Mortgage crediting

Mortgage crediting – to great extent new for our country type of banking services, and there are serious obstacles, which impede its development

The purposes and problems in my thesis work involve the stage analysis of mortgage process for estimation legal side of Russia mortgage, study the factors influence on the reduction credit risks.

This work could not be prepared without of a number of persons. I would like to say special word of thanks to Anders Dahlquist-Sjöberg, LLD for his guidance, providing the ideas, which become the base of the structure of the thesis. I would like to say for the Land Management administration especially to Anders Graad, who has managed the practical materials.

I am very thankful for the possibility given by Sida through the Master of Science in Land Management programme, to come to Sweden and study at the Royal Institute of Technology.

Introduction

As the mortgage operation creates an essential contribution to the development of real estate market the impotence of real estate credit is obvious. It might be used for involvement of additional investment to the different branches of economy: to agriculture, commercial activity, housing etc.

In the modern terms of general stagnation, crisis of non-payments and especially of bankruptcies of enterprises, from one side, and sharp necessity in renovation and technical re-equipment of production , from other side, the mortgage becomes the sole decision of problem.

The system of mortgage crediting for the Russian enterprises , which possess as a rule enormous fixed assets, from my point of view, represents not only acceptable, but solely possible in the present conditions.

The purposes and problems in my thesis work involve the stage analysis of mortgage process for estimation legal side of Russia mortgage, study the factors influence on the reduction credit risks. I will emphasise on the home mortgage, because this kind of mortgage occupies leading position in this section.

The thesis work consists of three main chapters, introduction and conclusion.

The introduction deals with the topicality of the subject matter, purposes and problems posed therein and contents of the thesis.

The first chapter “The essence of mortgage crediting” gives a general historical outlook of mortgage lending development and the reasons of necessity to introduce it in the modern Russia.

The essential second part of thesis deals with the current legal base on real estate issues and the possibilities to introduce mortgage lending to the bank activity.

The third part “ The problems and perspective of development of hypothecate crediting” describes the international experience in this field. The purpose of this to give overview of loan contracts in several countries and to describe American models of hypothecation, which are the most widely used in our mortgage system. Also this chapter is focuses on the existing problems of the mortgage lending and ways their optimal solving.

Chapter 1. The essence of mortgage crediting 1.1. The necessity of mortgage crediting

The establishment of market economy is impossible without attraction of the population masses to the business and production activity, and such forms of crediting investment, which will have not only urgent, paid and returnable character but the mass character, will have the priority development.

As far as the collateral is necessary condition for market crediting, and the main part of the population of the country did not possess at the beginning of the reforms and do not possess at the present time the large real monetary accumulations and considerable movable property, so the mortgage becomes the sole variant of getting credit .

The expectation of activity of investment process is strong as never before for the last years. In this case for restoration of the economy of the country the long-term credits are necessary, because it seems that the period of recovery will be long. In the situation when the wave of unpaid credits overwhelmed the banking system the presentation by the borrower of the most reliable guarantees of repayment of the loan in the time of debentures gets the determined meaning in the case of resolving of the question of granting credit. One of the most reliable means of collateral is real estate, which becomes the subject of collateral in the case mortgage crediting. In the case of appropriate care the real estate and the land almost never lose its value and on the contrary in the future its price will increase.

The actuality of this type of credit consists of the fact that in the terms of the deep crisis of the production and of the economy of the country as a whole, it is possible that the sole way for the national enterprises, which majority is at the edge of bankrupt, to get long-term credits is the mortgage of real estate belonged to them.

In the case of sharp shortage of financial sources of housing construction the necessity in dwelling increases for the account of inflow to Russia of refugees from near abroad and the change of location of troops.

In these conditions the objective necessity in long-term credits granted to the population for housing construction occurs which are not subject considerably to the inflation and which are assured in maximum form from the point of view of their return. Namely the mortgage credit is in conformity with these requirements, which is assured by the collateral of real estate.

