Is it possible to create a trust structure for mortgage security over real estate?

Real Estate (2nd edition)

Cayman Islands Small Flag Cayman Islands

Yes, a security trustee can hold security on trust for multiple lenders. The beneficiaries of the security can change without any changes being required to the security documentation. The security trustee can enforce the security on behalf of the beneficiaries.

France Small Flag France

In theory, security agent under the new French regime should be able to be granted mortgages or lender's liens. Due to lack of consistency with, in particular, French security law, French notaries are nevertheless for now reluctant to have mortgage or lender's lien granted to the security agent and registered to its benefit on behalf of the relevant secured parties.

On the other hand, foreign trust duly created under applicable law and benefiting from a parallel debt can benefit from French mortgage (but not lender's lien) securing the parallel debt.

Germany Small Flag Germany

Yes. Where there are multiple beneficiaries of security, it is common to use a security trustee to hold the security on trust for the beneficiaries, which may include a syndicate of lenders. Under a trust structure, the trustee will hold the mortgage or land charge, as the case may be, and beneficiaries of the security can change without any changes being required to the mortgage/land charge documentation.

Hong Kong Small Flag Hong Kong

Security over land can be created in favour of a security trustee who will hold the mortgage in trust for a syndicate of lenders appointed under the financing documents of such syndicated loan transactions.

Hungary Small Flag Hungary

The Hungarian law does not recognise trust structures for mortgages, but implements the concept of “security agents” (in Hungarian: “zálogjogosulti bizományos”), which is generally the Hungarian law equivalent of the English law security trustee. If there are multiple security beneficiaries, it is customary for the security beneficiary to appoint a security agent. The appointment is typically made in one of the main finance documents such as the facility agreement.

The security agent may act in its own name but on behalf of the security beneficiaries and therefore, it is also entitled to sign the mortgage agreement and enforce the mortgage on behalf of the security beneficiaries. Security beneficiaries (other than the security agent) are not required to be registered with the Land Registry.

Spain Small Flag Spain

No, this is not possible. Mortgages should be created and registered in favour of the lender(s) as only the lender registered as mortgagee may enforce the mortgage.

India Small Flag India

Yes, mortgages can be created in favour of a security trustee to hold on trust for a syndicate of lenders.

Ireland Small Flag Ireland

Yes. Trusts, and in particular trusts of real estate, are recognised under Irish law and may be utilised in various commercial contexts to achieve legitimate structural objectives.

Russia Small Flag Russia

No, as Russian law does not recognize trust structures.

Switzerland Small Flag Switzerland

Mortgages over the real estate of a debtor can be created in favour of a security trustee to hold such mortgages on trust for a syndicate of lenders.

For such purposes, mortgages in the form of security papers, either bearer or registered mortgage notes, are generally used. The ownership of the mortgage note(s) will be transferred for security purposes collectively to the lenders and their possession will be transferred to the security trustee for the account of the lenders on the basis of a security agreement. Therefore, it allows the lenders to collectively directly enforce their claims against the debtor and to request as co-owners the restitution of the mortgage notes in the event the security trustee defaults in its obligations towards the syndicate.

It is also possible to use mortgages in the form of a dematerialized security. In this case, the mortgages are either registered collectively under the name of the lenders or under the sole name of the security trustee. In the latter case, it is possible to pledge the mortgage in favour of the lenders by way of a specific mention in the land registry, which allows the lenders to collectively enforce their claims against the debtor after enforcement of the pledge in the event the security trustee defaults in its obligations towards the syndicate.

United Kingdom Small Flag United Kingdom

Yes. Where there are multiple beneficiaries of security it is common to use a security trustee to hold the security on trust for the beneficiaries which may include a syndicate of lenders. Under a trust structure, the beneficiaries of the security can change without any changes being required to the mortgage documentation. Also, the trust assets are not part of the security trustee's assets and are therefore not part of its estate in the event of its insolvency. The security trustee can enforce the security on behalf of the beneficiaries, e.g. by appointing a receiver (see Q20 above). Note that it is common in English law loan agreements for the security trustee to be referred to as a 'security agent'; however, the underlying arrangement is generally still a trust.

United States Small Flag United States

Yes, except such structures are usually in the form of an agency relationship rather than a trust. Where collateral is pledged or security interests granted to more than one lender it is common to use a collateral agent to hold such collateral and/or security interests as agent for the lenders. Under this structure, the underlying lenders can change without any changes being required to the mortgage or security documentation and the collateral agent would enforce the security on behalf of the lenders. Also, the collateral and security interests held by the collateral agent should not be part of the collateral agent's estate in the event of its insolvency though the lenders would likely need to seek approval from the bankruptcy court to unwind the structure or take other action.

Peru Small Flag Peru

It is possible to transfer a mortgage security to a trust, thus becoming part of the trust estate.

Also, it is not unusual that, in addition to creating a mortgage security to guarantee the performance of certain obligations, the same encumbered property is transferred to a guarantee trust, thus creating a dual security interest over the same property.

Mexico Small Flag Mexico

Yes, the security trust offers some advantages over the mortgage, particularly regarding the out-of-court foreclosure procedure. Security trusts are commonly used in loan transactions where not only the land is given as collateral.

The security trust also has to be granted before a notary public and the public deed recorded with the Public Registry in order to perfect the security on the land.

Title to real estate to secure the loan is conveyed by the owner (settlor/debtor) to the trustee (Mexican financial institution), which holds title for the exclusive purpose of securing compliance of the obligations under the financing documents. Upon an event of default, trustee shall follow instructions given by creditor (beneficiary, usually a collateral agent in syndicated loans) to enforce the security.

Turkey Small Flag Turkey

A foreign entity can lend money to a borrower and have a mortgage security over a real estate in Turkey only if such entity can provide to the land registry a document obtained from the relevant authority in its own jurisdiction stating that such entity can have mortgage security in its favour and is authorized to lend money.

Italy Small Flag Italy

Unlike in other law systems in Europe, parallel debt structures are not admissible in Italy. Italian law security will have to be granted in favor of each secured creditor and not to a trustee or security agent. The role of the trustee is not recognized in Italy. A security agent is appointed to act as agent (mandatario con rappresentanza) of the beneficiaries under the transaction security documents governed by Italian law and shall not be considered as a trustee of the beneficiaries under such documents.

Cyprus Small Flag Cyprus

N/A

Japan Small Flag Japan

Under Trust Act, it is possible to create a trust structure for mortgage security over real estate. However, trust structures for security are not commonly used in the market.

One of the reasons for this is that there is a conflict of interest in being both the lender and trustee. Specifically, if a lender becomes the trustee of a mortgage security, it becomes difficult to collect the claim preferentially. Additionally, as the fee received for acting as a trustee is relatively low, it appears that there are few trust banks willing to undertake the role of trustee of a mortgage security.

Updated: December 12, 2018