When a foreclosure sale does not cover the entire debt, the financial situation becomes a real headache for both the debtor and the creditor. The borrower wonders what still needs to be paid, while the creditor assesses the sums that can still be recovered. To initiate new proceedings, the debt must be clearly defined, a condition that is often difficult to meet immediately after the auction. This procedure, often seen as a last resort, raises an essential question: what should be done if the sale of the property is not enough to settle the accounts? Navigating these complex waters, the assistance of a lawyer specialising in property law and enforcement is essential if you are to defend your rights. There are several stages, remedies and solutions to consider.
The foreclosure procedure: key stages and players
Before analysing the financial consequences of an inadequate sale, it is essential to understand how a property seizure is carried out. This is a complex legal procedure, the implementation of which is strictly regulated. The process involves several players (creditor, debtor, court commissioner, lawyer, execution judge) and breaks down into distinct stages, from the initial deed to the forced sale of the property.
The central role of the writ of execution: the basis for legal proceedings
No seizure can be initiated without a writ of execution. This is a legal document that authorises the creditor to resort to forced execution to obtain payment of the debt. It may be a judgement, an order or a notarised deed bearing the executory clause. In accordance with articles L. 111-2 and L. 311-2 of the Code of Civil Enforcement Procedures (CPCE), this instrument must establish a claim that is certain in its existence, liquid in its amount (i.e. the amount of the claim must be precisely quantified) and due. Without a valid document meeting these conditions, the whole attachment procedure may be called into question. To find out more about the conditions for a liquid and payable debtFor more information, see our article on enforceable title.
From the summons to pay to the orientation hearing: the initial stages
The real estate seizure procedure begins with a formal formal notice: the service of a summons to pay (commandement de payer valant saisie), issued by a judicial commissioner (formerly a bailiff). This document orders the debtor to pay his debt within eight days. Above all, it renders the property unavailable: the owner can no longer sell it or encumber it with new securities (mortgage). Once this deadline has passed, the creditor must summon the debtor to appear before the enforcement judge (JEX) for a so-called orientation hearing. This summons must be issued within two months of publication of the summons at the land registry, which makes the seizure enforceable against everyone and therefore public. At this hearing, the judge will check the validity of the procedure and decide whether the case should go ahead: either a compulsory sale (auction), for which he or she will set the upset price, or authorisation for an out-of-court sale. If the compulsory sale is ordered, it will take place at public auction, with the possibility of a higher bid within ten days of the auction.
What remains to be paid? Calculating the residual debt after the sale
When the proceeds of the sale of the property are obtained, whether by auction or out-of-court sale, they are consigned, i.e. placed in escrow with the President of the Bar Association. This sum is not immediately paid to the creditor. It will only be paid after the distribution procedure, which can take several months. This delay has direct repercussions on the calculation of the amount due, particularly as regards interest.
What happens to the interest for the debtor: the discharge effect of the deposit
For the debtor, often the borrower of the initial property loan, the deposit of the sale price has a major effect. According to articles L. 334-1 and R. 334-3 of the CPCE, six months after payment of the purchase price by the successful bidder, this deposit has the effect of a payment. In practical terms, this means that interest on the debt stops accruing on that date, to the extent of the sums that will actually be remitted to the creditors at the time of distribution. The borrower is thus protected against the financial loss associated with an accumulation of interest during the sometimes lengthy period of the distribution procedure. It is at this point that we can begin to determine whether the seizure and sale of the property is sufficient to cover the debt.
The creditor's perspective: when is the debt considered paid?
The situation is different for the creditor. Although the interest payable by the debtor is stopped, the funds in escrow continue to earn interest. This interest, generated by the investment of the escrowed sums, is added to the main sale price and will be divided between the creditors. The creditor does not actually receive payment until the price is distributed. The final amount allocated to the creditor will therefore depend on this date, which determines the final calculation of the interest generated by the sale price and the costs of the proceedings. This asymmetry between the debtor and the creditor makes the calculation of the final balance complex until the judge's distribution decision.
What are the creditor's options for pursuing recovery?
Once the sale price has been distributed, if a balance of the debt remains, the auction judgement constitutes an enforceable title for the pursuing creditor. The pursuing creditor then has several options for recovering the outstanding amount. For example, the creditor can take further steps, such as seizing bank accounts, garnishing wages or seizing other assets belonging to the debtor. However, this legal action is not without limits. The creditor must be careful not to abuse the seizure, which is punishable under article L. 121-2 of the CPCE, and could result in the creditor having to pay damages to the debtor. Conversely, abusive resistance by the borrower to enforcement may also be penalised by the enforcement judge, as provided for in article L. 121-3 of the same code.
