Invalidity of the transfer of ownership to secure residential property art. 3871 C.C.
On May 30, 2020 article 1 of the Treaty entered into force. 3871 C.C. which regulates the invalidity of the transfer of ownership to secure real estate used to satisfy housing needs, made to secure claims arising from this or any other agreement not directly related to the economic or professional activity of an individual.
The above provision was enacted on May 14, 2020 in the framework of the Act amending certain laws on protective measures in relation to the spread of SARS-CoV-2 virus of May 14, 2020.
In accordance with Article 3871 C.C. an agreement whereby a natural person undertakes to transfer ownership of real estate to satisfy his or her housing needs in order to secure claims arising out of this or any other agreement not directly related to that person’s economic or professional activity is null and void:
- the value of the real estate is higher than the value of monetary claims secured with the real estate increased by the amount of maximum interest for delay from this value for the period of 24 months, or
- the value of monetary claims secured with the real estate is not marked, or
- the conclusion of this agreement has not been preceded by an expert appraisal of the market value of the real estate.
In view of the above, it should be concluded that an agreement may be considered null and void if:
- the obligation to transfer the ownership of real estate is imposed on a natural person,
- the real estate serves to satisfy the housing needs of that natural person,
- the transfer of ownership is intended to secure contractual claims of another entity which are not directly related to the economic or professional activities of that natural person,
- at least one of the conditions listed in points 1-3 of this analysis is fulfilled.
Article provision The 3871 CC is intended, in the legislator’s view, to protect individuals against abuses that may occur in the general market.
In the science of law there are views that this provision can be treated as an answer to the so-called „land scandals”, i.e. cases where individuals in financial difficulties were granted interest-bearing loans which were at the same time secured in such a way that the borrower transferred ownership of these properties to the lender (assignment as collateral). It was only after full repayment of the liabilities that the borrower could request a (re)transfer of ownership of the property to him.
Given the negative moral assessment of such property transactions, a legislative initiative was justified. However, it is questionable whether the provision introduced does not constitute a too far-reaching restriction on the principle of freedom of contract. All the more so as it provides for the most severe sanction for its infringement, i. e. the absolute invalidity of the contract.