Hostile Acquisition of Privately Owned Bulgarian Property: excessive maintenance fees, injunctions and forced gifting of ownership.

Author: Christophe Gater

 

Recent years have witnessed an increase in Bulgarian maintenance companies orchestrating debt to facilitate the hostile acquisition of privately owned apartments from foreigners. For legal reasons we cannot name the complexes, but if the following sounds familiar you should seek professional assistance to best protect your assets.

 

Setting the scene:

 

To best understand this scam some background on Bulgarian ownership, owner committees and maintenance companies is required.

 

Under Bulgarian law all apartments are separate legal entities, they might be physically adjoined but do not share a common owner or ‘Freeholder’ as is typical under the UK’s common law. Instead of a Freeholder and in order to maintain a structure owned by multiple parties, the Bulgarian law permits rights to each owner to vote on how their building is maintained and operated. Action is taken in accordance with the majority decision and this is known as the ‘owners committee’.

 

This democratic structure works well when the owners are resident, speak the same language, share a common interest in efficiency and most crucially are actually present to cast their votes. Problems arise when there is deliberate intent to manipulate and conceal a pending vote, which is where the scam begins.

 

Not all complexes are targets, there are typical prerequisite conditions that make certain complexes vulnerable and these are almost always entirely foreign owned and most often in areas such as Bansko. Vulnerable complexes are typically:

 

• failing to rent profitably
• excessively expensive to heat
• largely owned by non-Bulgarian speakers who are abroad
• in an area that has suffered heavy reduction in market value

 

 

The Scam:

 

Upon completion of a building most developers appoint themselves or a company they own as the official maintenance company, in other cases a third-party maintenance company is ‘elected’ by a handful of initial owners. Either way, the appointed company becomes the bonified supplier of maintenance services; it carries the responsibility of informing owners of proposed works and billing them for all associated costs.

 

For this scam to commence the parties have to be aligned; those who vote for the maintenance company and those who run it are working hand in hand, in turn the same parties set the costs due from all owners. Corrupt parties systematically abuse this legal framework to lay groundwork for the acquisition of multiple apartments from foreign owners, primarily through manipulation of grossly increased maintenance costs and ultimately the hostile acquisition of the property in lieu of owed ‘debt’.

 

How can that be legally achievable? It doesn’t work all of the time and nor does it work against every property or every owner, but like any scam it only needs to work enough for the scammers to continue relentlessly. Principally, a proposal to vote for increased costs is made and hidden, the official announcement of a vote is barely publicised, the attending members from the owners committee and are typically onboard with the scam, the vote is delayed until just these parties control the vote, the vote passes and costs increase, owners do not pay, injunctions are placed against the properties, the properties are seized or gifted. The rest of this article considers this process in greater detail.  

 

In almost all cases we have seen to date, this action has been led by a solicitor who best knows the law surrounding owners committees and maintenance contracts, and thus utilises their profession to their advantage.

 

Proposing a vote:

 

In order to pass any new costs the owners committee must successfully vote in accordance with the law. However, the law has been written on the assumption of residency or at least local presence, it leaves a gapping advantage for corrupt parties when any building is largely foreign owned.

 

The owners committee can only be convened to vote by the manager of the owners committee, a group of owners who collectively own not less than 20% of the common area (often the developer), or any individual owner can call a meeting if there has not been an official meeting for the past 12 months. The latter two are commonly the avenue of choice for this scam, which effectively allow the scammers to commence the process lawfully.

 

‘Notification’ to owners:

 

The law requires owners to be officially notified of any vote or proposal. However, the lawful means by which is again only relevant if owners are resident or frequently present. Officially, at the very least, notification must be by a physical note placed in the common areas of the property (reception, car park, corridors etc), and it must provide 7 days advance notice. Technically, foreign owners have the legal right to be officially informed by the owners committee in writing to their overseas home address, but only if it has been registered correctly must the owners committee inform that individual via such means. In 99% of cases this has not been done, as such a single notification placed anywhere in the common areas (in Bulgarian) is legally sufficient to call a vote wherever the owners may be.

 

If owners were resident the notification would be widely discussed, as it is in any regular residential building in Bulgaria, however with any mostly foreign owned building, such as in Bansko, any such notice can easily go entirely unidentified.

 

The vote:

 

Once the meeting convenes there must be at least 67% of owners present for any vote to be valid. If an insufficient number are present the meeting is postponed for not less than 1 hour. In the second instance, if after 1 hour there is at least 33% attendance then the meeting can be carried out, if not it is postponed for 24 hours. On the third instance of failing to meet the minimum number of owners, a vote can be taken by whoever is present, even if it is just one person, it is legally binding and any cost based decision will apply to everyone.