The main purpose of creditor is receipt from borrower of the most reliable guarantees of loan return in the time of fulfillment of debentures. It is naturally that the creditor must in the first place have the strict information of financial position of the borrower, check his paying capacity, the condition of his property, the availability of debts and so on. But all that is not sufficient, especially, if the long-term crediting is considered. The mortgage is more reliable form of guarantee (in contradistinction to individual form – warranty) of payment of loan under real estate which owner is not deprived of the right to manage it; the mortgage gives the creditor the right to collect and to sell the property of the borrower in the case of non-payment of indebtedness in the time of fulfillment of the obligation.

In the terms of general stagnation, crisis of non-payments and especially of bankruptcies of enterprises, from one side, and sharp necessity in renovation and technical re-equipment of production, from other side, the mortgage becomes the sole decision of problem for enterprise. Now the banks are ready to give credits for production only in the case of availability of reliable guarantees of loan return.

The system of mortgage crediting for the Russian enterprises, which possess as a rule enormous fixed assets, from my point of view, represents not only acceptable, but solely possible in the present conditions. The enterprises need for restoration of production in the first place the renovation of means of production in accordance with modern technologies. And for realisation of such modernisation the considerable long-term and relatively cheap credit resources are necessary. The mortgage credit is in conformity with such conditions.

The history of establishment and the experience of mortgage crediting in Russia.

The combination of experience of mortgage crediting of expenses for purchase of land before revolution with the practice of individual crediting of dwelling construction in the soviet time is the reliable theoretical foundation for development of recommendations on mortgage crediting at the present time.

In Russia the first mortgage organizations appeared in the second part of XVIII century. In contradistinction to the other countries where the land was the subject of mortgage, in Russia the subject of mortgage were serfs. In 1860 the state mortgage credit organizations which existed before reforms were liquidated. After cancellation of serf right by the decree of the tsar Alexandre II the commission for development of the mortgage law was organized on which basis the mortgage banks of different form of property began to arise. However the private banks had the problem of resources attraction for a long period of time, and in connection with that the necessity in the state guarantees on attraction of such means appeared. The state took measures operatively for increase of liquidity of mortgage bonds: the persons who had them got the possibility either to use them as collateral in the purpose to get credit or to sell them.

It is important that the section appeared in the banking legislation, which regulated the activity of mortgage credit organizations, and then this legislation was divided into two parts: one – for commercial banks, which were considered as the banks of short-term crediting, the other – for mortgage banks, which acted on other principles.

The establishment of mortgage credit after 1861 was stipulated by the needs of landowners holding, which faced the difficulties of the “reconstruction” in the period of reforms. The noblemen preserved their rights on real estate, but they did not have large capitals. The need of landowners in means was satisfied for account of land long-term crediting.

The considerable demand on mortgage loans was also in the cities among the house-owners from petty bourgeoises and merchants. The development of trade and business activity, the increase of the offers of stock values in connection with the wave of joint stock foundation, required the large cash means.

In the middle of 60 years of XIX century the mortgage organizations began to appear in Russia, which were founded on the capitalist principles of functioning. At the end of 80 years the system of mortgage credit was built, which consisted of corporation, mutual and joint stock, private and state credit organizations. This system enveloped the territory of the whole European Russia.

The mortgage banks granted long-term loans (till some decades) under the collateral of real estate: private lands in the country and houses (constructions) in the cities. The banks accumulated the means for granting credits for account of issue of mortgage bonds – mortgage sheets. These bonds were supported by the property pledged as security in the bank.

The amount of interest, which was paid by the borrowers to the bank for granted loan, exceeded the amount of the interest, which was paid by the bank to the holders of mortgage sheets. This difference was the main source of the bank profit. The amount of issued into circulation mortgage sheets should not exceed the joint stock and the stock capital more than in 10 times.

