Property Foreclosed By The Bank : Don’t Panic, Do This!

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• News and Insights
• August 27, 2025

PROPERTY FORECLOSED BY THE BANK: DON’T PANIC, DO THIS!

Defaulted loans increase the Non-Performing Loan (NPL) ratio. A high NPL reduces the Capital Adequacy Ratio (CAR). A low CAR indicates that the Bank is in an unsound or unhealthy condition and potentially subject to liquidation. Consequently, the Bank must reduce the NPL, one of which is by executing the security interest (right of mortgage) through a foreclosure sale of the debtor’s property pledged as collateral, with the proceeds applied toward repayment of the debt. Once the auction produces a winning bidder and the auction minutes are issued, the debtor loses legal title to the property. Therefore, debtors should not remain indifferent yet neither should they panic. Consider the following matters:

Bank’s Right to Foreclose the Collateral

Article 1(1) of Law No. 4 of 1996 concerning Mortgage Rights Over Land and Objects Related to Land (“Mortgage Law”) defines a mortgage right as a security interest imposed upon land rights, whether or not including fixtures constituting a unity with the land, to secure repayment of a specific debt, granting priority to a particular creditor over other creditors.

The term specific debt refers to the credit agreement between the Bank (creditor) and the borrower. Meanwhile, the phrase security interest imposed upon land rights refers to the debtor’s land (property) pledged as collateral. Upon default, the creditor is entitled to sell the property through foreclosure sale.

Foreclosure Sale Procedure

Although the Bank has the right to foreclose, the process must comply with Minister of Finance Regulation No. 122 of 2023 concerning Guidelines for Auction Procedures (“MoF Reg. 122/2023”). The Bank must submit a written application to the State Assets and Auction Service Office (KPKNL), subject to the procedures and requirements set forth in Article 32 of MoF Reg. 122/2023, including:

1. 1. 1. Auction request must be submitted in writing by the Seller to the Auction Officer, according to the type of auction, accompanied by supporting documents.
      2. Auction requirements consist of: general documents; and special documents, including documents for the auction request and execution.
      3. If the Seller is an internal unit within the KPKNL, the application shall be submitted by the competent official under the Directorate General of State Assets (DJKN) to the Head of KPKNL.
      4. For objects located outside the territorial jurisdiction of an Auction Officer within Indonesia, the application may be filed with the nearest KPKNL, Class II Auction Officer, or Auction House.
      5. Auction applications may be submitted via the Auction Application System.
      6. If the system is unavailable, submission may be done manually.
      7. For perishable or seized assets, the application may be sent first via fax or email to the Head of KPKNL.
      8. Auctions involving multiple sellers must be submitted in a joint application.
      9. Procedures and required documents are further regulated in the annex of the Ministerial Regulation.

Grounds for Halting a Foreclosure Sale

By law, an Auction Officer may cancel the scheduled auction. Article 44 of MoF Reg. 122/2023 provides that foreclosure may be canceled upon:

1. 1. 1. request of the Seller;
      2. a court order or judgment mandating postponement or cancellation of the auction; and/or
      3. other circumstances as provided by the Regulation.

Further, under Article 48, cancellation may occur if:

1. 1. 1. Technical disruptions prevent execution until the close of business hours in an electronic auction;
      2. Force majeure; and/or
      3. The Bid Security of the winning bidder is re-debited by the banking system and not credited back into the Auction Organizer’s account by the end of the auction day despite notice.

Auction Cancellation by the Auction Officer

Article 44 of MoF Reg. 122/2023 expressly authorizes Auction Officers at KPKNL to cancel a foreclosure auction based on:

1. 1. 1. request of the Seller (Bank);
      2. a court decree or judgment mandating postponement or cancellation; and/or
      3. other circumstances regulated under the Regulation.

The phrase other circumstances includes, for instance: absence of a Land Certificate or Land Registration Statement, property subject to criminal seizure, or the existence of pending litigation contesting the foreclosure execution (see Article 47 MoF Reg. 122/2023).

Strategies to Stop Foreclosure Sale

Given the above, the most practical approach for a debtor is to request the Seller (Bank) to withdraw the foreclosure request. Such request must be made diplomatically. In principle, the Bank may grant the request if the debtor submits a reasonable proposal for repayment or settlement that does not cause further loss to the Bank. Alternatively, with Bank’s consent, the debtor may sell the property independently at a price higher than the foreclosure value, thereby reducing the Bank’s potential loss.

Conclusion

A debtor may stop the foreclosure process by requesting the Bank to apply for auction cancellation at KPKNL, provided that the debtor proposes a reasonable repayment or settlement plan that avoids prolonged financial harm to the Bank.

Legal Basis

• Law No. 4 of 1996 on Mortgage Rights Over Land and Objects Related to Land.
• Minister of Finance Regulation No. 122 of 2023 on Guidelines for Auction Procedures.

 

Author:

Nicko Surya Airlangga, S.H.

Masta Pasaribu

Editor: 

Muhammad Arief Ramadhan, S.H.