Is it possible to create mortgages over real estate and how are these protected and enforced?
Mortgages and revolving mortgages can be created and are very common in the market.
Mortgages are created by agreement of the parties and perfected by registration. If registered as 1st priority, a mortgagee can assert its priority over those who subsequently acquire the property or create mortgages. Mortgages are enforced through the foreclosure court or through a voluntary sale.
Upon an event of default under either a senior or junior mortgage, the applicable mortgagee can initiate the foreclosure process by filing an application for foreclosure and making a deposit with the court for expenses in connection with the foreclosure and auction proceedings. The court then issues a commencement order which is served on the property owner and attaches the property in favour of the foreclosing mortgagee, preventing the property owner from further transferring or encumbering the property while the foreclosure process is underway. In the process, the property owner is given certain opportunities to contest (substantive disputes by the property owner will require a separate proceeding in the District Court) and secured creditors with perfected liens, creditors with judicial liens and the tax authorities will be given a chance to register their claims with the court. The court will then order an appraisal to set the minimum bid for auction, and the sale at auction will extinguish any liens on the property and title will immediately pass to the winning purchaser. The court will then distribute the sale proceeds in order of priority. Tax liens will have priority over mortgages only to the extent that the underlying taxes were due and unpaid prior to provisional registration of the applicable mortgage.
While the mortgage foreclosure process is fairly straightforward and efficient, many lenders are often able to obtain even faster recovery through a voluntary sale of the property. Assuming the property owner is cooperative, a voluntary sale can happen as quickly as one month after the expiration of any negotiated standstill periods, provided that a willing purchaser can be located. A voluntary property sale will require cooperation from both the property owner as well as coordination with any junior secured creditors who will need to agree to release their liens prior to the property changing hands.
Mortgages over real estate must be executed before a public notary (or equivalent official) and registered with the Land Registry Office, such registration being a condition of validity of the mortgage. If agreed between the parties, the mortgagee can become beneficiary of the proceeds of the insurance entered into to cover the risks of the mortgaged property.
A mortgage does not have the right to take possession of the property in event of default in the payment of secured obligation, but only the right to judicial sale of the property and to be paid with the proceeds of … Sale. In a judicial the property will be sold free of any changes and encumbrances.
To create a legal charge, a charge (in the prescribed form in the case of registered land) is executed. An equitable charge may be created over unregistered land only. It is usually created formally by execution of a deed but this is not essential. For example, the deposit of title deeds may create an equitable mortgage. Appropriate registration in Land Registry or Registry of Deeds and (in the case of companies giving charges) in the Companies Registration Office is necessary to protect mortgages over real estate.
Enforcement remedies available to a mortgagee can include sale of the property with or without intervention by the court, going into possession and taking the rents/ profits or the appointment of a receiver.
The most common forms to structure a secured financing for real estate in Mexico are: (i) mortgages, and (ii) security trust agreements.
The mortgage agreement 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.
Upon default of the borrower’s obligations under the financing documents, the mortgagee/creditor has the right to initiate a foreclosure proceeding in the form of a special summary judicial procedure (juicio especial hipotecario) to enforce the mortgage. In general, the court orders a public auctioning of the real estate to use the proceeds to repay and satisfy the loan in benefit of the creditor. Only under certain circumstances, the court may allow the mortgagee to retain the land in satisfaction of the debt.
The most customary way of financing real estate is a loan, possibly taken out by the party acquiring title to the real estate, for which the owner of the real estate grants mortgage collateral to the lending institution.
The mortgage right is created on the registration in the Land Register of a copy of the mortgage deed. The mortgage deed is drawn up by and executed before a Dutch civil‐law notary. The party granting a mortgage right must always appear before the civil‐law notary in person (which means that the managing director himself must sign the mortgage deed) or must issue a notarial power of attorney. The mortgage right is a real right, i.e. not a personal right.
In addition to a mortgage right, collateral is usually also provided in the form of a pledge on e.g. the shares in the legal entity that owns the real estate, fixtures and fittings, rental income, bank accounts, insurance payments, etc. The creation of a pledge also requires a notarial deed, but in that case the pledger needs not to personally appear before the civil‐law notary; a non notarial power of attorney also suffices. A pledge is also a real right.
