The Supreme Court of Ukraine now allows banks to freely seize collateral even after it's sold to a third party. Buying collateral cars at discounted prices is now a very risky proposition.
Rostislav Kravets, senior partner of the law firm Kravets and Partners, attempted to clarify this situation:
"A person who purchased movable property that was once used as collateral for a loan and sold by the bank to pay off the debt could fall into a trap. The Supreme Court's new ruling left the financial institution with the right to challenge this sale, for example, if the bank decides it was made at an unfavorable price. And the proceeds are insufficient to cover not only the debt but also penalties and fines. One day you're the happy buyer of a new car, and the next, the bank takes it away from you: and you'll have to run through the courts to get back the money you paid for the collateral."
Daria Davydova, a senior lawyer at Mozhaev & Partners Law Firm, explained that people hunt for repossessed cars for one reason: the attractive price, as collateral is approximately 30-40% cheaper than similar new vehicles. But in addition to surprises like penalties and inflationary accruals, the new buyer also receives someone else's debt. Purchasing repossessed cars is always a risky transaction. Most banks auction off property that is still under dispute, which could have a negative outcome for a bona fide buyer.
There's no one-size-fits-all advice for those looking to buy a car or other movable property on the cheap. It's recommended to ensure that the collateral isn't backed by a significant debt. That is, the price of the car should be 30-50% greater than the borrower's remaining debt.
On the one hand, experts acknowledge that even public auctions for the sale of collateral property are often subject to abuse, and that car prices are deliberately understated to attract buyers.
But if banks really start to foreclose on cars with collateral en masse, sales of these vehicles will plummet.
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