Real estate transactions require care and caution. You can pay for frivolity and inattention. For example, the fact that a deal you have concluded may be declared invalid. There are plenty of grounds for declaring a transaction invalid in the law.
When purchasing real estate, it is important not only to thoroughly check the legal purity of the purchased property. It is equally important to know under what conditions your transaction may be invalidated. The further fate of the transaction and the acquired property will depend on this.
Invalid transactions are divided into void and voidable. If, in accordance with the Civil Code of the Russian Federation, a transaction is declared invalid in court, then it is called voidable. If the Civil Code indicates the invalidity of a transaction without the need for legal proceedings, the transaction is void.
The consequences of an invalid transaction are provided for in Article 167 of the Civil Code of the Russian Federation. In accordance with it, an invalid transaction is recognized as if it had not taken place and does not entail legal consequences. As a result of declaring a transaction invalid, bilateral restitution occurs, that is, each party is obliged to return to the other everything received under the transaction, and if it is impossible to return what was received, reimburse its value - unless other consequences of the invalidity of the transaction are provided for by law.
A worthless deal
If the transaction is void, then to declare it invalid there is no need to go to court, since, by force of law, it is already invalid from the moment of its conclusion. In case of a void transaction, the court is only asked to invalidate the consequences of the transaction. Moreover, any interested person can file a claim.
Grounds for nullity of transactions:
1. A transaction that does not comply with the requirements of the law or other legal acts is void unless the law establishes that such a transaction is contestable.
For example: in a long chain of sales and purchases that have already been made, there is an apartment in which the rights of minor children were violated during privatization. The guardianship authorities did not give prior permission for the non-participation of children in privatization. It all comes out somehow. Privatization is declared invalid, and the entire multi-part transaction instantly becomes void. Citizens must return to their original position, that is, move into their previous apartments, return the money received and start all over again.
2. A transaction made for a purpose contrary to the foundations of law and order and morality is also void.
Transactions with forged documents, forged signatures, etc. may fall under this basis.
3. Imaginary and feigned transactions are also void.
An imaginary transaction is a transaction made only for show, without the intention of creating legal consequences corresponding to it. For example, re-registration of real estate to a dummy person in order to evade seizure of property.
A sham transaction is a transaction made to cover up another transaction. Under the guise of a gift, sell real estate.
4. A transaction made by a citizen declared incompetent as a result of a mental disorder is void.
If such a citizen has concluded a purchase and sale agreement, then his legal representative may file a lawsuit in court to declare the consequences of such a transaction invalid. In this case, the buyer will have to return the apartment, and the seller will have to return the money. But in the interests of an incapacitated citizen, a transaction may, at the request of his guardian, be recognized by the court as valid if it was concluded for the benefit of this citizen.
5. A transaction concluded by a minor citizen is void.
Here, minors mean citizens under 14 years of age. In practice, of course, it is unlikely that you will meet a 10-year-old apartment seller. But you still need to know about this basis for the nullity of transactions.
Voidable transaction
A voidable transaction is a transaction that may or may not be recognized as invalid by a court. Only persons specified in the law can file a lawsuit to declare a transaction invalid.
Grounds for voidable transactions:
1. A transaction made under the influence of deception, violence, threat, malicious agreement between a representative of one party and the other party, as well as a transaction that a person was forced to make due to a combination of difficult circumstances on extremely unfavorable conditions for himself (a enslaving transaction), may be recognized invalid by the court on the claim of the victim.
For example, registration of real estate obtained as a result of deception or violence in the name of dummies. If the transaction is declared invalid, the defendant must return to the victim everything received under the transaction. The property received by the victim from the defendant under the transaction is turned into the income of the Russian Federation. If it is impossible to transfer property to the state, its value is collected.
2. A transaction made under the influence of a mistake may be declared invalid by the court at the request of the party acting under the influence of the mistake. But the misconception must be of “substantial significance.”
In accordance with Art. 178 of the Civil Code of the Russian Federation, “misconception regarding the nature of the transaction or identity or such qualities of its subject matter that significantly reduce the possibility of its intended use is of significant importance. The misconception regarding the motives for the transaction is not material." If the court declares the transaction invalid on this basis, then two-way restitution occurs. In addition, the plaintiff party has the right to demand compensation from the other party for actual damage caused to it if it proves that the mistake arose through the fault of the other party. If this is not proven, the plaintiff party is obliged to compensate the other party at its request for actual damage caused to it, even if the error arose due to circumstances beyond the control of the erring party.
