Can a financial institution (e.g., bank, factor, lender) that gave financing secured by a mortgage in the 1st place, at the auction of the property be overtaken by a later arising claim adjudicated by a criminal judgment? From 01.10.2023 it will be possible - the victim in a criminal case (including financial, fraud) at the distribution of the sum from the sale will "overtake" the mortgage creditor. By what miracle and what fields for abuse does this create? Quo vadis mortgage?
Until now, the mortgagor in the 1st place could be quite relaxed about the funds from the sale of the property, as only enforcement costs and alimony were ahead of him, but from 1.10.2023 he will also be overtaken by the receivables of victims in criminal cases in favor of whom the obligation to make reparation has been decreed. This is because the legislator amended Article 1025 § 1(3) of the Code of Civil Procedure. It specifies the order in which auction funds are divided after the sale of the debtor's property. In third place - just behind the costs of enforcement and maintenance receivables - will be "receivables adjudged in favor of the victim or persons exercising the rights of the victim in criminal proceedings." This category of creditors has been equated with receivables for work for a period of 3 months up to the amount of the lowest salary, etc. (a rather narrow group).
The amendment - while beneficial to creditors - the injured - means that only creditors who are well-informed and active in criminal cases will be favored in enforcement. This means that previously often downplayed issues will gain importance, and new risks will emerge.
- On the one hand, receivables from criminal cases will take precedence in enforcement proceedings over the same receivables awarded in civil proceedings (here I think the legislature has diverged on the financial burden of criminal vs. civil cases). Thus, the key will be choosing the right path for recovery (e.g., from members of the board of directors under the procedure 299 of the Commercial Companies Code, in cases of fraud or absconding with assets by a counterparty). Depending on the option chosen, i.e. civil or criminal route, the satisfaction can range from 0 to even 100% in extreme cases.
- In addition, it will be important Verification of the amount of damage by law enforcement agencies. The extent of the damage directly determines the amount of the damage award. Even at the stage of filing a notice (or filing a case), care should be taken to make a concrete analysis of the situation. Passivity in this regard may even mean the inability to appeal the judgment in the first instance, unless the amount of damage is important to determine whether the offense was committed at all, whether it is a crime or constitutes a so-called recidivism (Article 427 § 3a of the Code of Criminal Procedure).
- The significance will be the pace of law enforcement work, especially whether these manage to bring charges and lead to the effective imposition of a reparation obligation before the distribution of the sum obtained from the sale of the execution. Thus, the role of an active attorney in criminal cases (on the side of the victim) is growing.
- Finally, there is the questionable collision of priority rights. It is quite difficult to rationally justify why a financial institution providing mortgage-secured financing can be satisfied after another creditor who was harmed later, e.g..... providing unsecured financing later. In the extreme case, the latter may be satisfied in full before the former. If we combine this with the fact that the entry of a mortgage after the commencement of execution does not enjoy the right of priority, we create another maze of priority - difficult for a creditor to understand.
Many practical questions also arise, such as:
- In a case under Article 300-301 of the CC, will the registration of a mortgage or a warning by the prosecutor's office affect the order of satisfaction (after all, a mortgage registered after the initiation of execution does not enjoy the privilege of priority)?
- Will the Bailiff ever wait with the sale / plan of division / distribution of the sum obtained from the sale of the execution to the "victim-marred"?
- What document will be sufficient for apportionment (e.g., a final criminal conviction)?
- Aren't we creating space for questionable construction especially with large, valuable properties?
- With expensive real estate, won't there be a temptation for unmortgage-secured creditors to seek fraud at any cost? After all, the satisfaction of the often "to have or not to have" will come into play.
The lack of detailed regulation of potential conflict of laws aspects creates considerable room for abuse that can confuse, especially the uninformed.
This and many other changes to the Criminal Code, for example, introduced by the Act of July 7, 2022, amending the Act - Criminal Code and some other acts, can be found at: https://isap.sejm.gov.pl/isap.nsf/DocDetails.xsp?id=WDU20220002600.
In this situation, is the mortgage still a security as "hard" and "in-kind" as it once was? Especially when we take into account the myriad of pitfalls lurking for mortgage creditors (e.g., a vacant mortgage, the possibility of a receivership, the risk of faulty valuation, legal defects, the sale of real estate to entities against which it is difficult to obtain an enforcement title, and many others). Currently, as you can see, even a mortgage does not guarantee satisfaction.
