Guidelines for best practices in real estate enforcement proceedings

Corporate Alert | November.20.2017

The avalanche of bad loans that has hit Italy in recent years has drawn attention on the inefficiency of the judicial debt collection system, one of the leading causes of the banking crisis and the low prices that the banks get for the NPL portfolios they offer for sale.

The need to improve the system has been felt by the Parliament, which has recently intervened on the Code of Civil Procedure and the Bankruptcy Law to enhance the execution proceedings (1).

The Italian Superior Council of the Judiciary (“CSM”) has offered its comments, and addressed the Judiciary on 11 October 2017 with a document containing the guidelines for real estate enforcement proceedings ("Guidelines").

The CSM's objective is to urge judicial offices to adopt the best practice already used in some Courts that have allowed for enforcement by means of an expropriation procedure more 1) efficient, 2) effective, 3) rapid and 4) profitable.

The best practices in question can be divided into two groups: the ones anticipatory of some obligations and the ones reducing the workload of the Judiciary, both aimed at speeding up the enforcement proceedings.

Anticipatory practices cover the following:

(a) analysis of the documents: the expert is asked to assess the correctness of the cadastral and mortgage records necessary to proceed with the out-of-hearing sale so as to avoid unnecessary postponements;

(b) cooperation between expert and guardian: the expert and the guardian are appointed simultaneously at the hearing of the sale is set so as to allow for immediate teamwork;

(c) release of the property: the order to release the property is issued at the date for the hearing of the sale, instead of when the property is awarded.

The practice of reducing the Judiciary’s workload includes the following:

(i) use of standard documents: standard templates and checklists already filled-in for many of the documents in the proceeding are adopted (e.g. acceptance of appointment and expert’s oath, appraisal, minutes of the hearings, etc.);

(ii) mandate for the transfer decree and the distribution plan: the delegated sales expert is given mandate to: (a) prepare and file the draft transfer decree (which is then reviewed and signed by the court within the next 20 days) and (b) manage the process of approving the distribution plan (upon delegation, the Court decides the legal criteria, the form and the content of the distribution plan).

The CSM has also issued some recommendations on the timing of the proceedings. More specifically, it has called on judges to comply as much as possible with the deadlines set in the code for the setting the hearings, not to issue postponements if not strictly necessary and to make at least 3 attempts at sale per year.

A permanent Observatory on the efficiency of enforcement proceedings was set up at the 7th CSM Commission, made up of magistrates with sound experience in the field. The Observatory will be responsible for (i) monitoring the progress of enforcement proceedings; (ii) presenting solutions to overcome any critical issue that may arise; (iii) giving directions to implement the electronic enforcement proceeding; (iv) supporting both the CSM and the judicial offices; (v) facilitating the interaction between the CSM and the Ministry of Justice. The Observatory will report to the CSM on to what degree best practices have been applied in the individual district courts of the Court of Appeal within 31 December of each year.

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(1) Law Decree 59/16 approved by the Government on April 29th of 2016 and published on the Gazzetta Ufficiale on May 3rd, 2016.