Right of summary execution
If a debtor is in breach of performance, the mortgagee/pledgee can exercise its right of summary execution (forced sale). This means that the mortgagee/pledgee can sell the collateral in public. The mortgagee/pledgee sells the collateral in its own name. The mortgagee/pledgee usually does not give any guarantees on the sale of the security. However, the mortgagee/pledgee will have to share its knowledge of the collateral that is not generally known with the buyer if that information is relevant to the buyer in entering into the purchase.
Forced sale is surrounded by statutory regulations and terms and deadlines. The sale of real estate must take place, for instance, before a civil‐law notary, who records the date, place and time of the sale, in consultation with the mortgagee.
In principle, the sale takes place in public in accordance with local custom. The sale of real estate is usually announced in a nationwide newspaper, internet and by means of placarding in accordance with local custom. All “parties concerned” must furthermore be given notice of the forced sale. In the case of real estate that must be done by means of a writ at least four weeks before the forced sale.
In light of the aforesaid regulations a financier must take into account a turnaround time of at least three months before the execution process has been completed and the proceeds have been paid to it.
In the event of forced sale on the grounds of both a mortgage right and a pledge, a private sale is possible instead of public sale in certain circumstances. Financiers can exclude a private sale of pledged goods, but not of real estate. Statutory provisions regulate the terms within which private bids can be made on real estate to the civil‐law notary and what conditions those bids must meet.
By law, both the mortgagee and the debtor are authorised to accept a bid. However, a mortgagee can stipulate that the debtor waives his right to accept a bid as referred to above. That way the mortgagee can decide whether or not to sell the real estate by a private sale.
In addition to the collateral referred to above, there are also other forms of collateral in real estate financing, such as suretyship and step‐in rights (in the case of new developments). Step‐in rights allow the financier to take control of a building under construction if the debtor fails to fulfil its obligations, in order to safeguard the value of the building.
It is possible to create mortgages over real estate that is registered in the land register. The mortgages can be created both over the real estate itself, and over easements on real estate, e.g. on lease agreements or rights to use natural resources. A voluntary mortgage is established as an agreement between the lender and the owner of the real estate.
In order to obtain legal protection, the mortgage must be perfected by registration in the Norwegian Property Register. Once registered, the mortgage will have priority to any mortgages registered later.
A mortgage will be upheld in bankruptcy proceedings if it is registered no later than the day before the opening of the bankruptcy proceedings. Exceptions from this applies for mortgage created by distraint, and mortgage established as security for older debt.
Enforcement of mortgages are subject to the Norwegian Enforcement Act of 1992 (Enforcement Act) and must be made through the Norwegian enforcement authorities. It will be conducted by a sale through an assistant appointed by the court (typically through a brokerage firm) or by an auction, depending upon what is considered to generate the highest outcome of the enforcement.
Yes, mortgages can be instituted over real estate in order to guarantee the value of the loan principal, interest and all accessory payments such as delay penalties. In order to guarantee the receivable, the lender may foreclose upon a mortgaged asset no matter if the borrower is still the owner of the asset or if the property has changed one or several hands.
However, in order for the mortgage to be opposable to third parties, it has to be registered in the mortgaged property’s land book.
Mortgages over real estate must be provided in a contract executed in front of the notary public. Mortgage agreements represent an executory title over real estate, meaning foreclosure may be enacted directly by a court enforcement officer, without any court approval being necessary and without a contradictory procedure (although the debtor has the right to contest and, thus, suspend foreclosure by filing a claim with the court of law).
Mortgages over commercial real estate are one of the most common types of security in Russia. Mortgages are subject to recording in the Realty Registry. Notarisation is not mandatory but might provide the lender with valuable benefits in the event of enforcement.
Enforcement of a mortgage requires a court order unless the mortgage is notarised or the mortgagor agrees to follow an out-of-court take-over. Unless agreed otherwise, enforcement of a mortgage is normally effected through sale of the mortgaged property by public tender. Unless agreed otherwise, the lender may take over the mortgaged property.
The mortgagor’s insolvency virtually always results in complications to mortgage enforcement.
Mortgages over real estate can be created after application with the Land Registry by the owner of the property. After the application has been registered and granted, a mortgage certificate is issued corresponding to the face value of the mortgage, either as a physical certificate or a digital certificate which may be transferred electronically to a bank or other creditor connected to the mortgage register system. Mortgage rights are protected through possession of the certificate (physically or electronically).
