Why should I be interested in this topic?

The historical evolution of lending and banking regulations reveals a series of legislative changes that were supposed to protect the population from exacerbating their socio-economic situation. However, as evidenced, prohibiting mortgage loans between private individuals and mandating lending entities' registration proved insufficient and ineffective in achieving their intended purpose. That is why, the court now assumes a pivotal role in mitigating the risk of losing a home, a function it, unfortunately, struggles to fulfill effectively.

Our comment 

When adjudicating housing-related cases, the court must pay attention to:

• International standards concerning eviction from one's primary residence;
• Ensuring equitable and proficient legal representation of the party in the court proceedings;
• Socio-economic vulnerability of the debtor;
• The repercussions of losing a house and the state's obligations in providing housing support.

What should we know?

Entering into a purchase agreement with the right of redemption between individuals is legal, however, in practice, such agreements are frequently utilized to disguise prohibited mortgage loans between private parties. Court decisions indicate that debtors often lack a clear understanding of the legal nature of the relationship they are establishing with usurers, or their trust leads them to consent to transactions that deviate from their true intentions, which ultimately puts them in an exceedingly challenging situation. 

Who bears the responsibility?

The responsibility for ensuring provision of housing and mitigating the risks of its loss is no longer solely attributed to individuals. This is also underscored by international standards, which dictate that every branch of the government, based on its specific mandate, should play a positive role in preventing this risk. In particular, they must protect persons who are vulnerable due to factors such as their level of knowledge, experience, social standing, or economic status.

What is the problem?

In Georgia, a considerable number of families are affected due to manipulative contracts with usurers. Presently, there is a lack of regulatory framework or uniform judicial practice that considers the risks of loss of housing beyond the individual responsibility of the debtor.

What transpires in Georgia?

• The court's reasoning mainly neglects the specific needs of debtors, that will be exacerbated when they face a potential risk of losing their home. Additionally, based on the Strasbourg court's precedents, the court predominantly examines this matter solely from the perspective of the property rights of the new owner (usurer), prioritizing their interests over the pressing needs of those in debt.

• • Representation by qualified counsel, a fundamental aspect of a fair trial, is also a significant problem. The gravity of this matter is underscored by data from 2022-2023 provided by the legal assistance service, revealing that legal advice concerning loans and housing was provided to 377 beneficiaries, while only 66 received courtroom representation.

• The court can play a positive role, however, the legislation has shortcomings in this regard and is not sufficiently comprehensive. An illustrative example of this deficiency lies in the limited authority of judges to appoint legal representation for parties, it primarily depends on the individual's financial capacity. And debtors who are at risk of losing their housing, despite their difficult socio-economic situation, may not yet qualify as socially vulnerable under the existing criteria;

• Representation by a non-lawyer is still possible, despite the proposal prepared by the Georgian Bar Association in 2017, a proposition also supported by trade unions across Europe;
• Moreover, the law fails to specify what happens after a judge restricts the right to representation for an individual lacking adequate competence for defense. This circumstance compels the party to once again ensure legal representation at their own expense.

How should a court consider and address such disputes?

• In accordance with context

Courts themselves acknowledge the substantial volume of disputes of this nature when communicating with them. The factual circumstances of the cases examined by Komentari delineate predominantly identical scenarios. Furthermore, in light of various studies, substantial grounds are provided for the courts to recognize that purchase agreements with the right of redemption are used by usurers to acquire properties easily and at a low price. Certain judges have individually acknowledged and discussed this issue, however, it has not gained widespread attention.

It is crucial for the court to demonstrate sensitivity to the prevailing reality and the context in which legal contact relationships, such as a purchase agreement with the right of redemption, often disguise detrimental practices.

1. Taking into account the international standards

Georgia is bound by both legal and political obligations to guarantee the realization of the right to housing in accordance with international standards. These standards, diverse in nature, mandate the judiciary to consider that the decision to evict can only be rendered in the most exceptional cases and as a last resort, with the utmost regard and respect for human rights. This imposes a significant responsibility on the judge to assess the matter of revocation of real estate from illegal possession with the highest level of caution, and to duly consider:

• Individual needs, threats, root causes of vulnerability  of persons at risk of losing their housing (this applies not only to the debtor but also to those residing with them), and the implications of eviction. This comprehensive evaluation is essential because the right to housing cannot be examined in isolation from other fundamental human rights;

• Rendering a decision on forced eviction following a fair trial, guaranteeing the provision of legal aid to the affected party to restore the violated right;

• The decision with regard claiming real estate from illegal possession can be immediately enforced under the law, so it must not contradict the guidelines of the United Nations and the European Committee of Social Rights on the prohibition of evictions in winter, especially in adverse weather conditions or nighttime.

Summary

The practice of losing a house through manipulative methods is a complex issue.  However, adopting a progressive, human needs-oriented, multidimensional reasoning by the court, along with promoting the expansion of judicial powers through legislative changes, would serve to mitigate the risks to the greatest extent possible. This requires the following actions:

• The court should consider the dispute from the perspective that aknowledges the awareness of the existence of manipulative practices;
• The court should assess the causes and social implications of the debtor's loss of residence in light of international standards;
• Should a representative lack adequate competence to safeguard the party's interests in court, the judge must to remove such representation from the case;
• Legislative amendments should expand the judge's discretion in discussing, evaluating, and appointing a legal aid service lawyer for the party without regard to their social status. Priority consideration should be given to the individual's specific needs in this regard;
• After identifying the deceptive transaction, the court must ensure to determine the equitable terms of the loan agreement between the parties. This includes determining the interest rate, duration, and payment schedule, which would be in line with the established standards of  the Court of Justice. 

The article was prepared by the Komentari with the support of the USAID Rule of Law Program funded by the United States Agency for International Development (USAID) through the East-West Management Institute (EWMI). The views expressed in this article are the sole responsibility of the author and do not necessarily reflect the views of USAID and EWMI.