How can I dispute the seizure or the outstanding balance?
Debtors are not helpless when faced with a property seizure or a claim for the balance after the sale. They have several options for challenging the procedure itself or the amount claimed. For the most part, these disputes fall within the exclusive jurisdiction of the Enforcement Judge, who is the arbiter of forced execution.
Challenging the summons to pay: formal defects and deadlines
The summons to pay is a very formal document that must contain a number of compulsory details. The omission of any of these particulars or an irregularity in the service of the document may render it null and void. However, a simple irregularity is not always enough. The debtor generally has to prove that the defect in form has caused him a prejudice, i.e. a loss. The dispute must be raised by way of lawyer's submissions before the Enforcement Judge before the orientation hearing. Cancelling this first key part of the case is the most direct way of stopping the process before it has even produced its most serious effects.
The key role of the Enforcement Judge: an essential arbitrator
The Enforcement Judge, or JEX, is the magistrate of the judicial court who oversees the entire property seizure process. Under the terms of article L. 213-6 of the French Code of Judicial Organisation, he has exclusive jurisdiction to settle all difficulties relating to enforceable titles and disputes arising in connection with forced execution. His powers are not limited to a simple formal review; he can examine the substance of the law. The JEX can thus grant payment deadlines, verify the validity of the claim, or even rule on a request for amicable sale when it decides on the direction of the case. It is before the JEX that debtors must formulate their objections in order to assert their rights throughout the proceedings. It is therefore essential to understand the role of the Enforcement Judge to organise its defence.
Property seizure and insolvency proceedings: how do they interact?
When a company or individual in a situation of over-indebtedness is the subject of collective proceedings (safeguard, reorganisation or judicial liquidation), the rule is that individual proceedings are suspended. The opening of such proceedings has a major impact: under article L. 622-21 of the French Commercial Code, it leads to the suspension or prohibition of all individual proceedings by creditors, including the seizure of property. The creditors must then declare their claims to the insolvency proceedings, and the fate of the seized property will be decided within this more global framework. In addition, securities (such as mortgages) set up during the "suspect period" - the period preceding the opening judgment - may be cancelled if they are deemed fraudulent, which redistributes the cards between creditors.
Solutions to avoid foreclosure and clear the debt
Forced sale is often the worst solution for the debtor, as it often results in a sale price below the real market value, leaving a large residual debt. Fortunately, there is more than one alternative to avoid this scenario and regain control of the situation.
The amicable sale of the property: regaining control of the procedure
Up until the orientation hearing, the debtor may ask the Enforcement Judge for authorisation to negotiate the amicable sale of his property himself. If the debtor can prove that serious steps have been taken (sale mandate, purchase offers), the judge may grant him time to complete the sale. This solution is often preferable as it allows the debtor to obtain a better price by finding a buyer under normal market conditions, to pay off the debt in full, and sometimes even to keep the balance after reaching an agreement with the creditor on the terms and conditions. The judge sets a minimum price below which the property cannot be sold and a date for a reminder hearing to check that the sale is concluded quickly.
Other alternatives and financial mechanisms
Another option to explore is the vente à réméré (or sale with right of repurchase). This mechanism allows the owner to sell their home while retaining the option of buying it back at a later date, often by paying rent to the buyer. This is a solution that can enable you to pay off a loan in a hurry without losing your property for good. Sometimes, before the situation deteriorates, it is possible to negotiate with the bank. A credit repurchase can be considered to consolidate debts and obtain a lower interest rate, reducing the monthly burden. It is crucial to examine your loan contract and borrower's insurance, which can sometimes cover default on payment.
The over-indebtedness file: protection for individuals
For any individual acting in good faith, filing an application with the Commission de surendettement is an effective protection measure. As soon as the application is deemed admissible, the property seizure procedure is suspended. This suspension is a crucial protective measure that gives you time. The commission will then seek to draw up a recovery plan, which may include debt rescheduling or even partial cancellation. In some cases, the commission may recommend an amicable sale of the property on terms more favourable to the borrower, thus avoiding the hardship and expense of a forced auction.
When the seizure of property does not cover the debt, the creditor has recourse to pursue recovery, but the debtor also has means of defending himself and contesting the balance owed. Each situation is unique and depends on many legal and procedural factors. If you are affected by such a situation, our lawyers are at your disposal to support you in your recovery or defence proceedings.
Sources
- Code of civil enforcement procedures
- Code of judicial organisation
- Commercial code
- Civil Code
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