Mortgage Law governs the mortgage, for the purpose of securing and collection of claims. A mortgage is a lien right on real estate, which empowers the creditor, in the event of the debtor’s failure to pay a matured debt, to request the collection of claim secured by the mortgage from the value of the real estate prior to the ordinary creditors and prior to junior mortgage creditors, regardless of who is in the possession of the real estate.
Mode of Institution and Types of Mortgage
A mortgage is instituted by registration in the competent real estate registry, on the basis of:
- Agreement or a judicial settlement (contractual mortgage)
- Mortgage deed (unilateral mortgage)
- Statute (statutory mortgage)
- Court decision (judicial mortgage).
The contractual mortgage rules apply mutatis mutandis to unilateral, statutory and judicial mortgage, unless otherwise provided by law.
A mortgage agreement is a contract between a real estate owner and a creditor, by which the real estate owner undertakes the obligation to institute a mortgage in favor of the creditor for the purpose of satisfying a secured claim, in a manner set forth by law. The debt becomes due in conformity with the agreement or some other legal ground it stems from.
The mortgage agreement may be independent, or a part of a contract which stipulates the claim (loan or credit facility agreement, etc.).
The mortgage agreement is concluded in the form of a notarized affidavit, or a document certified by a notary (solemnized).
The mortgage agreement may be concluded by the owner or other person having the right of disposal, as well as the investor and buyer of a building under construction or a separate part of a building under construction (apartment, business premises, garage, etc.), irrespective of whether already constructed and under condition that a valid building permit has been issued in conformity with the law governing the construction of objects.
A contractual mortgage is registered at the request of:
- Owner of the real estate or his guardian or legal representative
In a case when the subject of the mortgage is building under construction, as well as a separate part of the object under construction (apartment, business premises, garage, etc.), irrespective of whether already constructed and under condition that a valid building permit has been issued in conformity with the law governing the construction of objects, the contractual mortgage is registered as follows:
- On the land on which the building is being constructed, the mortgage is registered on the building under construction, and once the building is entered in the real estate register, the mortgage is registered on the constructed building or a separate part of the building, ex officio
- If the investor has sold to the buyer a building under construction or a separate part of the building under construction, the buyer’s mortgagee as well may request that a mortgage be registered on the building under construction, or on the separate part of the building, and once a building is entered in the real estate register, the mortgage is registered on the constructed building or the separate part of the building, ex officio.
If the owner of the building is changed in the course of construction, the new owner enters into all of the previous owner’s rights and duties towards the persons in whose favor the mortgage was registered.
For the purposes of the Mortgage Law, the building under construction also includes a physically completed building, or its separate part, which has not been entered in the real estate register, if it fulfills the requirements for mortgage registration on the building under construction.
The risk of possible demolition of an improperly constructed building on which a mortgage has been registered is borne by the real estate owner, debtor and creditor, in accordance with their internal relationships.
A mortgage agreement includes the following, in particular:
- Name and surname, permanent or temporary residence, or business name and headquarters of the creditor, pledgor, as well as the debtor, should these be different persons
- Precise data on the secured debt, currency of payment and payment deadline, amount of each installment and their maturity date, place and method of payment, or data on the principal claim, interest rate and other elements on the basis of which the amount of interest rate may be determined, place and method of payment of interest, as well as the amount of other auxiliary costs if stipulated, maturity of the claim, or the way of determining the maturity, if the deadline has not been fixed
- Data on the mortgaged real estate, or immovables, including also the data evidencing ownership over them, or existence of other right referred to in Article 3 of the Mortgage Law
- Data on the objects which the mortgage includes.
Owner’s (pledgor’s) unconditional statement of consent for the mortgage being registered on his real estate by the creditor (clausula intabulandi), may be included in the mortgage agreement, or the separate document, in the form of a notarized affidavit, or a document certified by a notary (solemnized) or enforceable document for the purposes of the Mortgage Law and the Law on Enforcement and Security Interest, as used for concluding the mortgage agreement.
Null and Void Provisions
Null and void is any provision of a mortgage agreement on the grounds of which, should the debt not be paid when due:
- The creditor may sell the real estate contrary to the provisions of the Mortgage Law
- The real estate becomes the property of the creditor or a third party at an unspecified price, or a price specified in advance.
Any provision of the mortgage agreement on the grounds of which the creditor is entitled to use the subject of mortgage, or to enjoy usufruct from the mortgaged property, is null and void.
Any provision of the mortgage agreement on the basis of which the owner is prevented from disposal of the subject of mortgage, or from encumbering it by mortgage in favor of a junior creditor is null and void.
Mortgage agreement as enforceable document
A mortgage agreement, i.e. a mortgage deed on unilateral mortgage, drawn up in conformity with the Mortgage Law, is deemed to be, in terms of the Mortgage Law and the law regulating enforcement and security interest, an enforceable document, provided that it had been concluded or given in the form of a notarized affidavit, provided that it includes the provisions referred to in paragraph 3 Article 15 of the Mortgage Law.
The mortgage based on an enforceable agreement or enforceable mortgage deed is entered in the real estate registry as an “enforceable extrajudicial mortgage”, and the extra judicial settlement proceedings are conducted in conformity with the provisions of the Mortgage Law.
An enforceable mortgage agreement or a mortgage deed on institution of unilateral mortgage shall also include the following:
- A clearly indicated provision, or statement whereby the real estate owner irrevocably empowers the creditor, if the debt is not paid when due, to collect the claim from the proceeds of the sale conducted in accordance with the extrajudicial sale procedure provided by the Mortgage Law, without filing a claim to the court, and that the real estate shall be vacated forcibly and put in the buyer’s possession within 15 days from the day of the sale contract, unless the mortgage is registered on a joint tenancy stake
- An express provision or statement of the owner that he has been warned about the consequences of the failure to satisfy the debt on maturity and that being aware of such consequences, he agrees to the possibility of the mortgage agreement being implemented by selling his real estate in conformity with the provisions of the Mortgage Law governing the extrajudicial settlement, without the right to conduct civil lawsuit, and that his real estate shall be vacated forcibly and put in the buyer’s possession within 15 days from the day of the sale contract, if the owner fails to hand it over voluntarily, unless the mortgage is registered on a joint tenancy stake
- A clearly indicated provision or statement made by the owner that he agrees that the creditor has access to the real estate, including the right to enter it, irrespectively of who might be in it (owner, lessee, etc.) for the purpose of checking on its maintenance or for other justified reasons, and that he shall cooperate with the creditor in the sale procedure, and particularly to allow access to the mortgaged real estate (entry into apartment and the like).
The mortgage agreement, or the mortgage deed on unilateral mortgage that is not in the form and which does not include the elements set out in Article 15 of the Mortgage Law, has no power of enforceable document.