Enforcement of a pledged mortgage is carried out through executive auction administered by the Swedish Enforcement Authority, following an application by the property owner’s creditor/s. The procedure is relatively straight forward but involves some bureaucracy and may be time-consuming, especially if a debtor’s claim is disputed.
The creation of mortgages over real estate requires the execution, by the owner of the real estate, of a public deed in front of notary, as well as the registration of the mortgage by the notary with the land registry. Collective mortgages on several plots are also possible.
Mortgages may be created in the form of a security paper, a bearer or registered mortgage note, or in the form of a dematerialized security solely registered in land register.
A claim secured by a mortgage over real estate can either be enforced according to the ordinary collection procedure, for individuals, or to the bankruptcy procedure, for legal entities, or according to a specific debt enforcement proceeding limited to the forced sale of the mortgaged real estate. Such proceeding implies several procedural steps, which the debtor can oppose to postpone the execution of the mortgage and ultimately the forced sale by public auction. By law, the entire proceeding cannot be completed in less than six months, but in reality it very often lasts more than twelve months.
Mortgage is the main method used for financing a real estate and it can be created as security for any kind of debt, present, future or contingent.
In practice, if a bank loan is used to acquire a real estate, the bank usually request an adequate guarantee for the loan or establishment a mortgage on the relevant real estate. To create a mortgage over real estate, the agreement should be signed in front of the land register offices and it should be registered to the land registry. The mortgage can be cancelled through demand of the lender, due to expiration, due to expropriation etc.
As known, the main aim of the mortgage is to foreclosure in case the debtor does not pay the debt on due. In such case, the lender applies to the relevant Execution Office for cash-in the mortgage and the Execution Office serves a payment order to the debtor and requires payment of the debt, together with default interest and legal charges thereon. In case no objection or payment is made the Execution Office appoints experts to evaluate the market value of the real estate. After completion of the necessary foreclosure proceedings, the Execution Office decides on the dates of public auctions (2 auctions take place) for the sale of the real estate. In both auctions, at least 50% of the market value determined by the experts is required to be offered. In case such offers are obtained by the Execution Office, the real estate will be sold to the highest bidder and such bidder will be required to pay the amount of its bid in cash to the Execution Office and the Mortgagee will receive its receivables according to the regulations in the relevant Law.
In Brazil, a very common form of guarantee is mortgage on real properties. A regular mortgage must follow the solemnities of public deed and registration in the corresponding real estate record with the competent Real Estate Registry Office. The registry of a mortgage is extremely important for its preservation, as well as to fully produce its effects, since, without complying with such requirement, the guarantee remains in the field of obligation rights and it is not typified as an in rem right.
The mortgage on a real property also includes its accessories, i.e., the soil and its natural accessions (trees and stones) and the artificial ones (constructions and plantations). Moreover, except for the case of a first-priority mortgage (i.e., in case there is no early termination clause restricting other mortgages), it is possible to take out more than one mortgage on the same real property, which must observe the order of priority according to the chronology of its registries. In the event of default by the mortgage debtor, since the agreements secured by a mortgage are deemed as extrajudicial execution instruments, creditor may promote the foreclosure on the real property by executing such enforceable instrument in the courts. The debtor must be summoned in order to pay the debt within de deadline established or offer properties to be levied upon. Should debtor fail to pay or fail to validly offer properties to be levied upon, the marshall may promote the levy, preferably, of the property offered as a mortgage. There is a possibility to extending it to other properties if it is necessary to assure the full payment of the debt. In order to satisfy the credit, the real property may be adjudicated, sold to a private individual or in court (each modality has its own procedure). If the credit amount exceeds the value of the real property, the execution on the remaining balance will continue.
As a rule, foreclosure on a mortgage debt is more direct than a process of common execution (mainly taking into account the nature of a security interest). Nevertheless, it is still bureaucratic. For this reason, it is difficult to make any practical estimates, because the process depends on the Judicial Court, which is usually slow in Brazil.
In this respect, it is worth noting that an alternative to a mortgage would be chattel mortgage. In this type of guarantee, there is the transfer from the debtor to the creditor of the fiduciary ownership and indirect possession on the real property, as a guarantee of the debt. Upon payment of the secured debt, the guarantee is extinguished and buyer consolidates both, the property and the possession, in such capacity.
