Invalidity of an Auction Due to Failure to Serve the Extract of the Seizure Report to the Mortgagee Creditor

Legal Insight

March 2024

Maria Tsoukala, Lawyer

Summary: A legal issue that is becoming increasingly common in enforcement proceedings, particularly in the pre-auction phase, and which has now started to be addressed in case law, is the failure to serve the extract of the seizure report to the mortgagee creditor, especially in cases where the business claim has been transferred from the original creditor to a foreign special-purpose entity. This article examines the annulment of an auction by judicial decision due to non-compliance with the legal requirements for serving the extract to the special-purpose entity as the new mortgagee creditor.

1. Obligation to Serve the Extract of the Seizure Report to the Mortgagee Creditor and Consequences of Non-Service

Article 995(4) of the Greek Code of Civil Procedure (CCP) provides that:

"An extract of the seizure report, which includes the names of the enforcing party and the debtor, their tax identification numbers, and, in the case of legal entities, their corporate names and tax identification numbers, a summary description of the seized property (its type, location, boundaries, area), any annexes included in the seizure, any mortgages or pre-notations registered on the property, the initial offer price, the amount for which the seizure is imposed, the auction terms set by the enforcing party as communicated to the bailiff, the name and address of the auction officer, and the place, date, and time of the auction, shall be issued by the bailiff and published within fifteen days from the seizure on the auction publication website of the Judicial Publications Bulletin of the Electronic National Social Security Fund (e-EFKA). The extract shall also include the bailiff’s certification regarding the inability to appoint a notary public for the auction in the relevant region. The extract must be served within the same deadline to any third-party owners or possessors of the property and to mortgagee creditors. The auction cannot proceed unless these procedural requirements are met; otherwise, it is null and void."

Therefore, failure to comply with pre-auction procedural formalities—specifically, failure to serve the extract of the seizure report to the mortgagee (or pre-notated) creditors—results in the annulment of the auction. Notably, such annulment does not require proof of harm, as the invalidity is explicitly prescribed in Article 995(4) CCP.

Additionally, this procedural defect is directly linked to the auction itself, meaning that it falls within the timeframe for contesting the auction (and the summary auction report). Consequently, it can be raised even at a later stage of the enforcement process—specifically, within 60 days from the registration of the summary auction report in the land registry.

2. Transfer of the Claim Under the Securitization Law (Law 3156/2003) and the Obligation to Serve the Extract to the New Creditor (Special-Purpose Entity)

In many cases, at the time of seizure, a business claim has already been sold and transferred from the original creditor bank to a new special-purpose entity. This transfer includes the assignment of any mortgages or pre-notations securing the claim.

Accordingly, if the new creditor has already assumed ownership of the claim and its associated mortgage pre-notation before the commencement of enforcement proceedings, the extract of the seizure report must (on penalty of nullity) be served to the special-purpose entity, rather than the original creditor.

In practice, however, it is increasingly common for bailiffs to fail to serve the extract on the special-purpose entity. This omission is typically identified during the review of the auction file submitted to the notary conducting the auction or through an examination of the notary’s forced auction report, which lists all legally required service actions.

It should also be noted that failure to register the creditor’s transfer in the mortgage registry or land registry does not affect the validity of the assignment of the mortgage or pre-notation securing the claim. Consequently, it does not remedy the procedural defect arising from the failure to serve the extract to the new creditor. The transfer is valid as long as it has been recorded in the pledge registry, which is accessible to the enforcing party, meaning that the latter cannot claim ignorance of the new creditor’s identity.

This issue had previously been highlighted in legal analysis as follows:

"4. Deficiencies in the pre-auction procedure. Grounds for annulment of an auction also include procedural defects in the pre-auction stage. Specifically, an auction will be invalid if the following service requirements were not met: [...] e) The extract of the seizure report was not timely served on the mortgagee (or pre-notated) creditors. The extract must be served within 20 days from the seizure to any existing mortgagee or pre-notated creditors. The purpose of this service is, among other things, to increase competitive bidding and thereby raise the final auction price. This is why the debtor has a legitimate interest in challenging the auction in case of failure or late service (see Supreme Court Judgment No. 1655/2001: 'Furthermore, the debtor has a legitimate interest in contesting the validity of the auction due to non-service of the extract of the seizure report to a mortgagee creditor, as this omission affects the auction price by limiting creditor participation’)."

3. Initial Case Law Response to the Issue

In a recent case we handled, our client—a debtor who had not challenged any prior enforcement stages—was on the verge of eviction after his primary residence was auctioned, following the service of an eviction order by the winning bidder.

One of the grounds for our objection, which was upheld for the first time by the Athens Court of First Instance—both in our application for a stay of execution (interim measures) and in our main objection against the auction, its summary report, and the eviction order—was the complete failure to serve the extract of the seizure report to the special-purpose entity that had acquired the claim and thus had become the pre-notated creditor at the time of seizure.

The court found that this failure rendered the service non-existent and led to the conclusion that the auction’s procedural requirements had not been met. As a result, the auction was ultimately declared null and void.