 

In the case of largely foreign owned buildings, 67% has almost never been achieved, even with many months of deliberate and persistent notification via email in all the various languages spoken. Very few overseas owners will take the time and money to travel, particularly at short notice. Voting by proxy is permitted, but only when appointed via a notarised power of Attorney. The scammers rely on the lack of attendance, amplified by the short 8 days of total ‘notice’, thus ensure an absolutely minimal turnout, if anyone at all, having provided official notification by the legally least visible means.

 

The end result is that the single owner is in attendance, who is a founding member of the scam, they cast a single deciding vote and it is justifiably considered the binding decision of the majority of the owners committee. It legally applies to all owners equally and unequivocally.

 

Grossly increased charges:

 

The decision is typically to drastically increase annual maintenance fees, to bill each owner vast sums for future repairs, to install a grossly overpriced heating system, solar panels or any other hugely expensive undertaking they can conjure. The owners committee instructs the elected maintenance company (who are connected parties with a shared interest) with its decision to pay it so much more, to contract it for extensive work etc, and it proceeds on this basis.

 

Every owner is officially billed, quietly. Much effort is made to conceal the vote and the subsequent changes, invoices are not distributed effectively, no one is chased for payment. At best, a copy of the decision and the amount due is pinned to door of the apartment, in Bulgarian.

 

Legal action to seize your property:

 

In the vast majority of cases all foreign owners remain blissfully unaware that they have technically failed to comply with the new terms and failed to make payments accordingly. A solicitor working for the maintenance company commences legal action to collect the debts. There are various stages required by the Bulgarian courts to officially serve notice to any owner of impending legal action, particularly when they are abroad. However, in all likelihood the end result is the court accepting that the owner is successfully notified (officially) through either a pan-European mechanism where their official address is known by a department in Brussels, or their official whereabouts outside Bulgaria is unprovable (such as British residents who are not required to declare any official or registered address). In such cases, official notice of pending legal action is served to their property in Bulgaria, which is ultimately accepted by the courts in the absence of any other known route.     

While the overseas owner remains unaware legal action against them continues unchallenged, the court witnessed no opposition to the claim and ultimately awards the case in favour of the maintenance company.  The amount due is now in excess of the costs ‘voted’ upon by the owners committee, it now includes all legal costs, court fees and considerable interest.

 

When the unaware owner fails to pay the amount awarded by the court, the court has no choice but to grant an injunction against the property. The property register is changed to reflect this encumbrance and the asset cannot be sold until the due amount is paid in full to the claimant, interest is applied daily.

 

Debt becomes greater than the value:

 

At this point, particularly in the case of smaller Bansko studio apartments, the debt is more than the achievable market value of the property. Only when this crucial juncture has been reached do the scammers make deliberate effort to make contact with the owner. Shocked and in disbelief it is the first the owner has heard of any increased annual costs or indeed any legal action taken against them or their assets.

 

The maintenance company’s solicitor then offers a choice:

 

• have bailiffs appointed to sell the property by public auction, which will likely leave the owner with an additional balance to pay the bailiff.

 

Or

 

• the claim will be cancelled and the injunction wiped from the property registry if the owner agrees to gift the property to them.

 

 

The bitter end:

 

The owner reaches out to professionals in the market for help, typically starting with estate agencies and then solicitors. They discover the value of their property is not more than the injunctions against them, particularly after paying agency sales commissions and legal fees. Meanwhile, word spreads and forums populate discussing the problems of the specific complex, the buying public becomes aware and achievable market values plummet further.

 

The scammers have effectively ensured the value of the property is too low to offer any viable alternative for the owners, even if sold via bailiff. The conclusion for many owners is to gift the property in lieu of debts owed.

 

The orchestrated deception has taken months from start to finish.

 

Any owners can commence a legal challenge to question the initial vote, appeal the decisions and to make counterclaims against the maintenance company, lawyers will certainly offer avenues to fight back. However, with some owners having spent upwards of 20,000 Euros on legal fees to complete such a challenge, only to keep a property worth 10,000 Euros (if saleable), it is a plainly false economy.

 

There are literally hundreds of owners being implicated in this scam in 2019. At least five complexes in Bansko are suffering corruption of this type, there is no buying demand for any of effected property at any price.

 

Telltale signs and taking action:

 

Owners who cotton on to the hostilities before it is too late will typically encounter obstructive behaviour from the management, generally culminating in a total lack of access for any third parties, particular evaluators, estate agents and prospective buyers. Owners are told they have to pay fines for permitting access to any third parties, that this is against the decision of the owners committee, which is contractually binding etc.

 

Should you encounter such statements it is advisable that you seek professional advice immediately and appoint official representation via Power of Attorney. If your appointed representative still cannot access your property armed with a POA then you must seek the assistance of your embassy in Bulgaria, ask that they request a police escort to assist your representatives. Your embassy will notify the Ministry of Interior who will in turn instruct the local police, as an internal order it will be acted upon in your favour.