PROTECTION OF THE RIGHTS OF DEBTORS ON MORTGAGE LOANS, IF THE PROPERTY IS LOCATED IN THE OCCUPIED TERRITORY: JUDICIAL PRACTICE

In April 2014, the Verkhovna Rada of Ukraine, including for the observance and protection of human and citizen rights and freedoms in the temporarily occupied territories, adopted the Law of Ukraine “On Ensuring the Rights and Freedoms of Citizens and the Legal Regime in the Temporarily Occupied Territory of Ukraine” (Law No. 1207-VII).

In July 2021, the Law of Ukraine No. 1618-IX “On Recognition as Invalid the Law of Ukraine “On the Creation of the Free Economic Zone “Crimea” and on the peculiarities of economic activity in the temporarily occupied territory of Ukraine and amending certain legislative acts of Ukraine” Article 15 of Law No. 1207-VII was supplemented by Part 6, which was aimed at protecting the interests of persons who at one time attracted mortgage lending for the purchase of real estate, which is located in the temporarily occupied territories. In particular, the amendments provided that: “During the period of temporary occupation, persons residing in or moving from the temporarily occupied territory are exempted from the obligation to repay the principal amount of the mortgage loan and accrued interest thereon, if the object of the mortgage is property located (registered) in the territory that, after the conclusion of such a mortgage agreement, was temporarily occupied. The National Bank of Ukraine decides to change the classification of such mortgage loans or other decisions in order to prevent deterioration of the liquidity (financial condition) of the lender”.

Thus, the state authorities of Ukraine have effectively introduced a moratorium on banks' demands for repayment of the principal debt and the accrual of interest on loan agreements that are secured by mortgages, if the mortgage property is located in the territories that were occupied by the Russian Federation.

However, despite the introduction of such a moratorium, some banks did not stop trying to return the loan funds and interest on loans before the de-occupation of the Ukrainian territories in which the property is located, and sent demands on the need to repay the loan, including early.

To protect their rights, such debtors were forced to apply to the courts and already in court to prove their case and ask to oblige banks to refrain from such actions. And in this context, it is worth paying attention to the decision of the Supreme Court of February 5, 2025 in case № 757/29209/22-cin which the panel of judges of the Second Judicial Chamber of the Civil Court of Cassation made a number of important conclusions, in particular regarding: whether the courts can consider such claims; whether such debtors need to have the status of an internally displaced person; etc. Also in this case, the Supreme Court ruled a separate decision in the order of judicial supervision, but about everything in order.

Protection in court

In this case, the citizen filed a lawsuit with the bank, in which he noted that in February 2020 he concluded a mortgage loan agreement with the bank for the purchase of an apartment in the city of Mariupol. On February 7, 2022, he made another payment, and on March 15, 2022, the apartment was destroyed during hostilities, what Mariupol events have taken place since March 1, 2022. Since May 20, 2022, the city of Mariupol has been occupied by Russian troops. Despite this, since June 2022, the bank has demanded the payment of monthly payments. He also noted that he tried to resolve the situation with the bank, to which the latter informed about the possibility of restructuring instead of recalculation and the need to fulfill the terms of the mortgage loan agreement. And on October 7, 2022, the bank sent him a notice of demand, in which he demanded either to pay the overdue debt on the terms and in the manner established by the loan agreement, or to repay the consumer loan ahead of time along with the accrued interest for the use of the loan and the penalty.

In this regard, he asked to recognize as unlawful the presentation of a requirement to pay overdue debts under a mortgage loan agreement, to repay the loan early with accrued interest for use and penalty, as well as the accrual of interest, penalties and other payments starting from February 24, 2022.

Also asked the court to oblige the bank to write off any penalties (fine, penalty) accrued from February 24, 2022, and release it from the obligation to repay the principal amount of the mortgage loan and the accrued interest on it before the de-occupation of the city of Mariupol.

What the courts decided

The district and appellate courts partially satisfied the claim and ordered the bank to release the plaintiff from the obligation to repay the principal amount of the mortgage loan and the accrued interest before the de-occupation of the city of Mariupol. At the same time, the courts were guided precisely by the provisions of the sentence of the first part of the sixth article of Article 15 of Law No. 1207-VII.

However, the Supreme Court overturned these decisions and closed the proceedings in the case.

Positions of the Supreme Court

Are such claims subject to consideration in court

Closing the proceedings in the case of the CCC, the Supreme Court concluded that the requirement of the bank to release the plaintiff from the obligation to repay the principal amount of the mortgage loan under the mortgage loan agreement and the interest accrued on it before the de-occupation of the city of Mariupol could not be considered in court.

The Supreme Court noted that the plaintiff is subject to the guarantees specified in the first sentence of Part 6 of Art. 15 of the Law of Ukraine “On Ensuring the Rights and Freedoms of Citizens and the Legal Regime in the Temporarily Occupied Territory of Ukraine” No. 1207-VII, on exemption from the obligation to pay the principal amount of the mortgage loan and interest thereon before the de-occupation of the city of Mariupol.

