La foreclosure is a complex procedure that culminates in the sale of the property. However, the sale is not the end of the process. An equally decisive stage then begins: the distribution of the price obtained among the various creditors. This phase, the sixth and final stage in the seizure process, is governed by strict rules to ensure that each creditor is paid according to his or her rank. The intervention of a expert in property seizures is essential to oversee this distribution. The law favours a negotiated outcome, the amicable distribution of the sale price. However, when interests diverge and no consensus can be reached, legal action is required. This article focuses on the operation of judicial distribution, the subsidiary but indispensable mechanism that ensures the settlement of claims in the event of disagreement.
Judicial distribution: a subsidiary method of distribution
Judicial distribution of the sale price is not the first option envisaged by the law. It only comes into play when the amicable route has failed. This subsidiarity reflects the legislator's desire to favour agreements between the parties. Nevertheless, the judicial procedure was designed to be an effective and structured solution when dialogue has broken down.
The need for judicial distribution in the event of disagreement
The distribution of the sale price of a seized property must first be the subject of an attempt at amicable settlement. The pursuing creditor draws up a proposal for distribution, which he notifies to the debtor and the other creditors. If all the parties agree, a record of agreement is drawn up and the enforcement judge makes it enforceable. The procedure is simple and quick.
However, disagreements may arise at several levels: one creditor may dispute the amount of another's claim, the ranking assigned to it, or even the validity of its security. The debtor may also have objections. Article R. 333-1 of the Code of Civil Enforcement Procedures (CPCE) states that it is precisely in this situation, "in the absence of a record of agreement bearing the enforcement formula", that judicial distribution is opened. It therefore constitutes a legal safety net, guaranteeing that the procedure is not blocked by a dispute and that the consigned funds are finally distributed.
Simplification of the procedure: a significant development
Before the major reform of seizures of property in 2006, the judicial distribution procedure, then known as the "judicial order procedure", was renowned for being cumbersome and slow. Aware of these shortcomings, the legislature radically simplified the system. The aim was to make it quicker and clearer for everyone involved.
One of the major innovations has been to anticipate a number of stages. Previously, distribution was a virtually autonomous procedure that began after the sale. Today, it is prepared well in advance. For example, registered creditors are required to declare their updated claims very early in the process, as early as the seizure phase. This integration has made the whole process smoother. The Court of Cassation has emphasised this close link by stating that "the seizure of property and the distribution of the price constitute two phases of the same procedure" (Cass., opinion, 16 May 2008, no. 08-00.002). This unified view has helped to considerably reduce creditors' payment times.
The judicial distribution initiative
When amicable settlement fails, proceedings are not automatically initiated. One of the parties must take the initiative and refer the matter to the court to have the disagreements settled and the funds distributed. The Code of Civil Enforcement Procedures defines precisely who can take action and how.
The role of the pursuing creditor and other parties
Logically, it is the responsibility of the pursuing creditor, the one who initiated the property seizure, to initiate the judicial distribution procedure. Once he has established that amicable negotiations have failed, he must apply to the enforcement judge.
However, to prevent the process from being paralysed by inertia, the law offers an alternative solution. Article R. 333-1 of the CPCE allows "any party", provided it is represented by a lawyer, to refer the matter to the court itself. This option is essential: it protects the rights of other registered creditors, but also those of the debtor, who may have an interest in seeing the situation settled definitively. A lower-ranking creditor who fears that the pursuing creditor will delay taking action, for example after receiving a provisional payment, can thus take matters into his own hands. The same applies to a debtor who wishes to see his situation cleared up and the inscriptions on his former property removed.
Documents to be sent to the enforcement judge
Referral to the judge is not made without precise formalities. The party initiating the judicial distribution must file a petition with the enforcement judge's registry. This application must be accompanied by a complete file enabling the judge to understand the context and nature of the dispute. According to the Code of Civil Enforcement Procedures, the pursuing creditor must enclose :
- The distribution plan that served as the basis for the out-of-court settlement attempt.
- Minutes setting out the difficulties encountered and the points of disagreement that prevented an agreement from being signed.
- Any other document deemed useful to enlighten the judge.
This file enables the judge to immediately identify the crux of the dispute. He does not start from scratch, but builds on the negotiations that have already taken place. This enables him to focus his analysis on the points in dispute and to rule more effectively.
The role of the enforcement judge in apportioning the price
Once entered, the enforcement judge (JEX) becomes the master of the distribution process. He is no longer simply a supervisor or an approver of agreements, but a decision-maker who will settle disputes and establish the order in which creditors are to be paid. His role is central and his powers extensive.
