Moratorium on eviction of defaulters - 2: salvation or danger?

Szerző: Viktoria Papp

Moratorium on eviction of defaulters: salvation or danger?

Contributed by Gárdos Füredi Mosonyi Tomori

October 08 2010

Parliament has unanimously passed an amendment to the Judicial Enforcement Act
that extends the moratorium on evictions for defaulters until April 15 2011. Since the
beginning of 2010 the government has issued several decrees suspending the right to
evict mortgage defaulters, who may face severe difficulties in meeting their loan
repayment obligations as a consequence of the financial crisis. However, the legislative
change is the first measure to provide a moratorium for all defaulters.
Since December 2003 the act has provided that a bailiff must suspend evictions from
residential properties between the months of December and March where the defaulter
is a private individual (unless the property was occupied unlawfully or the debtor has
previously been fined for failing to meet the obligations prescribed by law in connection
with enforcement). This rule was intended to prevent defaulters from being made
homeless during winter.

Due to a severe currency fluctuation induced by the global financial crisis, in the final
quarter of 2009 a large number of borrowers who had taken out loans in a foreign
currency - particularly the euro and the Swiss franc - faced sharp and unexpected
increases in their loan instalments. Many mortgage defaulters were in danger of being
made homeless. In order to help, the government passed a decree which introduced a
moratorium on evictions from residential properties until April 15 2010. The new
government, which was elected in April 2010, also confirmed its determination to assist
debtors in difficulty as a result of the financial crisis. It issued a 29-point action plan to
stabilise the national economy and accelerate its recovery. Included in the measures,
the moratorium on evictions for mortgage defaulters was planned to be extended until
the end of 2010. The amendment to the act extended the moratorium until April 15
2011.

Although the latest change appears to provide temporary respite in the case of
individual defaulters, it carries several serious risks.
Most obviously, the moratorium merely suspends the possibility of eviction, rather than
terminating it. Thus, at the end of the moratorium a large number of defaulters may find
themselves on the streets unless a permanent solution is implemented before that
time. The prohibition against enforcing claims secured by a mortgage, which until now
constituted the most efficient means of enforcing loans, may drive back lending.
Moreover, the latest modification does not distinguish between debtors, which makes
the enforcement of claims by the rightful claimants (especially individuals) more
difficult. At a fundamental legal level, if no legal consequences are stipulated for default
of payment, this will give rise to a significant moral hazard in the field of individuals'
contractual performance.

As the moratorium represents only a temporary respite for the debtors, the government
has set itself the objective of establishing a debt management institution during the
moratorium. In the long term, this may enable the enforcement of rightful claims while
preventing a flood of evictions.

For further information on this topic please contact Veronika Papp at Gárdos, Füredi,
Mosonyi, Tomori by telephone (+36 1 327 7561), fax (+36 1 327 7561) or email (papp.veronika@gfmt.hu).

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