Mortgage can be established on movable and immovable property. The form, content, registration procedure and method of terminating the mortgage on immovable property are provided by the Mortgage Law. On the other hand, the procedure for establishing mortgage rights on movable property that are registered in the registry is regulated by the Law on Mortgage Rights on Movable Property and Rights Registered in the Registry.
Pledge on movable property registered in the registry.
The Law on Mortgage Rights on Movable Property and Rights Registered in the Registry regulates the pledge, without transfer of ownership, of movable property and rights as security for the creditor’s claims. This includes the contract of pledge, the rights and obligations of the parties, registration of the mortgage right in the registry, the creditor’s satisfaction, and the termination of the mortgage right.
By the pledge agreement, the pledgor undertakes to provide security for the creditor’s claim by having the creditor’s right to the property recorded in the mortgage registry. The pledgor can be the debtor or a third party.
Pledge agreement contains in particular: the date of conclusion, the name and surname, business name or title, residence or domicile, respectively headquarters of the creditor, pledgor, and debtor, if the debtor and pledgor are not the same person, description of the subject matter of the mortgage right, and information about the claims being secured. The pledge agreement is concluded in written form.
The creditor acquires the mortgage right by registration in the mortgage registry, unless otherwise specified by law. If the pledgor has pledged an item on which they have no ownership right, or if the pledge is invalid for other reasons, registration in the mortgage registry does not have legal effect. The creditor who has acquired the mortgage right by delivering the item into possession or by another legally prescribed method may request the registration of their mortgage right in the mortgage registry to establish priority of payment according to this law.
The creditor whose mortgage right is registered in the mortgage registry may be satisfied from the value of the subject matter of the mortgage right before other creditors if their claim is not paid upon maturity.
A monetary claim, expressed in domestic or foreign currency, can be secured by the mortgage right.
The mortgage right secures a specific amount of the principal claim, accrued interest, and costs related to the enforcement of the claim. Future and conditional claims can also be secured by the mortgage right. The highest amount of the principal claim, up to which the mortgage right secures conditional or future claims, shall be entered into the Pledge Registry.
The subject of the mortgage can be an individually determined item that the pledgor can freely dispose of.
Movable items specified by type can also be pledged if the pledge contract specifies the quantity, number, and manner in which they can be distinguished from other items of the same type. The subject of the mortgage can also be a collection of movable items located at a specific place, including inventory, which, according to this law, constitutes movable items intended for sale or lease, as well as raw materials and materials used in the performance of activities.
The subject of the mortgage can also be the creditor’s claims, which, according to the contracts from which they arise, are paid into a separate bank account of the creditor (pledging of funds on a separate bank account).
The subject of the mortgage right can be the creditor’s right of claim against the debtor, even in cases where the pledgor is the debtor of the creditor, except for claims whose transfer is prohibited by law and those that are personal in nature or cannot be transferred to another person. The mortgage right on a claim is acquired based on the contract of pledging the claim and by registration in the Pledge Registry, regardless of whether the debtor was previously informed of the pledge.
The subject of the mortgage right can also be shares and other property rights that their holder can freely dispose of.
Mortgage on immovable property.
A real estate mortgage authorizes the creditor, in case the debtor fails to pay the debt upon maturity, to request the payment of the secured claim from the value of the immovable property, ahead of ordinary creditors and subsequent mortgage creditors, regardless of who owns the property.
The Mortgage law explicitly stipulates that the mortgage creditor can satisfy their claim from the value of the hypothecated immovable property even after the expiration of the statute of limitations for the secured claim. This practically means that even when the claim secured by the mortgage becomes time-barred, the mortgage creditor can initiate the procedure to satisfy their claim from the hypothecated property. However, in this case, the creditor will not have the right to collect interest and other periodic payments that cannot be satisfied from the encumbered property.
The mortgaged real estate (apartment, land, house, etc.) can be the subject of a purchase agreement. Therefore, the existence of a mortgage does not pose any obstacle to the transfer of property rights to the encumbered real estate.
The subject of the mortgage can be: immovable property (ownership rights to land, buildings, etc.); a portion of the immovable property, in accordance with the partition decision; co-ownership share in the immovable property; a separate part of a building with ownership rights or another right containing the right of disposal (apartment, house, commercial space, garage, parking space, etc.); the right to land that includes the authority for free disposal, particularly the right to construction, the right to pre-emption, or disposition of state or social property; a building under construction, including a separate part of a building under construction (apartment, commercial space, garage, etc.), whether it is already built, provided that the legally approved construction permit has been issued in accordance with the law governing the construction of buildings.
A mortgage arises by registration in the competent real estate registry based on: a contract or a court settlement (contractual mortgage); a declaration of mortgage (unilateral mortgage); the law (statutory mortgage); and a court decision (judicial mortgage).
