The war damaged and destroyed thousands of mortgaged houses and apartments. Borrowers who entered into agreements with banks to obtain housing are now in a difficult situation when there is no housing, and the loan remains a financial burden on the family.
Last year alone, according to the National Bank of Ukraine, financial institutions granted 10,000 mortgage loans worth almost 9 billion UAH. Most of all, mortgages were granted in Kyiv and the region and Kharkiv, where the Russian invaders caused a lot of damage to the housing stock.
Martial law as force majeure: is it necessary to pay loan to bank
During force majeure that includes martial law, the parties are usually not liable for the contract non-fulfillment, but only for the duration of such circumstances. That is, all obligations will be resumed after the end of the war.
"Martial law does not cancel the payment of the loan. Borrowers must repay all of their consumer loans, which include mortgages. It turns out that the bank did not buy the house, but only granted funds. How you have used them is your business. Under the law, the owner bears the risk of damage/destruction of property," the lawyer says.
Moreover, if the borrower no longer has mortgage property because of shelling and hostilities, and they took money from the bank and vouched for this property, in this case they are obliged, according to the general rules of the contract, to pledge other equivalent property in order to guarantee the repayment of the loan. Despite the war, all financial problems remain on the person.
"Conclusion: debt (credit) does not disappear during the war. Moreover, the bank continues to charge interest. And the loss of property does not impact the need to repay the loan," the lawyer notes.
The only way to compensate for the property damage or loss is to insure it. If the factor of war is not excluded from force majeure, the insurance company must reimburse its cost.
Otherwise, Volodymyr Kopot, co-founder of the project Monitor. Estate, advises to apply for compensation to the state because of the property lost over the war.
"If your housing was in a mortgage and it was destroyed, then you still have to pay a loan to the bank. But compensation for the housing reconstruction can be obtained by submitting an application through Diia or Administrative Service Centres and proving the actual costs of its reconstruction or the original cost," Kopot explained.
Mortgage during the war. What state guarantees
If the borrower is unable to pay the loan and interest on it over the job loss or forced relocation, the law allows them to pause payments. According to Kozachenko, in the situation with the mortgage there are several guards from the state.
"If property is completely destroyed — and the house is lost, and there is debt — the only thing the state has done is that during martial law a person does not bear any responsibility if they do not pay the loan. But as soon as martial law is lifted, then the person again has an obligation to service the loan," the lawyer explains.
In addition, banks are not entitled to charge interest, forfeit, or penalties during martial law in case of non-payment of money, but at the same time they are entitled to charge interest on a loan.
"One of the most important decisions is that during martial law, banks are not entitled — even if the property remains, and the loan is not paid — to charge it at the expense of the debt. That is, they are not entitled to take it, sell it, or transfer it to third parties. To that end, until the war is over, the register that allows notaries to recover penalties was excluded. Everything related to the recovery of mortgage debt has been stopped," Kozachenko notes.
Therefore, during the war, the debtor has the right to put the loan agreement on "pause", but then the bank's obligations will be resumed.
Martial law and property obligations. What the law says
According to the Law "On amendments to the Tax Code of Ukraine and other legislative acts of Ukraine concerning the effect of regulations for the period of martial law" dated March 15, 2022 No. 2120-IX, during martial law and within 30 days after the date of its completion, the debtor will not be responsible for the late non-payment of the loan and interest.
With regard to real estate owned by individuals and mortgaged during martial law and within 30 days after completion, the bank is not entitled (the provisions of the Law of Ukraine "On Mortgage" are terminated):
- take over the right of ownership of mortgaged property (Art. 37);
- sell the mortgaged property to other persons (Art. 38);
- evict residents from residential buildings and premises mortgaged when there is a court decision to foreclose such properties (Art. 40);
- sell the mortgaged property in electronic auctions (art. 41, 47).
If a person fails to pay the loan and interest, the bank is not entitled to charge and collect penalty payment (forfeits, fines, penalties) starting from February 24, 2022. But banks are entitled to charge interest for using credit funds.
Payment of the principal amount of loan and interest for the use during martial law and 30 days after its end can only be at the will and ability of the debtor.