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Resolution of the Constitutional Court of the Russian Federation dated 22 June 2026 No. 41-П in the case concerning the review of the constitutionality of Article 242.1 of the Budget Code of the Russian Federation in connection with a complaint by the municipal formation of the urban district—the city of Barnaul, Altai Krai. The Resolution held constitutional, in an interpretation precluding recovery of the difference from the municipality’s treasury where mortgaged escheated property was sold at auction for less, the provision governing the execution of judicial acts from the budget.
In an action brought by a bank, enforcement was levied against mortgaged residential premises that had passed to the municipality as escheated property; the court established the limits of the treasury’s liability. The premises were sold at auction for less than market value, and the bank sought to enforce the outstanding balance against the city’s treasury. The financial authority returned the writ of execution; the courts disagreed—the appellate and cassation courts ordered enforcement, finding the list of grounds for returning a writ in paragraph 3 of Article 242.1 of the Budget Code of the Russian Federation exhaustive; the Supreme Court of the Russian Federation refused to refer the complaint for consideration.
The Constitutional Court proceeds on the basis that the special procedure, initiated by application, for levying execution against the funds of the budgets of the budgetary system is established in the interests of a lawful procedure for spending budget funds. Article 242.1 of the Budget Code of the Russian Federation itself establishes procedural rules (including an exhaustive list of grounds for returning a writ of execution in paragraph 3) and does not predetermine the amount recoverable, which is determined by a judicial act on the basis of budgetary and other sector-specific legislation.
Public-law entities, as heirs of escheated property, have a special status distinct from that of other heirs: property passes to them by operation of law, without an act of acceptance of the inheritance, and renunciation of the inheritance is not permitted. An heir’s liability for the decedent’s debts is limited to the value of the property transferred, determined as of the date the inheritance opens (paragraph 1 of Article 1175 of the Civil Code of the Russian Federation); imposing liability beyond that value would result in the creditor’s unjust enrichment.
Mortgaged residential premises that pass to a municipality as escheated property are practically impossible to use to address local needs, especially when they are to be sold at auction at the mortgagee’s request. At the same time, public auctions under the law produce a price below market value: the initial sale price is set at 80% of the market value (Law on Mortgages), and at a repeated auction it is reduced by a further 15%. Accordingly, the proceeds may be insufficient to satisfy claims up to the market value determined as of the date the inheritance opens.
Further recovery of this difference from the treasury of the municipal formation, without taking into account the specific circumstances in which the mortgaged property was received as escheated property, would essentially mean depriving the municipality of part of its own property (which had not been received as escheated property) and spending budget funds on purposes not provided for by the budget and not necessitated by the actions of its authorities. This would violate the balance of rights and the guarantees of local self-government (Articles 8 (part 2), 17 (part 3), 19 (part 1), 35 (part 2), 75.1, 130 (part 1) and 132 (part 1) of the Constitution of the Russian Federation; Resolution of the Constitutional Court of the Russian Federation of December 4, 2023 No. 55-П).
Therefore, the Court held Article 242.1 of the Budget Code of the Russian Federation constitutional in an interpretation that precludes enforcement of the writ of execution to the extent of the difference between the amounts where the proceeds from the sale of the pledged escheated property are insufficient and the municipality has no other escheated property of the deceased. The formally exhaustive list of grounds for returning a writ of execution under paragraph 3 of Article 242.1 of the Budget Code of the Russian Federation should not result in recovery from the treasury in this situation.
Municipalities are protected against recovery of the “difference” in respect of pledged escheated property sold at auction below market value. The constitutional and legal meaning of Article 242.1 of the Budget Code of the Russian Federation is universally binding; the Barnaul case is to be reconsidered.
For municipalities, the judgment establishes protection against recovery of the “difference” in respect of the deceased’s debts secured by a pledge of escheated property sold at auction below market value. Financial authorities have a constitutional basis for refusing to enforce the writ of execution to the relevant extent, despite the formally exhaustive nature of the list of grounds for return.
For creditors, typically pledgee banks, the position means that the risk of insufficient proceeds from the auction of pledged escheated property is not shifted to the municipal treasury beyond the value of the escheated property received. This takes into account the professional nature of the pledgee’s activities and its ability to mitigate risks.
The identified constitutional and legal meaning is universally binding; judicial acts in the case of the City of Barnaul issued on the basis of an interpretation diverging from it are subject to reconsideration. The position provides guidance to courts when applying Chapter 24.1 of the Budget Code of the Russian Federation to disputes concerning recovery from public-law entities in respect of obligations secured by a pledge of escheated property.
This analysis was prepared on the basis of the CasusLegal database (case law of the highest courts of the Russian Federation). The titles of the cited decisions link to their full texts in CasusLegal.