Creditor claim with mortgage on real estate
May 21, 2013 | 30,00 EUR | answered by Dr. Dr. Danjel-Philippe Newerla
As a creditor, I have a claim against a private individual for the remaining payment for the sold residential property (which has been occupied by him since the beginning of the insolvency), however, a bank as a lender has a significantly higher outstanding debt. Both claims are registered as mortgage liens, and the property has been released from the insolvency estate due to being fully encumbered. The rehabilitation phase has been ongoing for five years, during which no significant amounts could be collected by the trustee.
Do I have to expect that with the discharge of residual debts, the right to auction the property will expire and my claim will also be voided? Would the proceeds from an auction (initiated by the bank, by me, or the insolvency trustee) be proportionally allocated to me as well, or would they only benefit the main creditor with my mortgage lien remaining in place? Is there anything I can currently do to protect my rights?
Dear inquirer,
Thank you for your inquiry.
I would like to answer it as follows:
1. Do I have to expect that with debt relief, the right to auction the property expires and my claim becomes void?
No, debt relief generally does not apply to the property or the corresponding mortgage. This is directly stated in the law, specifically in Section 301 (2) of the Insolvency Act, which I have attached for your better understanding.
§ 301 InsO
Effect of debt relief
(1) If debt relief is granted, it becomes effective against all insolvency creditors. This also applies to creditors who have not filed their claims.
(2) The rights of insolvency creditors against co-debtors and guarantors of the debtor, as well as the rights of these creditors from an encumbrance entered for their security or from a right that entitles them to separate satisfaction in the insolvency proceedings, are not affected by debt relief. However, the debtor is relieved in the same way towards the co-debtor, guarantor, or other recourse claimants as towards the insolvency creditors.
2. In the case of an auction (initiated by the bank, by me, or by the insolvency administrator), would the proceeds also benefit me proportionally, or only the main creditor, leaving only my mortgage right, so to speak?
In forced execution/foreclosure, the principle of priority applies. This means that the creditor with the higher rank will be satisfied first.
You mentioned a "main creditor" here. If this creditor was the first to be registered with the mortgage, then this mortgage has a higher rank.
Therefore, from the auction proceeds, this creditor will be satisfied first, and if there is anything left after deducting auction costs, then the subordinate creditors (you) will benefit.
3. Can I currently take any useful action for my rights?
This cannot be definitively assessed in a remote initial consultation without knowledge of the complete facts and specific numbers. However, a sensible approach here could be, as already suggested, forced execution/foreclosure.
To make a conclusive assessment, the financial figures, especially the amount of the main creditor's claim, would need to be known.
In this context, you may consider engaging a local colleague lawyer to conclusively clarify the facts and legal situation, and then potentially represent your legal interests.
I wish you a pleasant Tuesday evening!
Kind regards from the North Sea coast
Dipl.-Jur. Danjel-Philippe Newerla, Attorney at Law
