If the third party claim of ownership is not admitted before the auction takes place, it becomes inadmissible.

Below, we briefly explain the analysis made by the Permanent Constitutional and Social Law Chamber of the Supreme Court (SDCSP) in the Cassation 10964-2017-Cusco (the Cassation). In it, it was determined that, if the third-party claim is not admitted for processing before the beginning of the auction, then such claim is inadmissible for containing a legally impossible petition.

Facts. -

Caja Municipal de Ahorro y Crédito de Arequipa filed a foreclosure action against Victoria Ramos for a debt of S/. 60 thousand soles. This debt was secured by a mortgage on a property located in Cusco.

During the execution process, Alfredo Arroyo filed a third party claim of ownership against the Caja Municipal and Victoria Ramos, claiming to be the owner of the property. For the purposes of this analysis, we specify relevant facts and dates in the following two timelines:

The Supreme Court's decision. -

The third party claim was declared inadmissible. On appeal, the Superior Chamber confirmed this decision concluding that it was a legally impossible request because:

[Although the lawsuit was filed on January 6, 2016 (folios 11 to 13), this is not the only requirement that must be met in order to affect the auction of the property, but also that it be admitted; however, the lawsuit has not been admitted until the date of issuance of the appealed resolution declaring it inadmissible.[1]

The appeal challenging the latter decision was dismissed by the SDCSP, mainly because "[t]he claim of the third-party claim is not decisive for the effects of the same to take effect; but rather its admissibility". In other words, it is not enough to file the third-party claim before the auction begins[2] but its admission is also conditioned to the same fact.

Comment. -

The analysis carried out by the SDCSP in the Cassation is based on the application of articles 534 and 536 of the Code of Civil Procedure[3], from which two important moments can be observed:

• The third party claim can be filed before the beginning of the auction. Therefore, if the auction has already started, the third party claim is not admissible.
• Only a third party action admitted to proceeding suspends the execution, even up to the consented or executed resolution ordering the sale of the foreclosed property. Therefore, as long as the third party action is not admitted, the execution continues until the adjudication.

Alfredo Arroyo's third party claim was timely filed before the beginning of the auction, therefore, it complies with (i). The problem is (ii) since the auction and adjudication took place before the decision on its admission to proceeding was made. So, the question is: can a third party claim of ownership be admitted when the property in question has already been auctioned and adjudicated?

There have been pronouncements whose answer would be yes. For example, in Cassation 484-2003-Cono Norte, the Supreme Transitory Civil Court concluded that it was possible to admit the third party claim even if the auction and adjudication had already taken place. In the specific case, it was only evaluated that the third party complaint had been filed in a timely manner (before the auction), granting the successful bidder the status of necessary passive litisconsor in the third party proceeding.

The opposite thesis has been adopted by the Cassation, the answer to which would be no[4]. The third party action will be inadmissible if, at the time of its qualification, the auction and adjudication have already taken place. This criterion would be based on the premise that the third party action seeks to "prevent a third party owner from being harmed by debts that are not his" ⁽[ ^5]). If the property to be protected has already been adjudicated, then there is no harm to avoid (because it has already occurred). In this context, the third party action could be declared inadmissible for lack of interest to act in the result.

Thus, it becomes very important to obtain an admissibility as soon as possible. Unfortunately, this task is not in the hands of the parties, but in the hands of the judge.

[1] Paragraph 3.11 of Resolution 11 issued by the Superior Chamber.

[2] In accordance with the criterion adopted in Case 1064-2000-Puno, for the purposes of evaluating the timeliness of the third party action, it is important when the auction begins and not when it concludes.

[3] Art. 534.- "The third party right of ownership may be filed at any time before the auction of the property begins. That of preferential right before payment is made to the creditor. The competent Judge is the Judge of the proceeding in which it is filed.

Article 536.- "Once the third party claim of ownership is admitted, the proceeding shall be suspended if it is in the execution stage, even if the decision ordering the sale of the goods is consented or executed, unless they are subject to deterioration, corruption or disappearance or their preservation is excessively onerous. In these cases, the proceeds of the sale are affected to the result of the third party action.

The third party may obtain the suspension of the precautionary measure or of the execution of the affected property, if the guarantee granted is sufficient in the Judge's opinion, in case he does not prove that the goods are his property."

[4] The same criterion is shared, for example, by the Supreme Permanent Civil Chamber in Cassation 4593-2011-Lima.

[5] Sixth Whereas of Cassation 648-2016-Huaura issued by the Supreme Permanent Civil Chamber.