HOW DOES COVID-19 AFFECT ENFORCMENT OF SECURITY OVER REAL ESTATES IN HUNGARY?

22 April 2020

Measures taken due to the corona virus in recent weeks in Hungary affected the enforcement of securities over real estate, as well. The Governmental Decree regarding this matter provides more assistance to the Debtors who got into trouble due to State of Emergency to overcome the difficult period and may affect indirectly the enforcement proceedings started earlier, weakening the chances of creditors to satisfy their secured claims within reasonable time.

1. Aim of the Governmental Decree

The Government adopted among the first measures because of the coronavirus the Governmental Decree No. 57/2020. (III. 23.)  (“Governmental Decree”), which restricts the possible enforcement actions during the state of emergency (“State of Emergency”).

During the State of Emergency, the priority goal is that “nobody will end up on the streets” in this difficult situation. Therefore, according to the Governmental Decree, action for public notice on auction which can be the basis of a new enforcement procedure, may be taken only 15 days after the end of the State of Emergency in case of residential property of a natural person.

It may be reassuring for creditors that the restrictions do not affect the ongoing enforcements which are not connected with the corona virus.

However, two important measures may affect those enforcements proceedings over real estates, which were initiated before the State of Emergency:

2. Suspension of the enforcement by the request of the debtor

The lawmaker specified a “blanket rule” under which the court, which controls the enforcement procedure, may suspend the procedure if the debtor found himself in a situation due to pandemic measures, which can be deemed as “equitable circumstance”.

This provision affects all enforcement procedures (e.g. wage withholding etc.) but presumably many debtors will try to use it for suspending the auction of their real estate.

3. Ongoing enforcement proceedings of real estate

The Governmental Decree also affects the ongoing auction of a residential property of a natural person as the bailiff can only activate the user name and the password of the auctioneer 15 days after the end of the State of Emergency, therefore, the procedure is virtually stopped until then.

Furthermore, in case of ongoing enforcement procedures over reals estates, started before the entry into force of the Governmental Decree, when the auction is successful, measures for eviction of the debtor cannot be taken during the State of Emergency.

Thus, the auction buyer can acquire the property of the real estate, but it is uncertain when he can enter into possession in case the debtor or other person residing in the real estate does not want to leave it voluntarily.

4. Summary

The Governmental Decree affects primarily the enforcement procedures started after its entry into force, however it will indirectly affect the security enforcement over real estates started before, as the debtors can request the suspension of the procedure from the court on the one hand and they cannot be forced to leave the real estate on the other.

These indirect effects will presumably negatively affect the success of the security enforcement over real estates in Hungary, and cause significant delay for creditors to satisfy their secured claim.