3. A citizen may be recognized as having limited legal capacity if he abuses alcohol or drugs.
A transaction made by a citizen recognized as having limited legal capacity may also be declared invalid by the court. In order for a citizen with limited legal capacity to sell or buy real estate, the consent of the trustee is required. If the transaction is completed without such consent, the trustee may file a lawsuit to declare the transaction invalid. If the court recognizes the transaction as invalid, two-way restitution occurs.
4. Citizens aged 14 to 18 years have the right to dispose of real estate only with the prior consent of their parents, adoptive parents or guardian.
If there is no such consent, then the legal representatives can file a lawsuit to declare the real estate transaction invalid. But it is possible to acquire full legal capacity before reaching 18 years of age (marriage before 18 years of age, emancipation). For transactions with real estate by such citizens, the consent of legal representatives is not required.
5. A transaction can be declared invalid if a citizen entered into it without being able to understand the meaning of his actions.
The claim is filed by the citizen himself or by persons whose rights are violated as a result of such a transaction. The consequence of such a transaction is also bilateral restitution.
6. If real estate is jointly owned by spouses, then the disposition of such property requires the notarized consent of the second spouse.
The spouse, whose notarized consent to carry out the said transaction was not received, has the right to demand that the transaction be declared invalid in court within a year from the day when he learned or should have learned about the completion of this transaction.
We will help you challenge such types of contracts as:
- loan agreement;
- annuity agreement;
- contract of sale;
- guarantee agreement;
- loan agreement;
- gift agreement;
- marriage contract.
The most common disputes under the agreements listed above are the following:
- Invalidation of an imaginary (fictitious) transaction;
- Recognition of the invalidity of a transaction made by a citizen who is unable to understand the meaning of his actions and manage them;
- Recognition of a transaction made under the influence of error (deception) as invalid;
- Invalidation of certain terms of the loan agreement.
Based on the provisions of the current legislation, as well as the latest judicial practice, when resolving these disputes, the following must be taken into account:
Time limits for going to court
In any case, if the transaction is invalid, you cannot do without a trial. But, in order to recognize the transaction as invalid or to recognize the consequences of the transaction as invalid, it is important not to miss the statute of limitations and go to court on time.
If the transaction is void, then the limitation period for declaring the consequences of the transaction invalid is three years. The limitation period begins from the day when the execution of this transaction began.
The statute of limitations for claims to declare a voidable transaction invalid is one year. The limitation period begins from the day the violence or threat under the influence of which the transaction was concluded ceases, or from the day when the plaintiff learned or should have learned about the circumstances that constitute the basis for declaring the transaction invalid. If there are good reasons, the court may restore the statute of limitations.
Several years have passed since significant amendments were made to Russian legislation regarding invalid transactions (No. 100-FZ of 05/07/2013). Those that violate the requirements of the law were previously considered insignificant, but are now voidable. The statute of limitations has also changed. Despite the fact that in the last decade the number of illegal and problematic transactions has decreased, one can hardly talk about high-quality legal and financial protection for the buyer. What specific changes have occurred and how do they affect today's residential real estate market?
