On 7 March 2017, the Hungarian parliament adopted a law that
increases the minimum sale price of a residential property in the
enforcement procedure from the current 70% of its market value to
100% (market value to be understood as the price set by the
appraisal of the bailiff), provided that (i) the claim to be
enforced stems from a consumer contract; (ii) the real property is
the debtor's only real property; and (iii) the debtor resided
in that real property for at least six months prior to the
initiation of the enforcement procedure. If the real property
cannot be sold within one year, the minimum sale price may be
reduced to 90% of the property's market value. The law also
allows the parties to agree on the minimum sale price (i.e. the
parties may freely agree to reduce the minimum sale price below the
100% threshold). In that case, however, the creditor's claim
terminates upon the sale of the property and the distribution of
the enforcement proceeds, irrespective of whether the creditor
achieved full recovery or not.
According to the government's reasoning, the law aims to
ensure that, in case of enforcement, residential properties will be
sold at the highest price possible (thereby maximizing recovery)
and to minimize the possibility of abuse of the debtors'
position. Based on initial feedback, the market players are
generally opposed to the law, arguing that enforcement procedures
may take even longer – which is also against the best
interest of the debtors, given that this will result in a higher
quantum of default interest, costs and fees accruing on the
debt. Professionals also held that even though the rationale
behind the law may be appreciated, the aim may have been better
achieved by different measures.
All in all, potential purchasers of retail NPL portfolios may have
to reckon with longer enforcement procedures and rather seek
settlement and cooperation with the debtors instead of forcing the
sale of the property (which was also the aim of the legislator).
Having a wider set of measures at hand, the necessary
processes in place and a compliant investment strategy may prove to
be an asset for potential purchasers.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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