The joint stock land banks tried to develop the mortgage crediting also in the cities. However the government limited in the interests of landowners its operations in the cities in the frames of one third of the total of unpaid loans.

The joint stock land banks realized its activity with support and under control of the government. The body, which effected the immediate control over the bank activity, was special office on credit affairs of the Ministry of finances. The government realized the control over issuing of shares and mortgage sheets, provided coordination of private banks with state - Noble and Peasant – banks.

The structure of the profit of the joint stock land banks was typical. The long-term loans gave approximately half of the profit, the short-term credits and the securities, belonged to the bank, gave the other part of the bank profit.

The mortgage banks invested their capitals in the state and assured by the government securities, and because of this fact the demand on their mortgage sheets and shares was increasing constantly. The demand on the shares grew also because of constant high dividends.

Creating mortgage organizations, the government saw their tasks in the fact that the land and the city property, attracted into the banking circulation, was transferred from “weak” to “strong” owners, who could organize developed production and thus could serve for increase of welfare of Russia. /11/

In Russia before the revolution the dynamic market of houses was organized, which was based on strong crediting-financial system, which was founded on pledges and promissory notes. None the less the main object of the mortgage crediting was the land but not the dwelling. The mortgage credit at that time as a rule was associated with land credit and was granted by the different types of land banks, that is the mortgage without dwelling dominated. On the contrary for the period after revolution the granting of credit under dwelling, but without mortgage, was typical, because there were not conditions for development of mortgage: the land – the invariable factor of mortgage – was nationalized.

None the less, in the soviet period the experience of dwelling crediting was formed in our country, which is in principle the base of mortgage crediting. The practice of crediting of dwelling construction in the USSR presents considerable interest. So for a long period of time the organizations of the State Bank of the USSR granted long-term credits to the population for cooperative and individual dwelling construction. The typical feature of organization of individual dwelling construction was the absence of immediate contact of the borrower with bank. The credits were granted to the population not directly but through the organizations in which the individual borrowers worked; the enterprises were guarantors of loans return. The redemption was realized by deduction of payments for credit directly from salary of the borrowers of their enterprises. The credits for dwelling were not assured by real estate or other property, and withdrawal of the property for realization in the purposes of redemption of loan was not used.

In the future, with the reorganization of the credit system, the range of the granted credits developed. The loans began to be granted not only for individual construction of the house, but also for purchase of dwelling, and for construction of second house. The question of crediting of dwelling through construction cooperative societies was resolved.

The State Bank of the USSR had separate elements in the organization of crediting of individual construction which were typical for mortgage system. Particularly the connection of construction of house with land was stipulated.

The practice of bank right protection before the other creditors existed in the form of immediate redemption of the loan from the value of the house. In the case of insufficient amount from the sale of the house for covering the claim the receipt of necessary amount for account of collection of other property of the borrower was stipulated. There were features of mortgage accountability: in the case of full redemption by the borrower of indebtedness before the bank or organization, though which the crediting was organized, the notary was informed of the fact of cancellation of prohibition on sale or transmission of the house. /9/

The limited combination of home experience of mortgage crediting of expenses for purchase of land before revolution with the practice of individual crediting of dwelling construction in the soviet time is the reliable theoretical foundation for development of recommendations on mortgage crediting in the transitional period.

Chapter 2.Construction of safe system of crediting in modern Russia Legislation on Mortgage Crediting

The present chapter describes legal fundamentals of mortgage crediting in Russia, and also depicts the most important changes in legislation on mortgage for the last years. At the same time, I am trying to attract attention to main “perils” of considered legal relations and specifies basic directions of their optimal overcoming.

The term “mortgage” in legal practice usually covers two concepts:

1. “Mortgage” (as legal relation) is the gage of a real estate with the purpose of receiving a mortgage credit (as a rule, in a bank). For mortgage it is characteristic to leave property with the debtor. Gage in civil right is one of methods to back obligations - in this case of bank credit. In so doing, in all cases it is mandatory to register with the State bodies the gage of any real estate. In case of insolvency of the debtor, claims of the creditor are satisfied from the proceeds from sold property with priority before other creditors or by transferring the incorporated real estate in the property of the pledge.