Yes, mortgages can be created over real estate (or an interest therein). As a technical matter, however, in some states, the manner in which security is granted over real estate is by deed of trust (rather than a mortgage) where the property owner places the property in trust with a trustee for the benefit of the lender. In the case where the interest to be secured is a leasehold, the terms of the lease must first be reviewed to ascertain if the lease is indeed financeable and to ensure that any requirements prescribed by the lease have been satisfied.
In order to perfect the lender's interest in a mortgage, the mortgage must be recorded in the real estate records in the county where the applicable property is located. Once recorded, a mortgage will generally have priority over any future encumbrances (except for encumbrances that the lender was aware of or should have been aware of). While a mortgage does not need to be recorded in order to be enforceable, the failure to record generally exposes the lender to have its interest subordinated to any subsequent bona fide purchaser for value that records its interest first. Depending on the municipality where the property is located, the method for recordation (i.e., physical delivery vs. electronic recording) and the volume of documents submitted for recording, the actual recordation of a document may take place on the day of closing or days or weeks after the closing of the transaction. Any delay in the recordation of a mortgage is not a practical concern because the lender will have obtained a title insurance policy for its mortgage loan and the title insurance company will insure the lender for the gap period between closing and recording.
A mortgage is a lien which provides the lender with the power to sell the property owned by the borrower at the time the mortgage was granted. In the case of a default, the lender may exercise such power of sale through the foreclosure of the mortgage. There are two types of foreclosure – judicial and non-judicial foreclosure. The remedy of judicial foreclosure is available in all states, and more than half also permit non-judicial foreclosure. The specific remedies available to a lender and the manner in which a foreclosure is carried out is governed by state law with significant variations. Generally, in a judicial foreclosure, the lender must commence a lawsuit against the borrower to initiate the foreclosure process. The entire process is then run through the court and, as a result, takes longer than a non-judicial foreclosure and allows the borrower to raise defenses as part of the proceeding. In a non-judicial foreclosure (typically permitted in states that employ a deed of trust regime), the lender may proceed with the foreclosure outside of court in accordance with state law. Non-judicial foreclosures are naturally less formal and proceed quicker than a judicial foreclosure. In either case, the borrower will have the right to attend and bid at the auction and the lender will have the right to credit bid the amount of its indebtedness. If anyone other than the lender is the winner of the auction, then the lender will receive the proceeds from the sale up to the amount of its indebtedness with any surplus going to junior lienholders or the borrower. If the lender is the winner of the auction, it or its designee becomes the owner of the property. Depending on the state and the terms of the loan, the lender may be able to pursue the borrower or other credit parties for any deficiency.
Yes, mortgages can be created over real estate. As mentioned above, the answers in this Guide only relate to registered land in England and Wales. Where the real estate interest is leasehold, the terms of the lease must be first reviewed to ascertain if consent of the landlord is required in order to create the mortgage.
A legal mortgage will generally be compulsorily registrable at the Land Registry. The main exception is a mortgage over a leasehold property where the lease term has less than seven years to run. If the legal mortgage is not registered at the Land Registry, it may lose priority as against third party interests (including another registered mortgage) even if that interest or mortgage was granted after the unregistered mortgage. Priority is generally determined by the date of registration and not creation.
A company or limited liability partnership incorporated in the UK under the Companies Acts must also register security with the Registrar of Companies within 21 days after the date the security is created. If the mortgage is not registered with the Registrar of Companies, it will be void as against third parties and other security subsequently registered will have priority.
Enforcement is generally straightforward. The lender has a number of methods of enforcing the mortgage, it can:
- appoint a receiver; the receiver will normally have wide powers to deal with the property including the power to sell or lease the property and use the proceeds to satisfy the debt;
- sell the real estate and use the proceeds to satisfy the debt;
- take possession of the real estate (this is unusual because of liabilities assumed by taking possession e.g. environmental liabilities); or
- obtain a court order vesting ownership of the freehold real estate in the name of the mortgage holder (known as 'foreclosure', although this term may also be used in the sense of general enforcement of security over property); however this is rare.
