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On 7 March 2017, the Hungarian parliament adopted a law that increases the minimum sale price of a residential property in the enforcement procedure from the current 70% of its market value to 100% (market value to be understood as the price set by the appraisal of the bailiff), provided that (i) the claim to be enforced stems from a consumer contract; (ii) the real property is the debtor's only real property; and (iii) the debtor resided in that real property for at least six months prior to the initiation of the enforcement procedure.
If the real property cannot be sold within one year, the minimum sale price may be reduced to 90% of the property's market value. The law also allows the parties to agree on the minimum sale price (i.e. the parties may freely agree to reduce the minimum sale price below the 100% threshold). In that case, however, the creditor's claim terminates upon the sale of the property and the distribution of the enforcement proceeds, irrespective of whether the creditor achieved full recovery or not.
According to the government's reasoning, the law aims to ensure that, in case of enforcement, residential properties will be sold at the highest price possible (thereby maximizing recovery) and to minimize the possibility of abuse of the debtors' position. Based on initial feedback, the market players are generally opposed to the law, arguing that enforcement procedures may take even longer – which is also against the best interest of the debtors, given that this will result in a higher quantum of default interest, costs and fees accruing on the debt. Professionals also held that even though the rationale behind the law may be appreciated, the aim may have been better achieved by different measures.
All in all, potential purchasers of retail NPL portfolios may have to reckon with longer enforcement procedures and rather seek settlement and cooperation with the debtors instead of forcing the sale of the property (which was also the aim of the legislator). Having a wider set of measures at hand, the necessary processes in place and a compliant investment strategy may prove to be an asset for potential purchasers.