Mortgage as claim insurance in Croatian law

In Croatian law mortgage is regulated through the Act on Ownership and Other Real Rights. Mentioned act stipulates general rules, however, mortgage is also regulated by several other acts such as Execution Act and Civil Obligations Act which bring specific regulations. In this text we’ll highlight voluntary mortgage as it most common instrument of securing a claim among private subjects in legal transactions.

Mortgage entitles the creditor to settle his claim on the value of the mortgage item (real property) if his claim is not met after claim falls due. Mortgage is also known as security for claim in the form of a charge on immovable property. Mortgage agreement is valid only if it’s stipulated in a written form. Mortgage itself is gained only trough registration in a Land Register. The creditor doesn’t have right to possess and enjoy the right to use the real property on which the mortgage is established. Mortgage is not transferable on other real property nor can it be separated from the real property on which it is established. However, in case that a claim which is secured by mortgage is transferred on another person, mortgage is also transferred with that claim. Change of mortgage creditor is therefore possible while the claim due date remains the same. When there are more real estate co-owners, all of them must give consent for the establishment of mortgage over the entire property. Each co-owner who has, for example 1/2 of a house or a flat, can request a mortgage for his co-owner part.

Creditor of one claim, for example loan holder who gives loan to a borrower, should first of all take into consideration form of a mortgage agreement as well as ratio between his claim and the value of the real property.
Mortgage agreement can be stipulated as a private agreement on which signatures of parties are certified by a notary public. Afterwards, mortgage is registered in the Land Register based on this agreement. It can also be stipulated in form of a private agreement which is certified by a notary public, also known as notarized document.
If mortgage agreement is stipulated as a private agreement on which only signatures of parties are certified by a notary public, the creditor has right to initiate court proceedings after claim falls due in order to obtain a final court judgment. By this court judgment, the debtor is ordered to accept enforcement and compulsory sale against the real property. After obtaining a final court judgment the creditor needs to initiate enforcement proceedings in which real property is offered for an auction. Creditor himself can make a bid as a buyer. He isn’t obliged to pay the price if he’s the sole creditor in execution proceedings in which there is only his claim to be settled. Immovable properties are offered for an auction in two auctions. In first auction it can’t be sold under four fifths of the estimated value and in second auction under three fifths. Between the moment when the claim falls due and the moment of final settlement some time may elapse in which the creditor needs to pursue several legal actions.

Creditor should take into consideration not only the fact that the property can be sold for 40% of its value but also court proceedings costs.

Creditor can directly initiate enforcement proceedings if mortgage agreement is stipulated in a form of private agreement which was certified by a notary public and registered in a Land Register. If the debtor in this agreement gives his consent for a purpose of immediate execution (so-called enforce clause), the creditor doesn’t need to initiate mortgage claim and obtain a final judgment after the claim falls due, but it is enough to obtain a certificate of enforceability from a notary to initiate enforcement proceedings.

Creditor and debtor can stipulate the value of the real estate in their mortgage agreement. In this case, in the enforcement procedures, it will not be necessary to carry out an estimate of the value of the property by a court expert, but the value of the property in the agreement will be the basis for determining the value below which the real estate cannot be sold on a public auction. This significantly shortens the time between moment when claim falls due and final settlement. However it should be taken into consideration that the property can be sold for 40% of its value. Therefore, value of the property needs to be higher than the value of the claim in order to expect full settlement.

As a rule, claim secured by mortgage has priority over the one which is not secured by mortgage. It is possible that several mortgages are established on the same property at the same time. In that case, the advantage has the one that is earlier in the priority order, which is acquired at the time when the request for registration of mortgage came to the Land Register.