The mortgage contract is an agreement between the property owner and the creditor, wherein the property owner undertakes to establish a mortgage in favor of the creditor to secure the satisfied claim, following the procedure prescribed by law.
The mortgage contract can be either a standalone agreement or a part of a contract that regulates the claim (e.g., loan agreement, credit agreement, etc.).
The mortgage contract is concluded in the form of a notarized deed or a notarially certified document. The mortgage contract can be entered into by the property owner or another person with the right of disposal, as well as by an investor and a buyer of a property under construction or a separate part of a property under construction. The registration of the contractual mortgage is requested by: the property owner, their legal representative, or legal guardian; the debtor; and the creditor.
In addition to the conditions explicitly provided by the mortgage law, the mortgage contract must contain an unconditional statement by the property owner (pledgor) consenting to the creditor registering the mortgage on their property (clausula intabulandi). This statement can be included in the mortgage contract or in a separate document.
Unilateral mortgage arises based on the voluntary declaration of will by the property owner – a mortgage declaration. The mortgage declaration is made by the property owner, unilaterally obligating themselves to establish a mortgage in favor of the creditor to secure the satisfied claim in the manner prescribed by law. The content and form of the mortgage declaration for the establishment of a unilateral mortgage are equivalent to the mortgage contract. The registration of the unilateral mortgage based on the mortgage declaration is done at the request of the creditor.
The mortgage contract or the mortgage declaration for the establishment of a unilateral mortgage, drawn up in accordance with this law and the law governing execution and security, is, in the sense of this law and the law governing execution and security, an executive document if it is concluded or certified in the form of a notarized record.
The mortgage based on an enforceable contract or an enforceable mortgage declaration is registered in the real estate registry as an “enforceable extrajudicial mortgage,” and the extrajudicial enforcement procedure is conducted in accordance with the provisions of the Mortgage law.
The property owner, even after the establishment of the mortgage, has the right to: possess the mortgaged property; use the mortgaged property for its customary purpose; collect natural or civil fruits produced by the mortgaged property; dispose of the mortgaged property and transfer the right to the acquirer, in which case nothing changes in the debtor’s obligation and the secured claim.
The owner of the mortgaged property must not physically alter the mortgaged property (enclosing, expanding, demolishing, merging, dividing, etc.) without the written consent of the creditor, which the creditor will not refuse without a justifiable reason.
The owner is obliged to preserve and maintain the mortgaged property as a prudent domestic or business person so as not to diminish the value of the property through their actions or omissions.
The claim secured by the mortgage can be further pledged based on an agreement between the mortgagee (primary creditor) and the sub-mortgagee (secondary creditor). This agreement is concluded in the same form as the mortgage agreement and contains an explicit and unconditional statement from the sub-mortgagee that they can be registered as such in the real estate registry. It produces legal effects towards the debtor from the day they receive written notice of the sub-mortgage, and the debtor can only fulfill their obligations towards the sub-mortgagee or as per the sub-mortgagee’s written instructions. It produces legal effects towards third parties from the date of registration in the real estate registry.
Cancellation (Removal) of Mortgage
The mortgage ceases to exist by removal from the real estate registry in which it was registered, in accordance with the law. The cancellation of the mortgage is carried out upon the request of the debtor, owner, or creditor, if the secured claim ceases in a manner permitted by law.
The cancellation of the mortgage is requested by the owner or the buyer of the mortgaged property in the procedure of non-judicial sale for the satisfaction of the mortgagee’s claim.
Along with the request for the cancellation of the mortgage, the following shall be submitted: a written statement from the mortgagee consenting to the removal of the mortgage, or a legally valid court decision determining that the mortgagee’s claim has ceased, or a sales contract for the mortgaged property concluded after the completion of the non-judicial sale procedure, through which the mortgagee’s claim is satisfied, a contract of direct sale (both together with proof of payment of the purchase price), or a subsequent agreement.
The creditor is obliged to allow the cancellation of the mortgage if their claim has been fully satisfied, or if the conditions prescribed by this law have been met. The creditor must issue a confirmation of the debt being settled to the debtor and the owner of the mortgaged property, without delay, after the debt has been settled, and provide their consent for the cancellation of the mortgage.
The mortgage also ceases when: the subject of the mortgage is completely lost; a court public sale of the subject is conducted; the subject of the mortgage is sold through non-judicial means based on an enforceable document; the same person acquires both the role of mortgagee and debtor; or the mortgagee acquires ownership rights to the mortgaged property, and based on a unilateral written statement of the mortgagee’s will (waiver of the mortgage) given in the form prescribed by the Mortgage Law.
