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Lien statement problems as an executive document – in view of practice

Marko Tasić • june 6, 2023

Lien statement problems as an executive document – in view of practice

Lien statement presents one of the leading executive documents, which is used because of the protection of credit placements by banks and other economic subjects. Like that, it is a pillar of bank sector business activities, so it has an important place as a basis of collecting claims in those credit business activities it is declared.

  1. Term of a lien statement and its place among executive documents

Term of a lien statement was defined by the Mortgage Law (‘’Official Register of the Republic of Serbia’’, number 115/2005, 60/2015, 63/2015 – Decision of Constitutional Court and 83/15), and that Law in the Act 14, paragraph 2, regulate that a lien statement is made by the owner of the real estate, by which he/she is unilaterally obliged to found mortgage in the benefit of the creditor, because of provided claim settlement in the way regulated by the law. In fact, a lien statement is a document which can usually be found in the bank credit business activities, when the bank requires from the credit user or the third party to give a lien statement by which he/she is unilaterally obliged in the case that the debt under credit contract will not be paid in due time, the bank can charge its provided claim from the real estate value, on the occasion of approving credit of a large amount of money. It is hereby clear that da a lien statement presents means of providing charge of money claim. However, if the claim of the creditor will not be charged in a due time, a lien statement is,   by   the Law on Enforcement and Security Interest (‘’Official Register of the Republic of Serbia’’, number 106/2015, 106/2016 – authentic interpretation, 113/2017 – authentic interpretation, 54/2019 and 9/2020 – authentic interpretation) is anticipated as an executive document, on the basis of which, the creditor can start a procedure of forced payment execution. Act 41 of the Law on Enforcement and Security Interest a lien statement is, with a mortgage contract, is anticipated as an executive document, with indication that it really is an executive document if it is given in the form determined by the Mortgage Law, if it contains regulation anticipated by that Law, and if it has been recorded in the real estate cadaster as an executive extrajudicial mortgage.

  1. Is a lien statement a document which is an appropriate document for starting an executive procedure? What are its advantages and disadvantages?

Act 5, Law on Enforcement and Security Interest regulates that the court and public enforcement officer, when deciding on the suggestion on execution obliged by the executive and valid document, i.e. that the court is not authorized to examine legitimacy and regularity of an executive document. Implicated law regulation is, with its court interpretation, has often been a problem in practice. Primarily, an unquestionable fact is that executive creditor, on the occasion of submitting a proposal on execution, is obliged to cite a whole lien statement, with all spelling and printed errors, and stating land register lots, exactly the same way when a lien statement was given and recorded in a real estate at that time, and frequently land register extracts that exist no more.   After that, in order of adopting execution suggestion, an executive creditor is obliged to indicate present, current state of pledged property in the real estate cadaster. The above mentioned is not a relevant problem in the law sense, although it looks like suggestions overwhelmed by descriptions and numbers, colloquially speaking, which are not adequate to pledged properties, though a real problem which appears regarding law interpretation by the courts is an interest problem in a lien statement.