Creating mortgages as security for a legal (contractual) obligation of the owner of the property is quite common in Bulgaria. The law also allows subject to mortgage the property of a third person, who has no obligations towards the mortgage creditor, subject to that third person’s explicitly consent.
The mortgage shall be created through registration in the Property Register on the grounds of a contract or by operation of law. The contract for the creation of the mortgage must be executed in the form of a notary deed, having the content prescribed by the law and must be entered into the Land register. The notary and registration fees are determined on the basis of the value of the debt, secured with the mortgage.
The initial period of validity of the mortgage is 10 years, which can be renewed for new 10-year terms by re-entries into the register. If the re-entry is conducted prior to the expiration of the initial/previous period of validity, the mortgage and thus the rights of the creditor will have a turn as of the date of the initial entry into the register.
The first-rank mortgage creditor is entitled to collect its debt from the price received by a public sale of the property, conducted by a private or state bailiff. The mortgage creditor must have a lawful ground for receiving the price (such as a judicial decision in his/her favor) and may receive no more than the sum, written down in the notary deed for the creation of the mortgage. If there are other creditors with higher ranks (i.e. older mortgages), the creditor is entitled to receive what is left after the claims of the other privileged creditors are satisfied.
The enforcement is a relatively straightforward process involving usually a court ruling and private bailiff actions. It follows the rules envisaged in the Civil procedure code for public sale of immovable property.
Important for the protection of the mortgage creditor is the rule, that the mortgage is transferred together with the transfer of title over the property to the new owner.
Mortgages (hypothèques) – and other real estate liens (e.g. lender’s lien) - can be created over real estate by way of a notarial deed that will then published at the Land Registry to become binding upon third parties. Mortgages rank from the date of their publication at the Land Registry.
When the debtor fails to carry out its obligation of payment, the creditor can initiate a procedure to seize the mortgaged property (saisie immobilière) which is a cumbersome judicial procedure leading to a sale by auction of the property. What is more, in case the debtor and owner of the mortgaged property is a company; the forced sale of the property will be included in the bankruptcy procedure along with all of the company’s assets.
As an alternative, the creditor can request before a judge that the mortgaged property be ‘allocated’ directly so that it should become the owner of the mortgaged property. However, if the property is subject to other securities, the creditor will have to obtain the release of said securities. To facilitate that allocation the debtor can agree to ‘commissoria lex’ (pacte commissoire): in which case the valuation of the property is established beforehand and the transfer of the property can be executed without the intervention of a judge.
Yes, mortgages or land charges can be created over real estate.
A legal mortgage or land charges will generally be compulsorily registrable in the Land Register. A mortgage over a leasehold is registered in the Leasehold Register.
Debts and liens on real property are to be purchased in order that they may be realised either in a compulsory sale (auction) or outside of foreclosure proceedings on the basis of appropriate agreements with the creditor concerned.
The German foreclosure procedure is extremely complicated, contains a whole number of pitfalls and requires extremely careful preparation. In deciding upon whether a specific debt and a specific lien on real property is to be purchased, account should be taken of the following:
Under both the German law governing the land register and the law of foreclosure proceedings what essentially matters is the rank which the land charge has in the land register. This rank depends upon the time of entry of the right in question in the land register. The rank may however be altered by way of agreements with the other holders of rights and with the owner. It is thus necessary to obtain a current extract from the land register and to examine the land registry files before any assessment on such rank are made.
It is possible to create mortgages over real estate. Such mortgages would usually be registered at the Land Registry and the Companies Registry and notice will be deemed to be given to any third party acquiring an interest in the real estate.
Mortgages usually contain a provision to the effect that the mortgagee shall have a right to take actual possession of the property and sell it to satisfy part or whole of the outstanding mortgage in case of an event of default, such as the failure to repay.
Yes, mortgages can be created over real estate. This is the most commonly-used security in relation to real estate assets. A mortgage ("hipoteca") constitutes, under Spanish law, an encumbrance over a property attached thereto as security for fulfilment of a personal obligation. If the obligation is not fulfilled, the mortgagee is entitled to request the sale of the property in public auction and the proceeds would serve to pay the mortgagee's credit plus any judicial costs. Any remaining balance is handed over to the mortgagor. Mortgages in Spain confer a lien on the property in favour of the mortgagee without conferring title to the property, which remains in the hands of the mortgagor.
