4 of Article 25 of the said Law states that at least 10 days must pass from the moment of the first publication of the announcement of the auction to the moment of their holding.
REQUIREMENTS FOR THE PLACE AND TIME OF THE AUCTION
In accordance with Article 29 of the Law "On Mortgage of Real Estate" auctions:
- are held in a populated area (city, district, township, aul, village) at the location of the pledged property;
- scheduled for any day of the week from 9 a.m. to 6 p.m.
NOTICE OF DEFAULT
A notice of non-fulfillment of obligations must contain the following information, provided for in Article 26 of the Law "On Real Estate Mortgage":
- name (name) and place of residence (location) of the pledgor;
- name (name) and place of residence (location) of the pledgee;
- a summary of outstanding obligations;
- summary decoding of the main obligation;
- a summary breakdown of all other fees, costs and expenses that must be paid by the mortgagor before the possible sale of the pledged immovable property;
- an offer to fully repay all debts within thirty days of receipt of the notice;
- a warning about the possibility of bidding for real estate that is the subject of mortgage;
- a condition on the right of the mortgagor for a mortgage housing loan, who is an individual, to submit, within twenty-five calendar days from the date of delivery or sending by registered mail of a notice, a written refusal to carry out the implementation of the mortgage out of court, registered with the body where the mortgage agreement was registered;
- name (name), place of residence (location) and telephone number of the authorized person.
BIDDING NOTICE
The notice of the auction must contain the following information, provided for in Article 27 of the Law "On Mortgage of Real Estate":
- 1name (name) and place of residence (location) of the pledgor;
- name (name) and place of residence (location) of the pledgee;
- a summary of outstanding obligations and the total amount of all debts of the mortgagor to the mortgagee, subject to satisfaction through the implementation of the mortgage;
- the name, description and characteristics of the immovable property that is the subject of mortgage and put up for auction;
- the time and place of the auction;
- name (name), place of residence (location) and telephone number of the authorized person.
BID ANNOUNCEMENT
The auction announcement must contain the following information provided for in paragraph 2 of Article 28 of the Law "On Real Estate Mortgage":
- the name, description and characteristics of the immovable property offered for auction;
- exact location of real estate;
- the amount of the guarantee fee of the bidder, if such is stipulated by the terms of the bidding;
- procedure and terms for payment of the purchase price;
- the time and place of the auction;
- the name (name) and place of residence (location) of the authorized person conducting the auction, his telephone number for inquiries and payment details.
BIDDERS
Any legal entities and citizens, including the mortgagor and mortgagee, have the right to participate in the auction, such a right is provided for in paragraph 4 of Article 319 of the Civil Code.
At least two bidders are sufficient to consider an auction valid.
MARGIN
Before the start of the auction, the trustee (Article 320 of the said Code) has the right to require each participant in the auction to pay a guarantee fee. Guarantee fees are refundable at the end of the auction. The guarantee fee of the winning bidder is counted towards the final price. The guarantee fee of the participant who won the auction, but did not pay the final price, is not returned and remains at the disposal of the trustee.
PURCHASE PRICE PAYMENT
Before the start of the auction, the trustee has the right to require each bidder to pay a guarantee fee or proof of his ability to pay the proposed purchase price, as provided for in Article 31 of the Law of the Republic of Kazakhstan "On Real Estate Mortgage". Before the end of the auction, the authorized representative has the right to demand that the participant in the auction who offered the final price immediately pay this amount in full or demand proof of his ability to pay the named price after the end of the auction in the ways and within the time specified in the announcement of the auction.
Paragraph 2 of this article provides that if the buyer refuses to make an immediate payment or if he does not have evidence of the possibility of payment within the time limits stipulated by the announcement of the auction, he is excluded from the list of bidders. In this case, the auction is considered to be continued. If it is impossible to continue them, as well as in case of non-payment by the buyer of the property acquired at the auction, new auctions are scheduled, which are held in the manner prescribed by this Law.
The pledgee participating in the auction is released from paying the guarantee fee, and also, in case of winning the auction, from paying the purchase price within the amount of the principal obligation.
The guarantee fee of the participant who won the auction but did not pay the purchase price remains at the disposal of the trustee and is used by him in the manner prescribed by Article 36 of this Law.
WHEN IS AN AUCTION DECLARED VOID?
The trustee declares the auction void in the cases provided for in paragraph 1 of Article 32 of the Law "On Mortgage of Real Estate", when:
- at the auction was less than two buyers;
- the person who won the auction did not pay the purchase price within the prescribed period.
Bidding must be declared void on the day following any of the above circumstances.
The announcement of new auctions is published according to the general rules.
TRANSFER OF THE COLLATERAL TO THE BUYER
After the auction is completed and the buyer has made the final price and all other payments required from him, the trustee, in accordance with Article 34 of the Law "On Mortgage of Real Estate", hands him a document on the acquisition of real estate at the auction, which must contain the following information:
- basis for bidding;
- place and time of their holding;
- name, description and characteristics of the property purchased at auction, its location;
- name (name) and place of residence (location) of the pledgor - the former owner of the property;
- name (name) and place of residence (location) of the buyer;
- the purchase price paid by the buyer;
- name (name) and place of residence (location) of the authorized person who conducted the auction.
The document on the acquisition of real estate at the auction is sealed by the signature of an authorized person.
If the authorized person is a legal entity, the signature of his representative is certified by the seal of this legal entity, if the authorized person is an individual, his signature is notarized.
HOW IS THE TRADING PROCEEDS DISTRIBUTED?
The trustee distributes the proceeds from the auction in accordance with Article 36 of the Law "On Real Estate Mortgage" in the following order of priority:
- to cover the costs and expenses of bidding;
- to pay the principal obligation secured by the mortgage;
- to pay for overdue obligations secured by secondary pledges and re-pledges, as well as other encumbrances of immovable property in the order of priority established by legislative acts;
- to return the remaining amount to the mortgagor.