Foreclosure and/or pledge execution is a process by which a creditor demands payment when the debtor fails to fulfill the obligation stipulated in the deed of constitution of the mortgage or pledge. It applies to privileged credits that are secured by the debtor’s registered real estate or movable property.
In our country, this process is currently handled only through the judicial system, via a procedure regulated by Title III, Chapter Five of the Civil Procedure Code. According to this legal text, the process has three stages: a lawsuit, an initial resolution, and the auction. The judge does not issue a sentence but only approves the auction and grants the adjudication.
Currently, a foreclosure or pledge execution takes several years because the courts are saturated with these cases. Why is there no extrajudicial process for executing mortgages or pledges that would allow for faster execution before a public notary? This is done in other countries and even with movable property guarantees in Costa Rica.
In Spain, for example, foreclosures can be processed either judicially or extrajudicially, through a public notary. The extrajudicial process is carried out in a much shorter time, which frees up some of the courts’ workload, significantly de-saturating the system.
Our country is not unfamiliar with this type of procedure, since our legislation regulates the extrajudicial execution of movable property in Law No. 9246 on Movable Property Guarantees. Title VI, Chapter Two of this law provides a framework upon which the extrajudicial execution of real estate could be perfectly proposed.
The process would be carried out at the sole discretion of the parties, who would previously agree in the guarantee contract on their desire to process the execution extrajudicially. The public notary would be the one to carry out the sale and auction of the pledged assets. Once the request for execution is submitted to the notary, the debtor would be given a period to make a release payment, which would cancel the guarantee. However, if this is not done, the forced sale of the property would proceed.
For the execution, the public notary would publish a notice of sale or auction in a national circulation newspaper, which must indicate the time, place, date, a description of the assets, the starting bid, the encumbrances, and the starting bids for subsequent auctions, and whether the auction is free or subject to encumbrances. This notice would be published with a set deadline and communicated to all those who, according to the National Registry, have a legitimate right or interest in the pledged assets. A record of the auction would be drawn up and signed by the person designated for the execution and the acquirer of the property.
It is worth noting that this regulation even contemplates that the extrajudicial execution of movable property can be carried out by suitable electronic means to conduct the sale or auction electronically. This method has also been used in Spain for extrajudicial foreclosures, which opens a door for the process to be carried out more easily, quickly, and transparently compared to the judicial route.
Of course, to be able to carry out the execution of mortgages or pledges through a notary, it is necessary to approve a law that allows and regulates this function. Fortunately, the Law on Movable Property Guarantees already provides the rules and the process that could be used, so the necessary reform could be quite simple, based on a copy of that process.