What are main amendments to Mortgage Law?

The amendments to the Law on Mortgage, which entered into force on 16 July 2015 (published in Official Gazette No. 60/2015), primarily seek to the reaffirm the extrajudicial settlement procedure and provide for a greater legal and economic security of the participants in the transactions relating to the establishment and enforcement of mortgage collateral, whilst also providing for protection of the debtors, the owners of the mortgaged real estate.

The reaffirmation of extra-judicial settlements has been achieved primarily by introducing the amendments relating to the termination of mortgage in the event of extra-judicial sale of mortgaged real estate, and consequently the procedure of extra-judicial sale as a way of settlement of the mortgage creditor’s claims.

Namely, as people at the law firm Tomic Sindjelic Groza explain, the rights of subsequent mortgage creditors remained reserved following the extra-judicial sale of the mortgaged real estate under the earlier provisions, which at the same time implied the retention of subsequent creditors' rights to compensation from the value of the mortgaged real estate.

Such legal solution de facto limited the scope and purpose of extra-judicial mortgage enforcement to the cases of mortgage on real estate where only one creditor was registered, which on the other hand favoured a procedure of court auction, which entailed termination of the mortgage and wiping out of all mortgage creditors based on an enforceable court decision on the satisfaction of mortgage creditors.

The introduced amendments to the Law on Mortgage have resolved this issue by providing that in the event of extra-judicial sale of the mortgaged real estate, initiated upon request of:

a) the purchaser of the object of mortgage,

b) the mortgage debtor

c) or the owner of mortgaged real estate, when different from the debtor under the specific legal transaction,

All registered mortgages and other encumbrances (entered in the register following the mortgage, whose settlement triggered the sale) shall terminate by force of law and the competent real estate registrar shall perform deletions ex officio, regardless of whether the claim has been settled in full, in part or has remained unsettled.

In this way, the court settlements have come on a par with extra-judicial settlements in terms of their respective legal import and efficiency, which did not use to be the case earlier, and which presented one of the most important shortcomings of the previous legal text.

An important amendment, which seeks to increase the efficiency of extra-judicial settlements, allows for the possibility that in the extra-judicial settlement, the creditor can sell mortgaged real estate directly before publication of a call for auction; however at a price that cannot be lower than 90% of the appraised value.

On the other hand, some amendments to the Law introduced certain vehicles that seek to protect debtors in the event of extra-judicial sale of mortgaged real estate.

The introduced amendments provide for the obligation of initiating a court sale and also a new appraisal of the market value of the real estate, if the mortgaged real estate is not sold in extra-judicial settlement procedure within 18 months from the date the decision on the notice of mortgage foreclosure sale has become enforceable.

In this case, the real estate registrar shall ex officio issue a decision on deleting the notice of mortgage foreclosure sale and at the same and inscribe the notice banning further extra-judicial sale of mortgaged real estate, and upon this inscription, the creditor may settle its claim only bay way of court sale.

To this effect, and also in order to speed up the dynamics of extra-judicial sale, the amendments to the law provide for a mandatory deadline for scheduling the auction sale of mortgaged real estate, which must take place within six months from the date the decision on the notice of mortgage foreclosure sale has become enforceable.

The amendments to the Law have also introduced other changes related to the mandatory provisions in terms of the form and elements of unilateral mortgage statement, alignments with the Law on Public Notaries in terms of forms and methods of drafting the contracts of mortgage and unilateral mortgage statements, as well as other changes aiming at clarifying certain legal gaps and shortcomings of the earlier text of the Law.

For all further questions, please contact:

Sasa Sindjelic, lawyer - [email protected]