That is to say, inevitable interest problem in lien statements has become conspicuous when the courts have validly become to refuse suggestions for an execution in the part related to interest.  The existing problem has appeared because creditors submitted a suggestion for an execution on the basis of a lien statement and they cited a lien statement in petitum, so the suggestion would be the same as a given statement.. According to the mentioned above, the creditor has claimed interest in the same way, he/she has not emphasized in the usual way, which has been standardized for other executive and valid documents, but he/she has claimed it in the way the interest has been anticipated in the very Contracts, regarding which a lien statement has been given. That description, the court estimates as undefined, stating that the amount of payment on the basis of, for example a regular interest or a legal interest has not been defined, so it is necessary to submit a lien statement and a proof of the amount of debt in the form of interest calculation or economic-financial expertise, otherwise the proposal will be estimated as disorderly and like that, it will be rejected by the Decision within submitting proposal for execution. The fact that is seen as a problem here, is that the creditor, within submitting execution proposal on the basis of a lien statement, which is anticipated as an executive document, in order to succeed with the proposal for certain, he/she has to submit an interest calculation, which is anticipated as a valid document by Act 52, Law on Enforcement and Security, or to pay for economic-financial expertise in order to define accurate interest amount. Therefore, executive creditor has two available options, either to start a process on the basis of two documents, or to pay a relevant cost. It is a bit pointless and really questionable why  an executive creditor would make a valid document, when he/she possesses an executive, on the basis of which he/she start an executive process, and the same question is why an executive creditor has to expose himself/herself to expertise cost when his/her obligation in that part is really. Regarding the fact that according to Act 46 Law on Contractual Relations (‘’Official Register of the Socialist Federal Republic of Yugoslavia’’, number 29/78, 39/85, 45/89 – Decision of Constitutional Court of Yugoslavia and 57/89, ‘’Official Register of the Federal Republic of Yugoslavia’’, number 31/93, ‘Official Register of Serbia and Montenegro’’, number 1/2003 – Constitutional Charter and ‘’Official Register of the Republic of Serbia’’, number 18/2020) the subject of obligation has to be possible, allowed and defined, i.e. determinable, and taking into account Act 50 of the above mentioned law, which regulates that that the subject of the obligation is determinable if the contract contains data according to which it can be determined or the parties have left them to the third party to determine it, there is an obscure and legally unsubstantiated court attitude regarding this question, which has to be changed, regarding the fact that interest in contracts is always determinable, it can also be determinable at initiating of an executive process. The above mentioned especially put in question an application of the mentioned Act 5 of the Law on Enforcement and Security Interest on the basis of which the court has an obligation to accept the document in the way it has been made.  In order to make identity between an obligation from an executive document and submitted execution proposal, it is necessary for an executive creditor that a proposal the proposal and a claimed amount from the same declares according to an executive document.

There is a question of legal nature, if the court, an executive proposal submitted on the basis of a lien statement as an executive document and with that interest calculation as a valid document, would treat a proposal submitted on the basis of a lien statement as a proposal submitted on the basis of an executive or a valid document, would treat as a proposal submitted on the basis of executive or a valid document. Described above is still an unsolved problem in practice, and it certainly is a very relevant detail for the creditor who has submitted the proposal. Primarily, will the stated legal remedy postpone enforcing execution, and even, which legal remedy will be anticipated in the instruction on legal means and what the consequences of adopting that kind of legal remedy are. The above mentioned is a crucial for the very continuation of an executive procedure, potential turning into civil procedure  and for possibility of payment claim in a reasonable period, and that is the aim of an executive procedure. By asking this question and unsolved problem in practice, the creditor who is trying to recompense his/her secured claim is put in an unsatisfactory position.  According to all above mentioned, for the creditor, it would be more secure and legally more certain to submit  done expertise by  the economy and financial experts within a lien statement regarding his/her claim, until the court cannot take clear attitude to noted problem. At this moment, it seems that the cost which implies doing expertise, incomparably smaller in relation to all legal insecurity which will be caused by an execution proposal on the basis of two different kinds of documents.

  1. Subjects and means of an execution in a lien statement; Issued on proposed entire property

According to valid regulations of the Law on Enforcement and Security Interest, the subject of execution in executive processes which have been started on the basis of a lien statement cannot be the entire property of an executive debtor. However, execution subject, if execution proposal is submitted on the basis of a lien statement in our older versions of the Law on Enforcement and Security Interest, which are still applied to a great number of procedures, to those which has started when old versions have been valid, and have not been finished so far, has not been defined for a long time, i.e. a lien statement has been noted in the list of executive documents without any limitations regarding that. According to the regulations of earlier version of the Law, an unsolved question has been whether an executive creditor can propose an execution on the entire property of an executive debtor, i.e. on some other subject and execution means, and not on the pledged, that is to say, a real estate under mortgage. This dilemma was finally solved by currently valid Law on Enforcement and Security Interest, which went into effect on January 1st 2020 and Act 41, Paragraph 3 regulates that execution can only be implemented on the subject on a lien law on the basis of a lien statement.  Mentioned novelty has been necessary because a lien debtor does not have to be essential debtor from the contract, i.e. credit user, and differently from main debtor, who is responsible for his/her obligation by his/her entire property, a lien debtor is responsible only by a pledged subject, and according to this, the novelty is meets our other legal regulations.