2. “Mortgage” (as a security) means a “bond” - debt tool certifying the rights of the pledge on a real estate. Mortgage usually has a free circulation in the market.

Institute of mortgage has not received in Russia considerable development till nowadays due to different encumbrances, both economic and legal, therefore it is regulated by a rather small array of normative acts.

To the most important of such acts refer Federal Act of 1998 “On mortgage (gage of the real estate)”. General provisions on gage, not defined in the indicated law, are contained in appropriate articles of the Civil Code of the Russian Federation. Federal Act from 1997 “On State Registration of Rights on Real Estate and of Transactions With It” governs registration of real estate, the most important function of the state, absence of which would make stable turnover of real estate completely impossible.

Actual realization of bank’s rights on the mortgage is possible within limits of the law “On execution”. Separate special provisions, which nevertheless should be taken into account while making conclusions on the mortgage agreements, are scattered as well in articles of appropriate laws, such as, for example, the law “On companies of living accommodation proprietors”. In the mortgage of housing accommodations it is necessary to follow requirements of the branch housing legislation, including Housing code of RSFSR, and as well laws and regulations on registration of citizens in their places of residence. Members of the borrower’s family also have rights, established by legislation and described in Family and Civil codes of the Russian Federation. Special acts defend interests of infants, elderly persons and disabled persons.

Up to the beginning the ninetieth years mortgage practically missed. Temporary transfer of property rights on real estate, being the object of mortgage, to the creditor, was a kind of pseudo-mortgage. After settlement of accounts between the debtor and creditor rights on the real estate were transferred back. It was necessary to pay twice rather high State duties, levied from the borrower, and to be ready to run risks connected with possible dishonesty of the creditor receiving rights on real estate for undercharge. Besides, term of rights registration was rather long. In these conditions the above described scheme badly protecting the borrower, could not be distributed broadly. But also after legalization of the mortgage as civilized legal institution, in 1992, contradictions between the out-of-date branch laws did not give lawyers practical possibility to defend effectively rights, but this time not of a borrower, but of the bank-creditor. /11/

There was an impassable gap between “socialist” housing legislation and new Russian right.

Unfortunately, recent laws have only partly corrected this intolerant situation. For example, before acceptance of the law “On mortgage” there were no serious basis for ejection of insolvent debtor and his family from the gaged flat. The bank could hope only on transferring property rights with exception of the right of use or its limitation (depending on the size of living space per tenant). Nowadays ejection is quite possible, but under condition of... granting other living quarters in the same city - in our it means in Moscow, - and with allowance for all existing sanitary requirements.* There is no court practice on realization of the rights of creditor banks in new legal conditions. Earlier collection on gaged flat could be imposed only judicially. With the purpose of avoiding the indicated rule, there was widely used practice of conclusion with insolvent borrower an agreement “on buy off”. But from the moment of replacement of initial agreement with a new one, the mortgage contract was terminated and there emerged competition with other creditors. Not all banks took it into account and bargains on purchase and further disposal of the real estate received by agreement “on buy off” could be recognized invalid.

According to the new act “On mortgage” contractual selling of real estate is possible.

The most important novelty of this law was emerging “mortgage bond”-encumbrance as a kind of securities, freely circulating in the market.** Though Commissions on Securities under President still has not issued appropriate instruction, but at first glance, there are no encumbrances for issue of mortgage bonds already nowadays. There is no need to prove advantages of the mortgage over “simple” agreement on mortgage crediting. Mortgage bond is a nominal security certifying right of its holder on fulfillment of liability, backed by mortgage of property indicated in the agreement on mortgage, without submission of other proofs of existence of this obligation and the very

* Decree of the Moscow Government N365 from the 25th of April 1995 “On

principles of mortgage crediting in Moscow”.

