The RF Justice Ministry’s initiative cannot be realised. Why?
Since the beginning of the year the RF Justice Ministry’s initiative has been discussed in Russia – the bill draft lifts a ban on the seizure of debtors’ only housing under enforcement proceedings. Opinions are different but negative assessments prevail. To clear out the pitfalls of the initiative we have talked with Valery KLIMOV, member of the Central Headquarters of the All-Russia People’s Front, Head of the project, “For the Rights of Borrowers”.
— Mr Klimov, what is the essence of the problem, what was the spark that set the forest on fire?
— Actually, the Justice Ministry suggests limiting immunity from the collection of the only housing suitable for living, owned by a citizen-debtor, under debts enforcement. This immunity is determined by art. 446 of the Code of Civil Procedure. Of course, people and the media perceive it as rendering a person homeless because of debts. What is more important, however, is that experts also see serious risks in the proposed solution.
It should be noted that the bill draft was not an initiative and, in fact, is a sort of delayed reaction to the RF Constitutional Court’s decision, dated 2012.
To remind you, at that time the Constitutional Court considered a similar case. Two regional courts tried to enforce debts at the expense of housing or, to be more exact, its part, to serve the claimants’ interests. But the decisions were later cancelled due to art. 446 of the Code of Civil Procedure.
The Constitutional Court’s decision explains in detail that the proprietary rights of both a debtor and a creditor are similar by nature and, putting it simpler, balance and justice should be present in taking a decision.
Letting the constitutional right of a citizen pass unquestioned, the judges issued a pronouncement assigning the legislator to determine the immunity boundaries against collection.
Actually, the criterion of “the only suitable for living” housing, contained in the current edition of art. 446, has been proposed to be replaced by a complex structure including square meters, cost and social norms.
— What is the logic of the Justice Ministry’s proposals?
— There are cases, and there are many, when citizens having not repaid serious debts instead go bankrupt and stay living in a luxurious flat or cottage. And as the housing they stay in is the only one available to them, it cannot be collected.
The Ministry’s bill draft makes it possible to withdraw such immunity with a number of restrictions, and it starts working when the housing area is twice as large as the social norms provided for all the members of the family, and the cost is twice as high as the social square metres they may be provided with.
— It seems to be reasonable…
— It is really difficult to argue against the logic but, as they say, it is very smooth on paper… A number of experts think that the proposed mechanism contains serious risks.
There are a number of problems connected with the housing evaluation in relation to the mentioned criteria. The comparison of the housing market cost with the cadaster evaluation of social square metres is very disputable, as it is evident that the market cost of any flat located in a good region of a city will be higher than the cadaster one.
Another group of problems is connected with the payment of a necessary sum of money for buying housing under social norms from the received competitive mass. A debtor is unlikely to buy housing in the same region – and this means there can be problems with work, school or nursery school for children, etc.
More than that, the cadaster evaluation institute on the whole gives rise to unfavourable criticism in Russia. Very often objects located near each other are evaluated differently. And this problem questions the bill draft’s implementation.
— Do you mean that the state is not ready for the implementation of such a bill draft?
— Yes, and it does not only refer to the evaluation system. Currently, the selling of property by auction is a “grey” area with many cases of scheming, twice or thrice tendering for price reduction, etc. There are quite a lot of people trying to catch fish in muddy water.
And it is really dangerous to throw a debtor in for such a cynical slaughter; it won’t work.
For a debtor to be provided with the right for housing a new competence is needed: a kind of state realtors’ institute, like state lawyers. The absence of housing manoeuvring funds all over the country makes the procedure of resettlement practically impossible. There is a big question concerning how the state will provide for the constitutional right to shelter.
— How challenging is the problem of the population’s debts? The problems of several people may be solved in manual mode…and there’s nothing to discuss?
— Nothing has been done in the country for the five years since the CC’s decision was taken, but people have been making debts. Often, half criminal structures took part in crediting and re-crediting with great interest. Thus, small debts grew enormous, with the result of a total debt of over 1 trn roubles ($17 bln).
Taking into account the debts having been sold to collectors, the sum will surpass 1.5 trn roubles ($25 bln). This is more than 9m problematic loans. There are over 600,000 debtors in Russia close to bankruptcy.
In this situation, the introduction of a new regulation directed at the collection of the only housing means provoking serious social consequences.
— But the problem needs to be solved. Unless immunity is cancelled, a debtor turns out to be more privileged than a lender. What is to be done, from your point of view, at the state level to provide a fair balance?
— It is not punishment legislators should start with. Firstly, it is necessary to acquire the instruments for responsible crediting, meaning that financial institutions should be financially responsible for the credits surpassing the paying capacity of a citizen. The mechanism is to be worked out in 2017, according to President Putin’s charge.
Secondly, the mechanism of individuals’ bankruptcy is to be improved. At present, it is very conventional regarding people owning their only housing. Until there is a real mechanism of bankruptcy of a person having got into complicated circumstances, it is too early to speak about collecting the only housing. Often, financial problems occur when a person loses work, for example.
And, last but not the least, while discussing the introduction of such institutions one should understand that the novelty is to refer only to the debts made after the rules are changed.