George Psarakis, LL.M., LL.M., PgCert
(Republished from Euroday.gr)
Summary: "Brake on first home auctions", "Judicial brake on fund for first home auction", "Decision-brake on fund auctions" and other related headlines monopolized the press a few days ago and especially a few days before the elections. Is there really a question of re-questioning the ability of Servicers to conduct auctions? What has intervened since the Supreme Court's plenary decision earlier this year, and what is the truth about the "brake decisions"?
About a year ago we had mentioned on this website the 4 main problems that Servicers face in terms of their legitimacy when trying to claim bank claims in court (see here). One of them was finally resolved in favour of Servicers with the decision of the Supreme Court Plenary No 1/2023 (see here). However, the other 3 problems remain and even the issue of proving the management of claims is now the spearhead of the borrowers' legal disputes. In simple terms, if the Servicer cannot prove or fails to produce/provide at the appropriate time the necessary documents showing that it has been entrusted with the management of the specific loan of the specific debtor, then all enforcement actions may be annulled.
At this point, a serious deficiency on the part of the Servicers can be identified: although the summary of the servicing agreement published in the pledge register is notified to the debtor, no document (part of an annex, etc.) is notified which shows that the loan in question is among those for which the Servicer has been entrusted with the management (see e.g. decision No 4474/2022 of the Athens Single Court of Appeal: "From the above documents that the defendant communicated to the applicant, it is clear that it and the special purpose vehicle "...", to which the claims of the Bank "..." were assigned. ", have also concluded between them a long-term management contract dated 08-04-2021, which apparently lists (in Annex 1) the loans taken out by the defendant, but this contract and its amendments were not communicated to the applicant together with the cheque for payment dated 14-09-2021, in order to ascertain whether the contract No . ../20-04-2005, which he had concluded with the bank "...", was included in the claims which the defendant had taken over the management of" - see the applicant's statement of reasons. See also the decision of the Athens Court of Appeal, No 25/2023: "As regards the above documents which the defendant communicated to the applicant together with the letter of 19.1. 2022 cheque for payment, the extract of the disputed business receivables management agreement and the summary of the assignment agreement for securitised business receivables do not mention in a general manner the loans and receivables, the management of which was undertaken by the defendant the applicant, nor does it appear that the defendant the applicant undertook the management of all the receivables transferred from 'TRAPEZA ............... S.A.'. to that foreign company').
The problem lies in the fact that the form of the summary of the management contract submitted by the Servicers to the competent pawnshops, which was adopted on the basis of a relevant ministerial decision of the Minister of Justice in 2003 (YA161337/30.10.2003), does not include an annex of claims and therefore the Servicer must prove in another way that the management of the specific disputed claim (loan) has been entrusted to him and not to someone else. The signed servicing agreement (i.e. not the summary thereof) obviously exists and is lengthy with detailed provisions which, however, the parties involved (Funds and Servicers) do not wish to disclose to third parties; therefore, Servicers are covered by the law and only file the summary, which is published in the pawnbroker's office and usually contains 2-3 pages with what the above mentioned Ministerial Decision of 2003 provides for. This summary, however, does not contain an annex specifying the individual loans that are to be administered.
However, the Servicers have already begun to solve this problem since last year, when the intensity of the problem became apparent, in the following simple way: the management contract contains an additional reference to the fact that all the loans transferred are to be managed and are included in the annex to the summary of the other contract, the contract of transfer. However, there are still a large number of summaries of management contracts that have not been completed, so debtors have a serious weapon at their disposal against aggressive actions by Servicers.
A final defensive argument is the following: not all the conditions laid down in the relevant ministerial decisions are included in the summaries of the transfer and management contracts published in the Pledge Registry. In particular, the price for the sale of the entire loan package and the servicer's management fee are never mentioned. The decision of the Volos Court of First Instance in this respect, No 82/2021, has ruled in this regard: 'According to these provisions, as reflected in the main recital of the present case, the amount of the transfer price, the essential terms of the contract and the capital due per business claim and per set and the amount up to which it is secured should be indicated, among other things. However, in the present case, the letter of intent of the contract No. .../30.4.2020 form published at the Athens Pledge Registry, with regard to the amount of the purchase price, states that it is determined in accordance with Article 5 of the transfer agreement of 30.4.2020 without any other specification, and in the section of the agreement entitled "other essential terms" no term is mentioned, the amount of the transferred receivable is not mentioned either in the text of the agreement or in the attached extract from the annex, nor is the amount of the collateral. This is also the case with the recently published 'decision-brake', No 936/2023 of the Athens Court of First Instance, according to which the management contract is considered invalid for lack of reference to the claims to be managed and any stage of non-servicing of those claims. In this case, however, the Servicer had not produced the management agreement, which is complete and contains a reference to the claims under management (both due and not due), nor had the summary of the management agreement been completed in the pledge office (there are also contrary judgments on the above issues).
In conclusion, the following must be said: the problem of red loans lends itself to rapturous crowns and subversive headlines. The truth is, however, that the auctions are continuing and there is no longer any universally accepted argument that prevents the process from taking place across the board. The battles in the courtrooms are well under way, with Greek judges trying to help where they are allowed to, particularly in cases where borrowers' first homes are at stake. They are doing so because they understand that the benefit to the Funds and Servicers is disproportionately high compared to the risk they have taken, especially today when, due to the rise in base rates, debts are ballooning rapidly. Horizontal solutions are ultimately required and these cannot be provided by the judiciary on such a large scale of cases. Improving the out-of-court debt settlement mechanism (further changes need to be made and recent amendments are not enough) could provide a way forward.