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. Last Updated: 07/27/2016

Procedure for Levying Execution on Pledged Real Estate

UnknownVitaliy Mozharowski Partner, Pepeliaev, Goltsblat & Partners
In accordance with effective legislation, the general rule is that execution may be levied on pledged assets by a court ruling. An exception to this rule is the possibility of levying execution on mortgaged real estate without resorting to a court of law -- on the basis of a notarized agreement between the mortgagor and the mortgagee, concluded after the grounds arise for levying execution on the mortgaged assets.

Levying execution on mortgaged real estate is performed through a court of law by means of its sale by public tender.

The starting price for the tender is set by the court. If no starting price can be determined, the court issues a decision to engage an independent appraiser to evaluate the assets. The court independently appoints a tender organizer. The tender must be announced at least thirty days before it is held. Participants should make a deposit in the amount, manner and time by that indicated in the announcement. There must be at least two participants in the tender. If the tender takes place, the pledged assets are sold to the person who makes the highest bid.

Within five days of conclusion of the tender, the winner must deliver the sum for which it has purchased the pledged assets and then, within another five days, the tender organizer and the winner sign a sale and purchase agreement for the assets. The sum received for the pledged assets is used to pay for the services of the auctioneer and the appraiser, and the balance covers the claims of the pledge holder (creditor). If the revenue from the sale of the pledged assets exceeds the amount claimed by the mortgage holder (creditor), the difference is returned to the mortgager.

The winner of the tender, if it refuses to sign the protocol, loses its deposit. In this case, another tender is held.

Tenders are invalidated if fewer than two buyers participate in them; no mark-up is achieved on the starting price for the pledged assets; the winner of the tender fails to pay the purchase price by the set deadline.

Within 10 days of the tender being invalidated, the pledge holder has the right, on agreement with the pledger, to acquire the pledged assets and offset its claims secured by the pledge against the purchase price. If the pledge holder and the pledger are unable to reach such an agreement, another tender should be scheduled, at which the starting price for the pledged assets may be reduced by 15 percent.

If the second tender is declared invalid, the pledge holder still has the right to retain the pledged assets, assessed at a sum not less than 75 percent of the starting price of the initial tender. If the pledge holder does not exercise the right to retain the pledged assets within a month of the second tender being declared invalid, the pledge is terminated.

In the event of levying execution on pledged assets by out-of-court procedure, in the agreement on satisfaction of the pledge holder's claims concluded between the pledge-holder and the pledger, the parties may envisage sale of the pledged assets in the usual manner (by tender) or acquisition of the pledged assets by the pledge holder for itself or third parties; the pledge holder's claims on the debtor secured by the pledge being offset against the purchase price (the rules of civil legislation in the event of the acquisition of assets for a third party and also a commission agreement apply to an agreement on the acquisition of pledged assets by the pledge holder.

When the parties conclude an agreement on satisfaction of the pledge holder's claims out of court, the said agreement should provide a description of the assets pledged under the mortgage agreement to satisfy the pledge holder's claims and the value of said assets; the sums due for payment to the pledge holder by the debtor on the basis of the obligations secured by the mortgage and the mortgage agreement; the method for selling the pledged assets or the terms for their acquisition by the pledge holder; and previous and subsequent mortgages of the given assets and rights of use in respect to the assets that are known to the parties at the time the agreement is concluded.

Out-of-court procedure may not be applied if the consent or permission of another person or body was required to the mortgage of the assets.