Failure of mortgagee to provide state registrar with expert assessment of mortgaged property on the day of its alienation is grounds for cancellation of state registration of ownership of mortgaged property - SC GC

The price of acquiring ownership of the mortgaged property is a material circumstance, so the mortgagee is obliged to provide the state registrar with a document on the expert assessment of the mortgaged property for state registration of ownership of the mortgaged property.

The grounds for cancellation of the state registration of ownership of the mortgaged property are violations of the law by the mortgagee in the course of the out-of-court foreclosure procedure. Such violations include, in particular, failure to provide an expert assessment of the mortgaged property on the day of its alienation.

This is stated in the Resolution of the Grand Chamber of the Supreme Court.

According to the circumstances of the case, the bank entered into a mortgage agreement with the plaintiff's husband to secure the fulfilment of the obligations of a third party - a sole proprietor under a loan agreement, the subject of which is a land plot and a residential building located on it.

A private notary registered the ownership of the land plot and the house with the bank in the course of foreclosure on the mortgaged property.

The plaintiff, as a co-owner of the real estate, filed a lawsuit to invalidate the mortgage agreement entered into between the bank and her husband, and to declare unlawful and cancel the decisions on state registration of the bank's ownership.

The court of first instance upheld the claim. After a new trial, the court of appeal agreed with the conclusion of the court of first instance, but changed the legal reasoning of the decision in terms of the conclusions on the satisfaction of the claim for the recognition as unlawful and cancellation of decisions on state registration of rights and their encumbrances. In particular, it found that the materials of the registration case did not contain evidence of the valuation of real estate and evidence of the mortgagor's receipt of a notice of intent to foreclose on the mortgaged property with the results of the valuation of this property.

Considering the case, the Grand Chamber of the Supreme Court noted that according to Article 18 of the Law of Ukraine "On State Registration of Real Property Rights and Encumbrances", the list of documents required for state registration of rights and the procedure for state registration of rights are defined in the Procedure for State Registration of Rights to Real Property and Encumbrances, approved by the Cabinet of Ministers of Ukraine dated 25 December 2015 No. 1127 (Procedure No. 1127).

Para. 61 of Procedure No. 1127 contains a list of documents required to be submitted and the circumstances to be confirmed by them, on the basis of which the state registration of ownership of the mortgaged property under an agreement containing a reservation to satisfy the mortgagee's claims is carried out.

Procedure No. 1127 did not provide that the report on the valuation of the mortgaged property should be included in the list of documents required to be submitted to the state registrar. The requirement to submit such a report to the state registrar was added to Procedure No. 1127 only on 26 February 2020.

However, such a requirement was contained in part 3 of Article 37 of the Law of Ukraine "On Mortgage", which has the highest legal force and according to which the mortgagee acquires the mortgaged property at the value determined at the time of such acquisition on the basis of the valuation of the mortgaged property by the appraiser.

Therefore, as of the moment of the legal relations in dispute in this case, the mortgagee could not acquire the mortgaged property without determining the value of such acquisition based on the valuation of the mortgaged property by the appraiser.

The Grand Chamber of the Supreme Court emphasised that the grounds for cancelling the state registration of ownership of the mortgaged property are violations of the law by the mortgagee in the course of the out-of-court procedure for foreclosure on the mortgaged property. Such a violation is, in particular, the absence of an expert assessment of the mortgaged property in the registration file at the time of transfer of ownership of the mortgaged property to the mortgagee.

Based on the results of the case, the SC GC did not establish legal grounds for cancelling the decision of the court of appeal, which changed the reasons for the decision of the court of first instance in part of satisfying the claim of the plaintiff as a co-owner of the mortgaged property to declare unlawful and cancel the decisions on state registration of ownership of the mortgaged property for the mortgagee.

The Resolution of the Supreme Court of 13 March 2024 in case No. 201/15228/17 (proceedings No. 14-183цс23) - https://reyestr.court.gov.ua/Review/118393645.

This and other legal positions of the Supreme Court can be found in the Database of Legal Positions of the Supreme Court - https://lpd.court.gov.ua.