Mortgages must be made in writing, executed before a Notary Public in a public deed, and recorded at the relevant Land Registry. Without such formalities, mortgages have no legal effect. Second or further mortgages are permitted but they are subject to the priority system of the Land Registry. The person who registered his mortgage first will have a priority right over the second (first in time, first in right). For this reason, it is normal practice to obtain a title search certificate from the Land Registrar attesting as to whether or not prior mortgages or encumbrances exist over the property to be mortgaged.
The law imposes a limit on the amount of interest on the principal debt that may be secured by a mortgage, that is a limit of up to five years' interest, referring to both ordinary or default interest.
Mortgages may be granted by contractual agreement or by unilateral decision of the owner of the property. In the latter case, the person in favour of whom the mortgage is granted must accept it. Should he not do so within two months of being notified of the mortgage, the mortgagor may cancel the mortgage by executing a further public deed.
For the creation of a mortgage it is necessary for the parties to agree on the value of the property, which will be the reference amount for the auction in the case of foreclosure. A valuation certificate must be issued by an expert and attached to the mortgage deed.
In Spain, both the amount and the obligation secured by the mortgage must be determined in the mortgage deed. The amount of the debt, however, need not be known exactly at the time of the execution of the mortgage deed, and the mortgage may be established at a maximum amount (as would be the case if the mortgage secures a line of credit). Furthermore, a mortgage may secure a future obligation, provided that the Land Registry is notified when the obligation arises.
The mortgagor may transfer the mortgaged property by a deed of transfer to a third party. In this case, the new owner will have his property encumbered by the mortgage, as mortgages run with the land. In order for the new owner to subrogate the underlying personal obligation secured by the mortgage, the consent of the mortgagee has to be obtained.
The mortgagee, on the other hand, may assign all or part of his credit to a third party. The assignment of a credit secured by a mortgage involves the assignment of the mortgage as well. The assignment must be executed in a public deed and recorded at the Land Registry and the mortgagor must be notified of the assignment. In practice, however, mortgagors routinely waive the right to be notified.
In the event of a default by the mortgagor, the mortgagee may request a judge to give him possession of the property and to allow him to manage it until it is sold in public auction. It must be stressed that a mortgage in Spain will not confer title over the property in the event of default by the mortgagor. It only gives the mortgagee the right to settle his debt with the proceeds of the foreclosure sale of the property. The mortgagee may also request that the property be awarded to him at the foreclosure proceedings. The sale may be carried out by public auction either through judicial or extrajudicial proceedings.
A judicial sale of the mortgaged property may be carried out via foreclosure proceedings ("Procedimiento Ejecutivo") or through one of the two special and faster summary proceedings: the "Procedimiento Sumario" which is heard by a Judge or the "Procedimiento Extrajudicial" which is heard by a Notary.
After the property is acquired in public auction, the price will have to be deposited with the Court (or the Notary in extrajudicial proceedings). The Court will subsequently issue a writ (a public deed in the case of the Notary) evidencing the award of the property to the highest bidder and ordering the discharge or cancellation of later liens over the property. This discharge or cancellation does not extend to any liens or encumbrances that may have been attached to the property before the registration of the mortgage.
It is important to note that credits secured by a mortgage have priority in the event the debtor becomes insolvent.
In recent years regulations related to mortgages have been amended to include measures to reinforce the protection of mortgagors, as a result of certain court rulings (both at domestic and European levels) in the context of the economic crisis and the large number of non-performing loans which gave rise to numerous eviction proceedings.
A new amendment to the mortgage regulations is currently being drafted in order to implement Directive 2014/17/ EU of the European Parliament and of the Council of 4 February 2014 on credit agreements for consumers relating to residential immovable property, which is expected to be passed in the coming months.
It is possible to create mortgages over real estate. Where a property is used as security for a loan or other forms of security, the parties will execute a deed of legal mortgage in addition to the loan agreement. The security should be perfected in the same manner as we have described for an assignment of real estate.
In the event of a default, the mortgagee will have the power to sell the secured property to recover the loan advanced. Such disposal, subject to perfection of the interests in the property, will be valid and enforceable. The process for enforcement of mortgages is straightforward but could be cumbersome if the rules have not been complied with.