** Chapter 3 of the Federal law N102-FL of July 16, 1998 “On Mortgage”.

right of gage on property indicated in the agreement on mortgage. The mortgage bond is issued to the initial pledge by body conducting State registration of mortgage, after actual State registration of the mortgage and is transferred by fulfillment of endorsement (partly similar to bill, under condition of observance rules of state registration).

The mortgage ensures payment to the pledge of capital amount of the debt under the credit agreement or other liability, backed by mortgage, completely or in a part, foreseen by agreement on mortgage.

Table 1

Obligation Secured by Mortgage

Obligation Secured by Mortgage	A credit agreement
Loan agreement
Any other financial obligation, including an obligation resulting from purchase and sale, lease, contact or other agreement, or infliction damages, unless otherwise provided by the federal law
Obligations secured by Mortgage shall be accounted by the creditor and the debtor, if they are legal entities, in the procedure stipulated by the legislation of the Russian federation on accounting

The mortgage established for backing of fulfillment of the credit agreement with condition of paying interest, ensures as well payment to the creditor of interest on the credit, due to him for usage of credit.

Usually, mortgage ensures as well payment to the pledge of the sums due to him:

- as compensation for damages and / or as a forfeit penalty (fine) in the case of default, delay in performance or other inadequate fulfillment of obligations, backed by the mortgage;

as interest for wrongful usage of other’s money resources, foreseen by obligations, backed by the mortgage, or by federal act.* The problems of possibility to collect percents for usage of other’s monetary resources from a physical person who is not a businessman is not solved nowadays and as well there are no positive judicial precedents. The matter is that in court it is necessary to prove, that the citizen had possibility for settlement of the debt, but has not returned borrowed money resources, available to him, and has used them in different way. For participants of enterprise activity this fact is not proved, but presumed.

as reimbursement of legal costs and other expenses borne due to imposing collection on gaged property;

* Article 393 of the Civil Code of the Russian Federation

- as reimbursement of expenses borne in the course of selling gaged property.

If other is not stipulated in agreement, the mortgage backs claims of the pledgee in amount existing as of the moment of their satisfaction at the expense of gaged property.

Provisions of the law on mortgage are applied to gage of real estate, arrears of housing, provided that it is being constructed on the plot allotted for construction in the order, established by the current legislation.* But it is prohibited to accept in gage village house from family, earning its living by agriculture, because it is impossible to impose collection on such house.** Here, we can see, potential for fraud. But if the house itself is constructed on unpaid credit, it is possible to impose collection on such a house. Common difficulties arising at imposing collection on housing accommodations will be described below. It is evident, that mortgage of real estate being in joint property is possible only on consent of all proprietors. But gage of a share in common property does not require consent of remaining joint owners. Though, in this case there may arise additional difficulties in the course of selling the gage, including difficulty connected with pre-emption right arising for other joint owners.

In agreement on mortgage there should be indicated the right, by virtue of which the property being subject of the mortgage belongs to the pledger. In case of housing accommodation it may be only property right.