Breakdown of the price where there is more than one property
A particularly technical situation can arise when several properties have been seized and sold as a single lot for a total price. In this case, it is impossible to distribute the funds without first determining the share of the overall price that belongs to each property. This operation is known as "breaking down the price".
This is essential because creditors do not necessarily have mortgages on all the properties sold. A creditor may have a registration on only one of the properties, and will only be paid on the fraction of the price corresponding to that specific property. Breakdown is therefore an essential preliminary step to distribution. Given its complexity, which may require an analysis of the value of each asset, the law has provided tools to assist the judge.
Recourse to an expert: when and why?
The enforcement judge is not alone in breaking down the price. Article R. 333-2 of the CPCE allows him to appoint an expert. He may do so on his own initiative or at the request of one of the parties. This expert appraisal is often essential to obtain an objective and technical assessment of the value of each property making up the lot sold.
The expert appointed is a qualified professional (often a property expert) who will submit a report after carrying out his valuations. The judge sets the deadline by which this report must be submitted. Although the law does not explicitly state this, in theory the judge is not bound by the expert's conclusions. However, the text specifies that the breakdown is made "in the light of" the report, which indicates that the report carries considerable weight in the final decision. In practice, it is rare for the judge to depart from a well-reasoned expert report. The costs of the expert report are advanced by the party requesting it or, if the court decides to do so on its own initiative, by the pursuing creditor, before being included in the distribution costs and paid by deduction from the sale price.
The enforcement judge's decision: status of distributions and write-offs
After investigating the case, resolving any technical issues such as the breakdown of the price, and hearing the parties' arguments on the points in dispute, the enforcement judge issues his decision. This judgment closes the judicial distribution phase and organises the actual payment.
The content of the judgment and its enforceability
The judge's final decision takes the form of a "statement of distribution". This document, which forms the operative part of the judgment, sets out the final and binding order and amount of payments for each creditor. It puts an end to any disputes and establishes the official distribution plan.
In addition to simply distributing the funds, this judgment has another essential function. Article R. 333-3 of the CPCE specifies that it orders the cancellation of all registrations of mortgages and liens that encumbered the property on the part of the seized debtor. This measure is essential for the buyer of the property, as it guarantees that he or she will receive a property that has been "purged" of all previous debts. Once the judgement has become final, it is signed and sent to the organisation responsible for depositing the funds so that payments can be made.
Appeals against the distribution ruling
The enforcement judge's decision does not necessarily put an end to all debate. If a party (debtor or creditor) feels aggrieved by the distribution statement, they have a means of appeal. This possibility of having the case re-examined by a higher court is a fundamental guarantee.
Article R. 333-3 of the CPCE specifies a key point: an appeal against this ruling has suspensive effect. In practical terms, this means that no payment can be made until the Court of Appeal has handed down its decision. The funds remain in escrow. This suspension protects the rights of the person contesting the distribution, by avoiding a distribution that could prove difficult, if not impossible, to reverse at a later date. If you believe that the proposed judicial distribution infringes your rights, it is essential to act quickly to contest the proposed distribution of money within the legal deadlines.
Payment of creditors and remittance of the balance to the debtor
Once the judgment establishing the state of distribution has become final, either because no appeal has been lodged or because the Court of Appeal has ruled, the final phase can finally be carried out: the actual payment. The receiver or the Caisse des dépôts et consignations, which holds the funds from the sale, makes the payments in strict compliance with the court ruling.
Under article R. 334-2 of the CPCE, payments must be made within one month of notification of the enforceable judgment. Each registered creditor receives the amount allocated to it, until all available funds have been exhausted. If, after payment of all the registered creditors and the costs of the proceedings, there is still a balance, it is returned to the debtor. This point is essential: the seizure of property is a recovery procedure, not a sanction designed to deprive the debtor of the full value of his property. The balance is returned to the debtor.
Finally, article R. 334-3 of the CPCE sets an overall deadline of six months after publication of the title de vente for the distribution to be finalised. Once this period has elapsed, and even if not all the payments have been made, the deposit of the price is considered to be a payment in full discharge of the debtor's obligations to his creditors, up to the amount of the sums remitted to them.
The judicial distribution procedure, although simplified, remains a technical and formalistic process in which each stage is governed by strict deadlines and precise rules. The presence of a lawyer is essential to ensure that the rights of each party, whether debtor or creditors, are properly defended. For an in-depth analysis of your situation and tailored advice, contact our team of lawyers.
Sources
- Code of civil enforcement procedures
- Civil Code
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