In this article we tried to answer the questions posed. What has changed in the new legislation? What are the limitation periods (i.e., after what period can the buyer of an apartment be completely calm and free from claims of participants in the transaction and third parties)? “In May 2013, amendments were made to the Civil Code of the Russian Federation, which differentiated the concepts of voidable and void transactions (invalid transactions), reclassifying most void transactions as voidable (Article 168, clause 1 of the Civil Code of the Russian Federation). The main difference between void and voidable transactions is the moment of their invalidity, and the time frame within which they can be challenged. The nullity of a transaction (in other words, its invalidity) does not depend on a court decision. The transaction is void from the very beginning of its conclusion and does not give rise to any legal consequences for the parties. A voidable transaction can only be declared invalid by a court decision; accordingly, until such a decision, the concluded agreement has legal force and is binding. By the time of the changes, a problem had arisen regarding transactions concluded in the real estate market: any transaction concluded by the parties in violation of the current legislation was recognized as void. In addition, a claim for recognition of a void transaction could be brought by any person. This possibility in practice led to abuses by persons who, having no specific interest in the concluded transaction, tried to destroy it. Now, for both a voidable and a void transaction, only a party to the agreement or a person expressly specified in the law, for example a trustee, in other words, a person who has an interest in challenging the transaction of Art. 177, 166, clause 2 of the Civil Code of the Russian Federation. The main reason for declaring transactions invalid due to insignificance is a transaction made by an incapacitated person, Art. 171 Civil Code of the Russian Federation. That is, the citizen selling the housing was deprived of legal capacity by the court before the sale agreement was concluded. In such a transaction, the court will oblige the parties to return to each other everything received under the purchase and sale agreement. The buyer in this transaction is the weaker party, since, having returned the purchased housing, the question arises of returning the money, which the incapacitated person, of course, no longer has. For voidable non-competitive transactions, Art. 177 of the Civil Code of the Russian Federation: a transaction concluded by a person incapable of understanding the meaning of his actions or managing them. If in the first case the fact of confirmation of incapacity is sufficient - a court decision declaring the citizen incompetent, then in relation to 177 Art. According to the Civil Code of the Russian Federation, the court will order an examination, and taking into account other evidence of the parties, a decision will be made to recognize the transaction as invalid or to refuse the relevant claims. In practice, the expert’s opinion plays a decisive role if the court has no doubts about the reliability of the expert’s opinion (usually this is the case). Other evidence, for example, witness testimony, may be of very conditional significance for the court’s decision. Speaking about the legal mechanism for protecting the right of a home purchaser, we can say that there are essentially two of them: the statute of limitations and qualification under Art. 302 of the Civil Code of the Russian Federation as a bona fide purchaser. In the first case, the limitation period for transactions is one year for a voidable transaction and three years for a void one. For void transactions, where a claim is made by a party to the transaction, the limitation period begins to run from the moment of execution of the contract; if the claim is made by a third party, then from the moment when he learned or should have learned about the fact of concluding the contract. It is important to note that dated 05/07/2013 No. 100-FZ amended Article 170. The Civil Code of the Russian Federation in the qualification of a sham transaction. A sham transaction, the consequences of which is nullity, is now also a transaction concluded on conditions other than those specified in the contract. These changes may have implications for parties to undervalue a transaction to optimize taxation. It can be assumed that, for example, the spouse who gave consent to the sale of housing will be able to recognize the transaction as void on this basis if the consent itself does not express the cost of the sale of jointly acquired property.” What are the most common reasons for invalid (void and voidable) transactions today? Is this a common occurrence or rare? Have there been such cases in your practice (or in the history of the company) and if so, how did it end for the buyer? “In most cases, an invalid transaction obviously contains an element of an offense. Therefore, professional participants in the real estate market who respect themselves and value their reputation try to stay away from such transactions. The same can be said about void transactions. Another thing is transactions in which one of the parties bears one or another risk, including the risk of challenging the current or previous transactions with the object. Such risks may have nothing to do with offenses, but be present in the history of the object. The task of a specialist accompanying the buyer is to promptly identify this risk or risks, assess their magnitude, suggest possible ways to minimize and give appropriate recommendations to the client. Such recommendations, depending on the specific situation and the specific risks of contestation, can be very different - refusal to purchase, demanding an adequate discount, providing additional statements, guarantees, etc. The task of the specialist accompanying the seller is to detect and minimize the risks of contestability of previous transactions with the object at the stage of preparing documents for the object being sold, and to give his motivated assessment of the risks to the counterparty (buyer). Often, assessing the contestability of transactions and the likely consequences becomes the subject of heated debate between the seller and the buyer with the participation of their lawyers, agents and banking specialists. Sometimes common sense wins out in these debates, sometimes it doesn’t. In practice, we encounter very different attitudes among interested participants in the debate towards such risk factors of the contestability of transactions, such as, for example, non-participation in privatization of minors (in the period before August 1994);
— the absence of one of the residents due to being in prison;
- donation between non-relatives;
— deregistration by proxy;
— deregistration without registration in another place;
— recognition of property rights by court decision;
— non-market price in the contract;
- unequal exchange without additional payment;
— a fresh transaction with a bona fide purchaser. The list goes on, and every experienced specialist will have something to add to it. “Invalid transactions have become a rarer occurrence than before in the heady 90s. Firstly, because Rosreestr controls the rights of minors and does not conduct transactions with their property without the permission of the guardianship authorities. Secondly, the market for real estate services is now more transparent, large companies operate in it. Thirdly, with the introduction of the concept of a “bona fide purchaser,” buyers have become more protected if the transfer of rights to the apartment is registered according to the rules of Rosreestr and if the purchase and sale agreement includes the full price. However, there are voidable transactions. And, as a rule, their most common reasons are the following: - the appearance of relatives after the execution of the annuity agreement; — the appearance of heirs about whom the seller did not know (or was silent); — infringement of the rights of minors during privatization in the 90s; — carrying out a transaction with a person registered in a drug or mental health clinic without examination at the time of the transaction.”