Table 2

Contents of the Mortgage Agreement

The subject of mortgage
defined by giving its name, location and a description sufficient to identify the subject.	state the right under which the property being the subject of mortgage belongs to the mortgagor and name of a state agency for registration of real estate rights, which has registered this mortgagor's right.	If the subject of mortgage if the lease right held by the mortgagor, then the leased property shall be described in the mortgage agreement as if it were the subject of mortgage; the term of lease shall also be indicated.
* Article 76 of the law “On Mortgage” ** Article 78 of the law “On Mortgage”
The appraisal of subject of mortgage
accordance with the legislation of the Russian Federation upon agreement of the mortgagor and the mortgagee (observing the provisions of Article 67 of the present Federal Law in the event of mortgage of a land plot); the appraised value shall be stated in the mortgage agreement in monetary form.	mortgage of state and municipal real estate its value shall be appraised in accordance with the requirements of the federal law or in the procedure stipulated therein.	The parties to the mortgage agreement may entrust appraisal of the subject of mortgage to an independent professional organisation.
The obligation secured by mortgage
state its amount, grounds for its origination and its term of execution. In case when this obligation is based on an agreement, parties to such an agreement, its date and place of its conclusion shall be stated. If the amount of obligation secured by mortgage is to be determined at a later date, the mortgage agreement shall indicate the procedure and other necessary conditions of its determination	If the obligation secured by mortgage is to be fulfilled in parts, the mortgage agreement shall indicate the terms (frequency) of appropriate payments and the amount of instalments, or conditions that would help define this amount.
Certified by encumbrance
If rights of mortgage under Ar ticle 13 of the present Federal Law are to be certified by encumbrance, this shall be stated in the mortgage agreement.

 

The agreement on mortgage should be attested by a Public Notary and is subject to State registration.* It is put in force from the moment of such registration. It is very important, that the credit agreement, which is backed by the mortgage, can be concluded after registration of the mortgage agreement. Thus the right of the gage arises from the moment of conclusion of the credit agreement and the borrower risks nothing, if the credit agreement will not be concluded at all. To make legal status of the parties unambiguous it is useful to conclude as well preliminary agreements. Before rise of gage right the property will not be considered charged as mortgage before the third persons.

* Article10 of the Federal law N102-FL of July 16, 1998 “On Mortgage”.

Insurance of real estate is conducted in accordance with conditions of the mortgage agreement, thus the bank - pledgee has right of preference satisfaction of claims from insurance compensation before all other creditors. Therefore it is useful to insure gaged property, insured amounts being not lower than the size of the basic debt with allowance for interest. The bank has possibility to check availability and state of the gaged property in a nature and according to documents. Disposal of the gaged property by the proprietor is possible only on consent of the bank. At any universal succession (for example, by way of inheritance) the mortgage is saved, even if the succession took place with violation of law on transfer of rights. Bargain on disposal of property without consent of the bank is considered invalid.

In the case of confiscation of real estate by way of sanction for committing crime, under general rule the gage ceases *, but the law on mortgage provides its preservation as well in this case**. It seems, that in this case governs the norm of the special law. That is, the mortgage is saved as well in the case of transfer of property rights to the State. But in the case of vindication of gaged property (recovery to the rightful owner from another's illegal possession according to court decision) the mortgage ceases. It will happen, for example, in the case of purchase of living apartments from realtor, to whoms it did not belong to or in the case if the court considers invalid transfer of rights on living apartments to this realtor.***

In general, legislation allows multiple subsequent gage of property, already charged with mortgage, which drastically reduces credit status of the borrower, expected by the bank as of the date of concluding agreement. In order to prevent this negative factor it is necessary to include appropriate forbidding term in each mortgage agreement.

In its part, the bank can concede its rights on the mortgage. But concession by the pledgee of rights for agreement on mortgage to other person is valid, if to the same person are conceded rights of claim from the debtor on the basic liability backed by the mortgage. Or else, the mortgage always follows the credit. The mortgage simplifies cession of rights on considered legal relations. Being a circulating in the market security, the mortgage is transferred by executing the next endorsement (it is required only subsequent State registration of such transfer). The mortgage is as well convenient due to the fact that it can be in its turn a subject of gage.

