Russian bankers are anxiously awaiting a Supreme Court decision within the next week that is likely to determine whether the mortgage market will become a major area for investment or remain a kind of Russian roulette for financial institutions.


The court will try to deal with the fallout from a company, now collapsed, that managed to take out mortgages with at least five banks for more than $1 million on the same property.


Commercial banks in Moscow have been reluctant to accept mortgages -- a new financial concept in a country where most forms of property ownership were illegal for more than seven decades -- as security for loans.


"The law is incomplete and uncertain. You are playing at your own risk," said Boris Trus, deputy chairman of Finance & Credit Bank. "Everything depends on the individuals."


His bank is one of five involved in the complex mortgage dispute.


In the new Wild West atmosphere of Moscow business, Otema, a Russian-Hungarian joint venture, managed to covertly draw up the separate mortgages over the last two years, according to Sergei Shmelkov, president of CBC Bank, and Yelena Shapirova, commercial loan supervisor at Most Business Bank.


CBC filed a case with the Supreme Court last August, one month after three of the banks discovered the multiple mortgages and forced a precedent-setting auction, conducted by the Moscow City Court. The three managed to recoup 2.1 billion rubles (about $1 million at the time) in defaulted loans by Otema.


Shmelkov, whose bank had legal title on the building but was left out in the cold by the auction, said in an interview, "I will fight for that building until all legal avenues are exhausted."How Otema, which could not be reached for comment, was able to register five mortgages on one property at the city registry office, known by its Russian acronym BTI, remains a mystery.


Shapirova remembers going to the northwest Moscow BTI office on Ulitsa Kosmonavta last December to check the register.


"I was shocked to see two mortgages on the same property registered on the same page," she explained. "When I spoke to the department head, he pretended that he didn't know you can't do that.


"Either he was incompetent and unqualified, or he was acting dishonestly," she said.


The Moscow government passed legislation last month requiring establishment of a separate office for mortgage registration, but many question whether the law will manage to streamline commercial mortgages and eliminate corruption which has given the infant mortgage market a Russian roulette atmosphere.


When Shmelkov's bank lent Otema $150,000 last year, the company offered a two-story office building, 8a Malaya Sukhovarskaya Ploshchad, as security, the bank's documents show. The banker said his institution, unlike some of the other lenders, registered the loan with BTI and thus felt secure.


Shmelkov produced documents demonstrating that CBC acquired ownership of the building through BTI and the Moscow State Property Committee on March 23 after Otema looked ready to default.


Therefore, he said he was shocked to see newspaper advertisements of the auction of his building in July. At that point, he said, he learned that at least five banks had been offered this same piece of prime real estate as security on large loans.


Shapirova of Most Business Bank said the beneficiaries of the auction were her bank, Inkombank and Finance & Credit Bank, all of which also registered their mortgages with BTI.


BTI documents, provided by Shmelkov, show Finance & Credit was the first to advance a loan to Otema, providing the joint-venture with 180 million rubles at 240 percent interest in December 1992. Inkombank provided Otema with $500,000 in October 1993 at an annual rate of 200 percent. Most Business Bank loaned 220 million rubles in August 1993, at an interest rate of 220 percent.


A fifth bank, Favorit, lent 50 million rubles to Otema, according to Trus at Finance & Credit.


"A legal precedent was set when we sued for inclusion in the auction, a precedent that has since been adopted by the Justice Ministry," Trus said. "CBC Bank must have missed the deadline for making a claim."


None of the banks, however, had been notified by BTI of outstanding claims on the property.


Viktor Marktsinkovsky, deputy head of the Moscow BTI office, acknowledged that oversights may have occurred in the past but said they are unlikely to happen in the future. The city government, he said, has "passed legislation demanding that a single system of mortgage registration be put in place in the next two months."


Shmelkov put much of the blame on Moscow's BTI. "None of us paid attention to the level of corruption of head staff in the city registrar's office. We all had our inquiries returned from the city registrar's office guaranteeing that the building was clean. Nor will the managers of the city registrar be punished for their action."


Escalating somewhat the value of the bank's losses, he said: "Our half-million dollars will not be returned by the city council, even though our loss is a direct consequence of their failure to correctly execute their work."


Shmelkov said he was mainly frustrated by the court's handling of the matter. No one notified CBC Bank that its property was under judgement, he said. One week after the auction, his lawyers appealed the decision, but the appeal was denied on the grounds that the bank had not taken part in the original hearing.


Such Catch-22 logic has driven him to appeal to the Supreme Court, where the appeal has been pending since August.


"I don't know what to think," Shmelkov added. "These banks are much bigger than mine and their presidents were senior members of the former nomenklatura.


"I had thought the days of closed judgments and private telephone calls to judges in our country had ended with the death of communism. Evidently, I was wrong."


Shapirova has been to the new city property-registration offices. "Now, at least, they are working on computers and the chances of being able to hide that kind of error are much less than when a piece of paper or a page of a book could be lost or torn out," she said.


Not all banks are ready for the perils of mortgages in Russia. Vladimir Danilin, in charge of commercial loans at Credo Bank, said, "We do not take real estate as sole guarantee for credit. It is not liquid enough."