Judicial Practice in Credit Security Disputes: The Limits of Protection

Disputes arising from the securing of credit obligations have remained one of the most conflict-prone categories of litigation for many years. These cases involve not only classic disputes between banks and borrowers, but also significantly more complex legal structures in which issues of mortgages, suretyship, pledges, state registration, jurisdiction, factoring, and the good faith of property acquirers intersect simultaneously.

For this reason, the practice of the Grand Chamber of the Supreme Court in this field has long ceased to be merely a collection of isolated legal conclusions. In reality, an entire system of principles is being formed, within which the court increasingly evaluates not only the formal wording of agreements or entries in state registers, but also the actual economic substance of legal relations and the balance of interests between the parties.

One of the most illustrative examples was the Grand Chamber’s decision in case No. 921/730/13-г/3 dated 12 May 2020, where the Court effectively limited the automatic prejudicial effect of debt recovery judgments for property guarantors. The Grand Chamber expressly stated that if a mortgagor did not participate in the proceedings concerning debt recovery, such person retains the right to challenge the amount of indebtedness in separate foreclosure proceedings involving the mortgaged property.

This approach substantially changed the balance in such disputes. Previously, creditors often relied on the assumption that a debt recovery judgment automatically settled the issue of indebtedness for all participants in the security relationship. However, the Grand Chamber emphasized that a property guarantor cannot bear the negative consequences of proceedings in which they had no opportunity to defend their interests.

An equally important development concerns jurisdiction in disputes arising from accessory security obligations. In its ruling of 23 November 2022 in case No. 345/1537/21, the Grand Chamber confirmed that disputes concerning security agreements must be heard under the same jurisdiction as disputes regarding the principal obligation. Moreover, even the replacement of a party within the security obligation does not alter the jurisdictional nature of the dispute.

For legal practice, this has fundamental significance, as questions of jurisdiction had long been used as a procedural instrument for delaying litigation. The Grand Chamber effectively eliminated the possibility of artificially shifting disputes between commercial and civil jurisdictions through formal changes in security relationships.

Mortgages: The Supreme Court Is Increasingly Strict About Foreclosure Procedures

A separate and highly important segment of judicial practice concerns mortgages as the principal mechanism for securing credit obligations. It is precisely in this area that the Grand Chamber demonstrates a growing focus not only on the creditor’s right to foreclose, but also on strict compliance with procedural requirements.

In its ruling of 21 March 2018 in case No. 760/14438/15-ц, the Chamber clearly established that the transfer of ownership of mortgaged property to the mortgagee constitutes an exclusively extrajudicial method of dispute resolution. Courts are not authorized to recognize ownership rights over mortgaged property in favor of a mortgagee within judicial proceedings.

Subsequent case law further strengthened procedural requirements. In case No. 201/15228/17 dated 13 March 2024, the Chamber separately emphasized that an expert valuation of mortgaged property constitutes an essential prerequisite for the lawful extrajudicial acquisition of ownership by the mortgagee. The absence of a proper valuation may itself serve as grounds for cancelling state registration of ownership rights.

In practice, the Supreme Court increasingly demonstrates that even in the presence of overdue debt, creditors cannot disregard statutory procedures. Mortgage enforcement is no longer perceived as an automatic mechanism for transferring ownership merely because a borrower failed to fulfill a loan agreement.

Particularly noteworthy is the Grand Chamber’s approach to violations of debtor and mortgagor notification procedures. In cases No. 757/13243/17 and No. 759/5454/19, the Supreme Court adopted a compromise position: violations of notification procedures do not automatically invalidate a transaction, but they may provide grounds for protecting the mortgagor’s rights and recovering damages.

This reflects a broader tendency in modern Supreme Court practice — a departure from a purely formalistic approach under which any procedural defect automatically nullified the entire transaction.

Instead, courts increasingly examine whether the violation genuinely affected the party’s rights and whether it created a real imbalance of interests.

Another significant aspect concerns the proper legal remedy in such disputes. The Grand Chamber repeatedly emphasized that in many situations the most effective remedy is the recovery of property or the removal of obstacles to its use, rather than attempts to invalidate an entire chain of agreements and registration actions.

In cases No. 199/8324/19 and No. 496/1059/18, the Supreme Court effectively established that challenging every preceding transaction is often an ineffective method of protection, whereas recovery of property or a negatory claim may genuinely restore violated rights.

Accessory Nature as the Core Principle of Modern Judicial Practice

A fundamental idea runs through a substantial portion of modern Supreme Court jurisprudence: the accessory nature of security obligations.

In case No. 910/12525/20, the Grand Chamber expressly stated that mortgage rights are derivative of the principal obligation and therefore share its legal fate. If the principal claim cannot be satisfied, foreclosure against the mortgaged property also becomes impossible.

This logic increasingly influences disputes involving suretyship as well. For example, in case No. 910/13109/18, the Grand Chamber significantly strengthened protections for guarantors by holding that an increase in the amount of the principal obligation without the guarantor’s separate consent terminates the suretyship, even where the surety agreement contained a general consent clause regarding potential changes to the loan.

In subsequent decisions, the Supreme Court further elaborated mechanisms for protecting guarantors, including issues related to preclusive limitation periods, proper remedies, and the consequences of changes to principal obligations. Particularly illustrative is case No. 462/5368/16-ц, where the Grand Chamber effectively revised the approach to claims seeking termination of suretyship, emphasizing that the proper remedy is recognition of the absence of the creditor’s right of claim, rather than a purely formal request to terminate the suretyship agreement.

All of this demonstrates the principal tendency of modern Supreme Court practice: security obligations are no longer perceived as an autonomous mechanism for the “automatic” protection of creditors.