The foreclosure. The bank can impose collection on gaged property for satisfaction at the expense of this property of its claims emerged due to default or inadequate fulfillment of obligations, backed by the mortgage, in particular in the case of complete or partial non-payment or delayed payment of amount due. In case of periodic payments: if there happens violation of installment terms more than three times within 12 months, even if each delay is minor.****

* Item 2 of the Article 354 of Civil Code of the Russian Federation

** Item 2 Article 41 of the law N102-FLof July16,1998“On Mortgage”.

*** Article 42 of the law “On Mortgage”

**** Item 2 of the Article 50 of the law “On Mortgage”

Collection, as a rule, is imposed under appropriate decision of a court. And, if the pledger is a citizen, the court can at his request postpone fulfillment of imposed collection for 1 year’s term, provided that the sum of increasing debt will not exceed cost of the real estate. Ex curia realization can happen on the basis of the notarially certified agreement between the parties (the above mentioned “buy off”), but in this situation the right of gage does not cease.

Mortgage of housing accommodation has features, which are not applicable to bowers and garden houses. But it remains not quite clear, how they can actually be differentiated from each other. In the bower it is also possible to “register” a relative and it suddenly becomes “the only house of a farmer”. The agreement on mortgage of housing accommodation can not be concluded by representative (“by proxy”), except for property of the wards, but in this case are required appropriate sanctions of authorized State bodies. An apartment house or a flat bought at the expense of credit of the bank in the property are considered as a gage from the moment of State registration of the contract on purchase of the apartment house or the flat (Paragraph 77 of the Laws “On mortgage”). The pledgee under the given gage is bank or other credit organization, which granted credit for purchase of this apartment house or this flat. To the gage of apartment house or the flat arising on the basis of indicated provision of the law, are applied rules governing gage of real estate arising in pursuance of the agreement. Indicated norm of the law on mortgage is convenient for the purposes to simplify accumulation of evidence for possible in the future judicial proving of the bank’s rights.

It is desirable to include all essential conditions and even all details, being at the first glance of little significance, in separate agreement. Though, Moscow mortgage program uses simplified approach. All essential conditions of the mortgage are supposed to be included in the credit agreement with the bank and in contract on purchase of the flat, acquired on the credit, and the right of gage will arise by virtue of the above mentioned provision of Paragraph 77 of the Law “On mortgage”.

To my regret, the problem of “members of the family” and their possible ejection still remains actual with any even most legally worked agreement. Imposing collection by the pledgee on the gaged apartment house or flat and selling of this property are not considered to be a basis for ejection by purchaser of this apartment house or this flat of jointly living in this premise pledger and members of his family, if for them it is the only available premise suitable for permanent residence.

The law makes exception in cases with mortgage of housing accommodation purchased on the bank credit. Insolvent tenants under the law on mortgage are obliged to eject by themselves. Though, this obligation arises within a month’s term after actual selling of this housing accommodation to third persons.* It is clear, that the price of the flat with tenants, who are still to be ejected, will

* Article 78 of the Federal law N102-FL of July 16, 1998 “On Mortgage”.

considerably reduce, unless gangsters will purchase it with moderate discount. But I think, what even when the law on mortgage foresees ejection, calling it “duty to release the premise”, there is no court able to satisfy the claim of purchaser on ejection of the former tenants without granting them other housing accommodation. The matter is that in the case of competition (contradiction) of provisions of different laws, preference is given to special provisions of branch legislation, that is in this case to Housing Law, instead of the Law “On mortgage”. To this legislation there exists as well direct reference in the Civil Code: “Members of proprietor’s family living in belonging to him living quarters have right to use this premise on conditions, foreseen by housing legislation.”** And Housing Law foresees ejection without giving other living quarters only in one case: if tenants systematically destroy or spoil living quarters, or will use it in improper ways.*** However, this provision was not widely used for many years of its operation. In all other cases in the court decision on ejection there should be indicated other living quarters, satisfying to sanitary regulations and located in the same city, where is obliged to move ejected family. Therefore the bank should be ready to situation, when in the course of wide implementation of the program of mortgage crediting it will find necessary to organize special fund of living apartments for dislodged families.

Perspective direction for protection of the creditor bank interests is insurance of its risks, but taking into consideration all above mentioned, it is most likely to increase significantly the cost of the credit.