PROFILE. THE ONLY BUT SEPARABLE PROPERTY: THE CONSTITUTIONAL COURT INTERCEDED FOR HOMEBUYERS

Elena Gladysheva, Managing Partner of RI-Consulting

The Constitutional Court (CC) of the RF has risen to the defense of home buyers, for whom it is the only home, if the transaction was later challenged due to the seller's bankruptcy. Buyers should have a realistic opportunity to recover the amount paid, and until the time of repayment they are entitled to use the property. These explanations of the court refer to cases where the seller was a bank.

In the opinion of the Constitutional Court of the Russian Federation, the current procedure is incorrect, since it does not guarantee a return of funds to the purchaser-citizen, but at the same time provides for the seizure of housing.

Elena Gladysheva, Managing Partner of RI-Consulting to the Profile magazine, breaking the specific case, what are the strengths and weaknesses of the proposed approach? How fair is it to apply this approach only to transactions with the sole residence of citizens and only in situations where the seller is a bank? Is this problem relevant for situations where the seller is a legal entity (not a bank) or an individual, especially in the case of underpricing in the contract of sale of residential real estate and the subsequent bankruptcy of the seller? Is it necessary to introduce such a mechanism for situations with all categories of sellers?

Elena Gladysheva: "The mentioned ruling of the Constitutional Court really touched upon an important aspect of protecting the constitutional right of a citizen to housing, which was set against the public interests of creditors.

The Constitutional Court rightly drew attention to the defective nature of the mechanism of transactions contestation in bankruptcy proceedings, the subject of which is a citizen's only housing, because in this case bilateral restitution (return to the parties of what they received under an invalid transaction) does not guarantee a citizen the return of money paid by him when purchasing housing which is to be transferred to the bankruptcy estate.

Consequently, under the existing procedure, a citizen should transfer his only housing to the debtor's bankruptcy estate with a vague prospect of receiving money in the general order of the creditors' register, which, as a rule, is repaid in a small proportion.

An undoubted advantage of the commented decision of the Constitutional Court is the obligation of the Federal legislator to introduce the necessary changes into the current legal regulation, which would secure the priority right of a citizen over other creditors for the return of the proceeds received under an invalid transaction, the subject of which is his only housing.

This ruling of the Constitutional Court will really be applied only to transactions with a single dwelling, because the subject of the complaint was to check the constitutionality of the mechanism for challenging transactions in bankruptcy proceedings in the context of protecting the constitutional right to housing (Article 40 of the Constitution of the Russian Federation).

However, the commented ruling of the Constitutional Court will also be relevant in case of bankruptcy of legal entities which are not banking institutions, because the provisions of p. 1, Article 62.1 of the Bankruptcy Law are special "bankruptcy" grounds for challenging transactions not only in bankruptcy cases of banks.

However, applying the mechanism of protection of a citizen's right to housing, specified in the decree of the Constitutional Court, the courts will have to assess the bona fides of the parties to the transaction, and therefore, in case of intentional understatement of the transaction price, if there are bankruptcy signs, the transaction may be declared invalid on other grounds (p. 2, Article 61.2 of the Bankruptcy Law), as entered into to the detriment of creditors, and the buyer will be deprived of legal protection, specified in the Constitutional Court decree," - noted the lawyer.

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