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Government decree 12/2003 on the non-judicial enforcement of liens, pledges and mortgages (collectively referred to as charges) provides detailed regulations awaited by the banking industry since September 1 2001 when the Civil Code established the basic rules of non-judicial enforcement. The Decree became effective from March 1 2003.

The new law, among other changes, provides rules concerning the following issues for charged assets: (i) takeovers; (ii) sales; (iii) joining the enforcement process; (iv) settlement and pay off; and (v) notices to the chargee and the chargor by each other.

Before the start of the enforcement process, the chargee must provide the chargor with a written preliminary notice of the starting of an enforcement process. Following its receipt of the preliminary notice, the chargor must notify the chargee in writing of any third party rights in connection with the secured asset that may limit or hinder the chargee's right of acquiring ownership, except for rights which have been registered in land registry offices. Before the commencement of the sale process, the chargee must provide the chargor with a written sales notice of the place, date and manner of the sale.

The chargee must prepare an asset inventory of the acquired assets and a sales register of the actions taken regarding the sale of the secured assets.

During the enforcement process, the chargee must act in a manner that would be generally expected given the particular situation, and consider the chargor's lawful interests. The secured assets must be sold for an equitable consideration considering the particular market conditions.

After the completion of the sale, the chargee must prepare a settlement report. The settlement report must be sent to all parties involved in the enforcement process. After receiving the settlement report, the chargor is entitled to file a complaint with the chargee regarding the settlement. If the complaint is rejected by the chargee, the chargor can initiate judicial remedy actions.

The Decree does not solve certain mechanisms frequently used by chargors to delay the enforcement process. Most of the legal guarantees regarding the fair and equitable treatment of the participants, although established by law for judicial enforcement, are still missing. Although the contracting parties may attempt to resolve this issue by inserting missing rules into their contract, these contractual terms are inapplicable if another bank first initiates the non-judicial enforcement process against the chargor.

István Gere

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