The transfer of a mortgaged apartment to the bank's ownership does not automatically mean the loss of the right to use the housing — Supreme Court

The Civil Cassation Court as part of the Supreme Court confirmed that the transfer of an apartment to the bank’s ownership after foreclosure on the mortgage subject does not automatically mean the loss of the right to use this housing.

The Civil Cassation Chamber left unchanged the decisions that denied the bank’s claim against a minor orphan child. The Supreme Court emphasized that when resolving such disputes, it is necessary to consider whether the housing was purchased with loan funds, as well as the guarantees of the right to housing established by legislation and the Convention for the Protection of Human Rights and Fundamental Freedoms.

Circumstances of the case

In 2006, the owners of a two-room apartment mortgaged it as security for a loan agreement. After the borrower failed to fulfill the loan obligations, the bank extrajudicially foreclosed on the mortgage subject and registered ownership rights to the apartment in its name.

After that, the new owner filed a lawsuit demanding to recognize the minor orphan child as having lost the right to use the apartment. The plaintiff argued that after the transfer of ownership rights to him, the defendant no longer had legal grounds to use the housing. Additionally, the bank referred to information from the children’s services stating that the child lives with a guardian at another address and noted that the child’s registration in the apartment occurred after the mortgage agreement was concluded.

What the courts established

The courts of first and appellate instances denied the claim.

They established that by the order of the district state administration, the housing where the orphan child is registered and has the right to use was assigned to the child. The guardianship authority, after inspecting the living conditions, concluded that recognizing the child as having lost the right to use the disputed apartment was inappropriate.

The courts also found that although the child periodically lives with the guardian at another address, the child has not lost a stable connection with the disputed apartment. A separate room was arranged for the boy there, and the guardian confirmed that they continue to periodically reside in this housing.

Under these circumstances, the courts concluded that depriving the child of the right to use the apartment would be a disproportionate interference with the right to respect for the home, guaranteed by Article 8 of the Convention for the Protection of Human Rights and Fundamental Freedoms.

Position of the Supreme Court

The Civil Cassation Court agreed with the conclusions of the previous instances and left the cassation appeal without satisfaction.

The decisive factor is not the method of foreclosure but the source of housing acquisition

The Supreme Court reminded that regardless of whether the foreclosure on the mortgage subject occurred in court or extrajudicially, this alone does not cancel the guarantees provided by Article 109 of the Housing Code of Ukraine.

The court emphasized that the key question is whether the housing was purchased with loan funds, the repayment of which was secured by the mortgage on this housing.

In this case, it was established that the apartment had been owned by the mortgagors since 1997 and was not purchased with loan funds. Therefore, the general rule of part two of Article 109 of the Housing Code of Ukraine applies, according to which eviction is allowed only with the provision of other permanent housing unless exceptions are provided by law.

The Supreme Court also noted that the procedure for foreclosure on the mortgage subject — whether judicial or extrajudicial — does not affect the legal guarantees regarding the provision of other housing.

The special status of the orphan child requires separate legal protection

The Civil Cassation Chamber noted that when resolving the dispute, the guarantees of the Law of Ukraine "On ensuring organizational and legal conditions for the social protection of orphans and children deprived of parental care" must also be applied.

This law guarantees the preservation of the right of orphans to the housing in which they lived before guardianship was established, and state and local authorities are obliged to ensure the preservation of such housing.

The bank did not prove grounds for depriving the right to use the housing

The Supreme Court agreed with the conclusions of the lower courts that the plaintiff did not prove the combination of circumstances necessary to satisfy the claim.

In particular, the bank did not provide sufficient evidence that the child ceased to use the disputed apartment as a place of permanent residence, that the child has other housing that can be lawfully used, or that there is an opportunity to provide other permanent housing.

The plaintiff’s reference to information from the children’s services about the child’s residence with the guardian at another address was deemed insufficient by the Supreme Court. The court took into account that the case materials contained the conclusion of the guardianship authority confirming the preservation of the child’s stable connection with the disputed apartment. Moreover, the guardian explained that the other apartment does not belong to the child, the child is not registered there, and has no right to use that housing. Under these circumstances, the plaintiff did not prove that the defendant lost connection with the disputed apartment or has other housing that could replace it.

In case No. 363/5885/24, the Supreme Court confirmed its established practice regarding the application of Article 40 of the Law of Ukraine "On Mortgage" and Article 109 of the Housing Code of Ukraine.

The court emphasized that the mere fact of the transfer of ownership rights to the apartment to the mortgagee after foreclosure does not automatically terminate the right to use the housing. When resolving such disputes, the court must determine whether the housing was purchased with loan funds, assess compliance with guarantees provided by housing legislation, and ensure a fair balance between the new owner’s property rights and the person’s right to housing.

Separately, the Supreme Court confirmed that additional guarantees of special legislation apply in cases involving orphans. At the same time, the burden of proving the existence of legal grounds for terminating the right to use the housing lies with the plaintiff. Since such circumstances were not proven in this case, the Civil Cassation Court left unchanged the decisions of the lower courts that denied the claim.

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