  1. Certificate on moving a real estate within change of a real estate description

Also, for submission of a proposal for an execution on the basis on a lien statement, the creditors should be informed on the fact that number of a cadaster lot/real estate description/an owner of a real estate can be changed, from the moment of giving a lien statement to the moment of using it in an executive procedure. In that case it is necessary that a claimant of a proposal provides the Certificate on moving a real estate from the Republic Geodetic Authority in which an old size and a new one, and that Certificate will be provided by a request that is submitted at the real estate authority. At that moment, a claimant of the proposal can submit an execution proposal and define an earlier description of a real estate from a lien statement, so, if something has been changed, a new description, for which he/she will attach Cadaster extract and the Certificate on moving a real estate on the basis of which he/she will prove the identity of the pledged property.

  1. The advantages of a lien statement

One of the basic advantages of a lien statement is that it is anticipated as an executive document by the Law on Enforcement and Security Interest. Executive documents, in difference from authentic documents (except bank drafts) has a privilege in an executive procedure, because legal remedies do not cancel execution Decisions which have been made on the basis of executive documents. However, it is necessary to note here that one of the prerequisites is that the Decision on execution has gone into effect for the bringing Conclusion on selling a real estate, i.e. for the very selling of a real estate.

The other advantage of a lien statement reflects in the fact that its owner has a right of choice to settle by application of Mortgage Law or Law on Enforcement and Security Interest. An executive creditor hereby has an option to send a request to the Land Register to make a note on mortgage selling or to submit a proposal to the authorized court and claim to a public enforcement officer on duty to make a Conclusion by which the Cadaster Authority will note the Decision in the Register.  If we compare both procedures, and their purpose is identical, we can emphasize that the procedure of mortgage selling more efficient procedure, with lower costs, and if the creditor decides to sell a real estate at the public auction, he/she can achieve better price in relation to the public selling in the executive procedure, having in mind that the first price is  75% out of the estimated value of a real estate, (70% according to a new version of the Law on Enforcement and Security Interest, 60% according to an old one), and  if it is unsuccessful, at the second it is 60% of an estimated value of a real estate (50% according to a new version of the Law on Enforcement and Security Interest, 30% according to an old one). On the other hand, an executive procedure is a procedure which is incomparably efficient, legally safer, certain and more defined than mortgage selling procedure. In an executive procedure, the role of a public enforcement officer is accurately regulated and defined as an organ that leads the procedure, what his/her authority is according to executed selling of a real estate,  possibilities of clearing out a real estate if a person whose real estate is sold, does not want to leave sold real estate, possibility of entering the real estate, without will of the person who has owned the property until an executed selling, while in the mortgage selling procedure that segment is missing,  which often is a problem in practice. Like that, an executive procedure is much ‘’formalized’’ than extrajudicial mortgage selling, but from good aspect, having in mind that all the anticipated phases of selling the pledged property, are more comprehensive and more complete. According to everything above mentioned, the suggestion to the creditors who want to start a procedure in which they will sell the pledged property and settle their payment, would always be to start the procedure which will provide them much higher level of success in payment of their claims, the procedure that offers a higher level of security and certainty, as well as safety, as well as security of finishing selling as a whole and that is positively an executive procedure.

Essential advantage of a lien statement regards obsolescence of the claim.  Indeed, a lien, i.e. mortgage creditor whose right has been written at the Cadaster of a Real Estate authority, has a right to settle from restricted real estate, even after the time of obsolescence, because it deals with a real law, and the rights which do not obsolete by their nature, that is anticipated by Act 26, the Mortgage Law (‘’Official Register of the Republic of Serbia’’, number 115/2005, 60/2015, 63/2015 – Constitutional Court Decision and 83/2015) which regulates that mortgage creditor can be settled from the value of the pledged property after obsolescence of provided claim.

At the end, we would point out the nature of a lien statement and its subject as an advantage of a lien statement. So, since it serves as means of a claim security through a real estate as its subject, the same presents certain, safe and valuable means of security by which the creditor completely provides his/her claim, and this is the reason why many subject decide on it, when defining the means of a claim security which will be demanded for conclusion of a special law business.