What is a Mortgage?

The purchase, renovation or new construction of real estate is usually financed in whole or in part in the form of a mortgage loan. When a security right is established on registered property, we speak of ‘mortgage right’.

Explanation mortgage

When people speak of a ‘mortgage’, it usually refers to the loan and not so much to the right of mortgage. In everyday life, people always indicate that a mortgage is a loan to buy a house. In fact, a mortgage is a security interest. In this article we will discuss the right of mortgage in more detail.

The mortgage right is a limited right, with the aim of recovering a claim for payment of a sum of money from the registered property subject to it in priority over other creditors. In other words: the mortgage right is the limited right to registered property of the debtor. The creditor may, if the debtor does not meet his obligations, recover his claim as a matter of priority. The right of mortgage can be established on registered property, such as immovable property (land, houses). In the case of a right of mortgage, there are two agreements. One agreement relates to the loan, the other to the right of mortgage. The right of mortgage depends on the loan. After all, mortgage law is a dependent or accessory right. Without debt there is no right of mortgage.

The mortgagee or mortgagee is the person who receives the right of mortgage on registered property from another person. The mortgagor is the person who gives a right of mortgage on his registered property as additional security for payment of a debt. The mortgagor therefore pledges his registered property as collateral for a debt. The mortgagor and debtor of the debt need not be the same person: one person can provide mortgage security for another’s debt.

The right of mortgage gives security to the lender: after all, the mortgagee has an asset that, if the debtor does not pay his debt, he may sell and he may pay his claim from the proceeds of that sale. The mortgagee has the right of summary execution.

Example
A father provides mortgage security on his home for a loan taken out by his son. The father is then the mortgager. The lender is the mortgagee or mortgage holder. The son is the debtor.

The right of mortgage is established by means of the registration of the mortgage deed in the public registers (mortgage registers). Both the fact that there must be a notarial deed and the fact that a right of mortgage is only officially established at the time that the deed is registered are mandatory in the law. Deviating from this will result in nullity of the mortgage. These are also referred to as ‘form requirements’. Nullity means that the right of mortgage never existed.

Termination of mortgage rights

The right of mortgage only lapses at the moment that purification takes place. Purification means, among other things, that the deed is deleted from the registers. Except in the case of public foreclosure sale, no automatic purge will ever take place. In all other cases (sale, redemption or renunciation) a deed of cancellation from the lender is required for cancellation.

In most cases, a right of mortgage is extinguished when the house is sold (whether or not forced) and the money loan is repaid with the proceeds. After the repayment, the mortgagee issues a deed of cancellation. It is of course also possible that the loan has been repaid over time and the mortgagor requests a deed of cancellation. Relinquishing the right of mortgage in any other way is virtually non-existent.

It also happens that the loan has been repaid and that no cancellation has yet taken place. If there is no claim, a mortgagee cannot do anything with his right of mortgage. After all, this is a dependent right.

Order and date of registration of the authentic deed

Every mortgage holder may execute if the debtor does not meet his obligations. The proceeds are distributed based on the ranking. The second mortgage holder will not be entitled until the first mortgage holder has been paid, up to the maximum of the mortgage sum or the proceeds from the sale.

In the case of foreclosure sales, however, if there is a higher-ranking mortgagee, they must be given the opportunity to take over the foreclosure sale. If he does not do so, then he no longer has any influence on the manner of execution. However, it remains the case that the first registered person is the first to have his claim paid. The first right of mortgage is therefore a strong right to sell the collateral of a mortgage loan.

Usual mortgage terms

The right of mortgage is laid down in a notarial deed and all parties must comply with the contents of the deed. A number of rights and obligations ensue from the deed that are laid down in law (such as the right of summary execution). Because a mortgage holder sometimes wants to protect himself against certain additional situations, he has the option of including a number of stipulations in the mortgage deed. The stipulations are included in the Civil Code (BW). This includes the following clauses: the rental clause, the management clause, the eviction clause, the clause to prevent the right of removal and the non-change clause.

Normally, a lender will expect a mortgagor to insure his home, the collateral for the mortgagee, against fire. General terms and conditions or mortgage conditions therefore often make it mandatory to take out home insurance. For this reason, professional lenders ask for a policy of home insurance.

The rent clause gives the mortgagee protection against unwanted tenants. The rental clause stipulates that the collateral may only be rented out with the consent of the lender. This has to do with the fact that the property yields less when sold in a rented state. In the event that a borrower fails to meet its payment obligations, the mortgagee will eventually proceed to foreclosure. Then of course he wants to be able to pay his claim as much as possible from the sale proceeds of the home. He therefore does not benefit from things that can reduce the yield of the property, such as tenants.

In practice, whether a lender will give permission to rent out a house often depends on the value of the house at the time of letting in relation to the mortgage. In practice, a number of lenders give permission for letting. The lenders can set their own conditions for this. Examples of conditions are: the house has been for sale for a certain period of time, the insurer of the home insurance issues a statement of consent, a diplomatic clause is included in the rental agreement.

The lease clause also works against the tenant. The moment the mortgagee discovers that the house has been rented out without permission, the mortgagee can invoke the nullification of the lease and demand eviction of the house. The rent clause therefore forms a far-reaching exception to the rent protection that the tenant has on the basis of rent regulations.

The lease clause cannot be invoked by the mortgagee if there were already tenants in the property at the time the lease clause was established. The leave of the president of the court is also required to invoke the rent clause (evacuate the house).

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