A transaction made by a person incapable of understanding the meaning of his actions and managing them
By virtue of clause 1 of Art. 177 of the Civil Code of the Russian Federation, a transaction made by a legally capable citizen, but who at the time of its commission was in a state incapable of understanding the meaning of his actions or managing them, may be declared invalid by the court. At the claim of this citizen or other persons whose rights or interests protected by law were violated as a result of its commission.
A transaction made by a citizen who was subsequently declared incompetent or partially capable may be declared invalid by the court at the request of his guardian or trustee, if it is proven that at the time of its commission the citizen was not able to understand the meaning of his actions or manage them (clause 2 of Article 177 Civil Code of the Russian Federation).
From the analysis of these rules of law it follows that in these cases, what is legally significant and subject to proof is to clarify the question of whether an individual at the time of signing the agreement could understand the meaning of his actions or direct them.
No less important in resolving these disputes is also the appointment and conduct of a forensic psychiatric examination to determine whether, at the time of the transaction, the party did not realize the actual nature of his actions, their legal consequences, that is, there was or was no defect of will when concluding the contract.
Thus, by the appeal ruling of the Judicial Board for Civil Cases of the Rostov Regional Court dated November 30, 2015 in case No. 33-18229/2015, the claims of the Department of Social Protection of the Population of Rostov-on-Don, which acted in the interests of the citizen, to invalidate the gift agreement were satisfied.
In connection with the establishment of the fact that the citizen lacked the ability, at the time of concluding the gift agreement, to understand the meaning of his actions and, as a consequence, the invalidity of the contract disputed by the plaintiff due to the citizen’s defect of will, due to the state of his health at the time of this type of transaction.
The court came to this conclusion taking into account the decision of the district court, according to which the citizen was declared incompetent and in need of guardianship.
The court also took into account that this decision was based on the conclusion of a forensic psychiatric examination. According to the conclusions of which, at the time of its implementation, the citizen suffers from acquired dementia in the form of dementia due to unspecified reasons; mental disorders that a citizen has are accompanied by a significant decrease in intelligence, impairment of critical functions, persistent social and everyday disadaptation and deprive him of the opportunity to understand the meaning of his actions.
In this case, the expert’s conclusion should not be presumptive, but should contain an affirmative or negative answer to the question posed, or the impossibility of giving an opinion on the established evidence and provided documents.
Otherwise, the court, referring to the provisions of Part 3 of Art. 86 of the Code of Civil Procedure of the Russian Federation, according to which expert opinion is one of the pieces of evidence that is not necessary for the court. It is assessed by the court in conjunction with other evidence available in the case, since on the basis of Part 2 of Art. 67 of the Code of Civil Procedure of the Russian Federation, no evidence has a pre-established force for the court, it refuses to satisfy claims to declare the contract invalid.
For example, in the Appeal ruling of the Judicial Board for Civil Cases of the Rostov Regional Court dated November 30, 2015 in case No. 33-18299/2015, the court indicated that, while resolving the dispute on the merits and refusing to satisfy the claim for recognition of the purchase and sale agreement apartments are invalid. It was not established that the citizen, due to any existing illnesses, was not able to understand the meaning and consequences of the concluded agreement for the sale and purchase of an apartment with the buyer.
At the same time, the appellate court noted that the expert opinion was not reasonably taken into account by the court of first instance, since the expert’s conclusion was presumptive in nature, in particular, indicating that the citizen most likely could not understand the meaning of her actions and manage them in legally significant period of time.
In addition to the above, the court also takes into account the following circumstances: whether the citizen was observed by a psychiatrist or neurologist, whether he was registered at a psychoneurological dispensary, medical records in the citizen’s outpatient card, doctors’ recommendations, etc.
Thus, in order to recognize a transaction as invalid on the basis stated above, it is necessary to establish that the citizen does not have the ability to understand the meaning of his actions and manage them precisely at the moment of concluding the transaction. In this case, medical and legal criteria for assessing the mental state of a citizen are important, established, in particular, by a subsequent court decision declaring the citizen incompetent or partially capable.
