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

Real Estate

Ireland Small Flag Ireland

Yes.

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.

The Netherlands Small Flag The Netherlands

A mortgage can be established in favour of one or more mortgagees. It is possible to establish a right of mortgage in favour of a security agent acting as agent for a syndicate of lenders.

Norway Small Flag Norway

It is possible to create a structure to hold security through a trustee or security agent, and it is commonly used for syndicated and bond deals (see Q 13). Norwegian courts recognise that the security can be held by a trustee or an agent on behalf of the lending syndicate or for the bond holders. It should be noted however that Norwegian law has not incorporated the English law concept of trust and under Norwegian law assets held by a security agent or trustee on behalf of others will be part of a general bankruptcy estate unless such assets can be identified and are held separate from the security trustee's other assets.

Romania Small Flag Romania

Yes, the Romanian Civil Code provides that receivables and securities may be transferred to a trustee as part of a trust structure.

Russia Small Flag Russia

No, the Russian legal system does not recognise split of legal and beneficial ownership of real estate. A mortgage may be established in favour of the lender/ creditor only.

Sweden Small Flag Sweden

There is no Swedish legal equivalent to a trust in the Anglo-Saxon sense of the word. However, similar fund structures may be found also in the Swedish legal system, held together as company groups or through contractual arrangements. Each legal entity included in such a group is however legally considered a separate unit, and the structure as an entirety does not constitute an independent legal person.

A property can only be mortgaged and pledged by its legal owner (or, if applicable, its site leaseholder). Pledging of real estate mortgages must always be made in correspondence to a specific debt, and will only create security over the property in which the mortgage has been created. As a result, one real estate mortgage cannot be separated or allocated to provide first-hand security over several loan arrangements involving several creditors.

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.

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.

Brazil Small Flag Brazil

The Brazilian legal system does not provide the creation of mortgages to the benefit of a security trustee, acting on behalf of a group of creditors. Moreover, since a mortgage is an in rem right, there is a strong strictness as to the need to meet the solemnities required thereby. As referred in the beginning, the real estate industry is governed by a series of sparse formalities and laws.

Therefore, many times such strict formalism ends up hindering the acceptance by the Notary Office and by the Real Estate Registry Office (the officers may feel uncomfortable to take out a security interest for lack of a legal provision thereupon) of a security trustee.

In this respect, depending on the understanding of the registry offices (Notary Office and Real Estate Registry Office), it is possible to create a structure with a fund for real estate transactions with mortgages and that are constituted to the benefit of a trustee, provided that they do not conflict with the legally established requirements for the mortgage and/or any other mandatory provision of the Brazilian legal system.

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.

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.

Bulgaria Small Flag Bulgaria

No trust structures for mortgage security over real estate are regulated or recognized under Bulgarian property law.

France Small Flag France

A recent change in French legislation has allowed the registration of a mortgage over a real estate asset in favour of a security agent acting on its own behalf to the benefit of the creditors of the secured obligations since May 2017. However, practitioners seem still distrustful of the proposed mechanism and its efficiency and the French notaries appear unwilling for now to register mortgages in the name of security agents.

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 and beneficiaries of the security can change without any changes being required to the mortgage 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.

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.

Updated: December 11, 2017