The most important legislative changes concerning judicial enforcement

The Parliament adopted Act 92 of 2020 on the amendment of certain acts related to judiciary, which amended, among other things, several parts of the Act 53 of 1994 on Judicial Enforcement as well (hereinafter referred to as: the “Foreclosure Act”). We present the most important developments of the Foreclosure Act as follows.

ELECTRONIC AUCTION – The amendments of Foreclosure Act, entering into force on January 1, 2021, will fundamentally change the structure of electronic auctions, both for movable and real property. The current system, which is based on consecutive auctions, will be replaced by a new system basically consisting of one single auction which is divided into more phases.

Auction of movable properties – In case of auctions of movables, the auction notice will contain the details of the auction in accordance with the new system: each phase of the auction, their terms and the lowest bids will be indicated. Another important change is that the auction of movable property will last until the 60th day from the publication of the auction notice, instead of the 30th.

The multi-phase nature of the auction of movable properties also corresponds with the 60-day auction period in a way that the first phase of the auction lasts until the 15th , the second day lasts until the 30th , the third phase lasts until the 45th and the fourth phase being the last one, lasts until the 60th day of the publication of the auction notice. The amount of the lowest possible bid changes in a way that a valid bid must reach the amount corresponding to the 75 per cent of the starting price in the first phase, to the 50 per cent of the starting price in the second phase, to the 25 per cent of the starting price in the third phase and to the 1 per cent of the starting price in the fourth phase. The auction steps into the following phase only if no valid (reaching the minimum strike price) bid is made in the current phase which happens automatically after the expiration of the given deadline if no valid bid was made (unless a valid bid is made in the last 5 minutes, in which case the phase concerned shall be extended by 5 additional minutes). As a supplementary rule a second auction may be held (within 30 days of declaring the failure of the first auction) if the auction buyer of the first (successful) auction does not pay the auction purchase price. The highest bidder in the first auction who fails to pay the auction purchase price shall be disqualified from the second auction. As a further amendment to the current regulation, if the auction is not successful and the movable property is not taken over by the creditor, the bailiff may not hold another auction but calls upon the debtor to remove the property within 30 days.

Other important changes relating to the auction of movables are that movables with a value reaching the amount of HUF 50,000 may also be auctioned electronically, and, in case of the unsuccessful auction of movables forming one single technological, production or service unit, the parts of the single unit shall be auctioned individually.

Auction of real properties – The amendment of the rules for real property auctions shows a strong relationship to the provisions on the auction of movable properties, with the main difference that real property auctions are divided into three phases instead of four. The term of the auction of real properties is also 60 days, however, the first phase of the auction lasts until the 20th day, the second phase lasts until the 40th day and the third lasts until the 60th day from publishing the auction notice. The lowest possible bid shall correspond to the 90 per cent of the starting price in the first phase, to the 70 per cent of the starting price in the second phase and to the 50 per cent of the starting price in the third phase. In case of residential properties, the lowest possible bid, determined on a percentage basis shall correspond to the 90-80-70 per cent of the starting price respectively for the three phases, while in case of enforcements of claims based on a consumer contract, it shall correspond at least to the 100 per cent of the starting price, provided that, in each case, this is the only residential property of the debtor, his / her residence is located there and it was also located there in the 6 months preceding the initiation of the enforcement proceedings.

The general procedural provisions of the foreclosure against movable properties are also prevailing for the foreclosure against real properties, such as stepping automatically into the next phase in the lack of a valid bid in the current phase within the specified period, in case of a valid bid made in the last 5 minutes, the phase concerned shall be extended by 5 additional minutes, and a second auction may be held (within 30 days of declaring the failure of the first auction) if the auction buyer of the first auction fails to pay the auction purchase price which also results the disqualification of such auction buyer from the second auction.

Takeover of the real property by the creditor – A fundamental change is that the provisions concerning the takeover of the property by the creditor specified by the Foreclosure Act has been repealed and the notice on continuous auction may be published if the first (or, if any, the second) auction was not successful. In case of a bid or upon the request of the creditor, the bailiff shall schedule a new auction within 15 days according to the rules of the first auction. In case of the enforcement of a claim based on a consumer contract, only the bids reaching the 90 per cent of the starting price may be considered to be valid in each phase.

We draw attention to that the above amendments regarding the auctions shall be applied to auctions scheduled after January 1, 2021.

OTHER MODIFICATIONS – As of July 16, 2020, several changes having practical significance entered into force, including:

– the provisions of redetermining the appraised value have been modified: this can be requested after two years instead of the current three years in case of real properties not yet on sold;

– as a new kind of a document providing direct execution the court may issue a certificate of enforcement on the basis of fee schedule issued by the bailiff containing a payment obligation against a third party other than the debtor;

– the auction shall be put on hold in case of the death of the creditor as well, and in case the creditor does not participate in the proceedings (earlier this occurred only if the creditor refused to participate);

– the 15 days deadline for performing the auction purchase price, in case of challenging the sales records, shall be counted from the call of the bailiff instead the day on which the decision has become final – it is also an important amendment that after the auction is finished, the bailiff shall call the auction bidder within 8 days to sign the sales records;

– enforcements against a real property, the claim for evacuation, shall basically remain unchanged as the a claim for the delivery of the property, with the difference that the chattels shall be stored by the creditor for 60 days instead of 30, after that, the creditor may destroy them or handle as waste;

– there are several amendments to the bailiffs’ organization.