Therefore, the bank can neither require the plaintiff to repay this loan and interest, nor send the plaintiff any requirements and notifications about the need to make payments under the mortgage loan agreement.

The Court drew attention to the fact that in part 6 of Article 15 of Law No. 1207-VII, the Parliament did not provide for the possibility of exemption from performance (postponement of such performance) under the relevant claim of claim.

Such dismissal (postponement) occurs due to the indication of the law and the occurrence of relevant legal facts:

• temporary occupation of a certain territory of Ukraine;
• residence of a person in this territory or movement from it;
• the conclusion of a mortgage agreement by such a person to ensure the fulfillment of its credit obligation until the moment of temporary occupation of the territory on which this property is located (registered);
• the area of the relevant property does not exceed those defined by the Tax Code of Ukraine.

“The claimant's claim to the bank on the obligation to release from the obligation to repay the principal amount of the mortgage loan and the interest accrued thereon before the de-occupation of a certain territory cannot be used to protect any right or interest as a claim,” the Supreme Court stated.

Therefore, applying to the court with a preventive claim on the obligation of the bank to release the plaintiff from the obligation to repay the principal amount of the mortgage loan and the accrued interest before the de-occupation of the territory in which the mortgage subject is located (registered) does not meet the task of civil proceedings, and the claim cannot be considered in court.

Also, the Supreme Court modeled the situation in advance, noting that such arguments should be evaluated by the courts in the event that the bank initiates a claim for recovery of credit debt.

Who are covered by the guarantees defined by law?

The Supreme Court noted that the concept of “exemption of a subject of civil law from duty” means that a civil duty is terminated without its fulfillment, while the concept of “exemption from performance of duty” implies that the relevant obligation continues to exist, but due to certain circumstances it is not possible to enforce it as long as they exist.

The provisions of Part 6 of Article 15 of Law No. 1207-VII do not apply to residential real estate objects, the total area of which exceeds the indicators established by Article 266 of the Tax Code.

Accordingly, the tax base of the object (s) of residential real estate, including their shares owned by an individual — the taxpayer, decreases:

a) for apartments/apartments regardless of their number — by 60 sq. meters;
b) for a residential house/houses, regardless of their number — for 120 sq. meters;
c) for different types of residential real estate objects, including their shares (in the case of simultaneous ownership of the taxpayer of apartments/apartments and residential buildings/houses, including their shares), — by 180 square meters.

Is it necessary to have the status of an internally displaced person?

Also, the CCC of the Supreme Court noted that in view of the wording of the sentence of the first part of Article 15 of Article 15 of Law No. 1207-VII, confirmation of the status of an internally displaced person is not decisive, since the relevant provision applies both to those persons living in the temporarily occupied territory and to those who have moved from it (regardless of inside or outside the country).

“In other words, the fulfillment by persons residing in or moving from the temporarily occupied territory (regardless of their registration as internally displaced persons) of the obligation to repay the principal amount of the mortgage loan and the accrued interest thereon is deferred for the period of temporary occupation of the territory on which the (registered) mortgage property is located, if this territory was occupied after the conclusion of the mortgage agreement. Such persons are not exempt from this obligation, but its execution is postponed for the period of temporary occupation of the specified territory,” the Court stressed.

Are the bank's rights violated?

In this context, the CCC of the Supreme Court noted that this provision of the Law does not relieve a financial institution of the obligation to account for credit debt and charge interest for the use of a mortgage loan, but it makes it impossible for such an institution to commit actions to induce the debtor to repay the principal amount of the mortgage loan and the interest accrued thereon, as well as the recovery of the corresponding debt until the end of the period of temporary occupation of the territory on which the (registered) mortgage property is located.

Separate decision

Also, the CCC of the Supreme Court adopted a separate decision in which it drew the attention of the National Bank of Ukraine to the need to verify the facts of non-compliance by financial institutions set out in the sentence of the first part of Article 6. 15 of Law No. 1207-VII on the guarantee of the rights of certain groups of consumers of financial services (in particular, the fact of sending debtors covered by the relevant guarantee requirements to pay the principal amount of the mortgage loan and the interest accrued on it or to repay such debt early).

Summing up

The above conclusions in the resolution of the CCC of the Supreme Court are important for law enforcement practice in such disputes. Also note on the adoption of a separate decision, which in the future will show whether such a tool is effective. It is important that the Supreme Court also pointed to the special role of the NBU in this matter, which in the order of banking supervision has the right to require banks and their managers, responsible persons of banking groups, members of banking groups to eliminate violations of banking legislation, to comply with the NBU's regulatory acts in order to avoid or overcome undesirable consequences that may jeopardize the safety of funds entrusted to such banks or harm the proper conduct of banking activities.

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Material of Victor Surnik, Managing Partner of Alarius AO, for the newspaper “Yuridicheskaya Praktika”