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The Warsaw Voice » Law » April 28, 2011
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REAL ESTATE: Changes in Mortgage Security
April 28, 2011   
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A mortgage loan is the primary mechanism used to finance the purchase of real estate and the execution of construction projects. The main feature of a mortgage loan is that it is secured against the property subject to acquisition or development. The real estate is encumbered with a mortgage for the benefit of the lender, who has priority in covering the debts with funds collected from the sale of property in enforcement proceedings. A mortgage will enable him to execute his right even if ownership of the encumbered property has been passed to someone else.

The regulations on mortgage security in Poland have recently undergone deep changes. On Feb. 20, 2011, a law of June 26, 2009 took effect that amended the Act on Land and Mortgage Registers and Mortgages, and several other legal acts (Journal of Laws 2009, No. 131, item 1075).

There are several good reasons why the new regulations should be read carefully. First, they create new opportunities for both lenders and borrowers. Second, a lack of up-to-date knowledge may seriously harm the lender, leading to a decrease in the effectiveness of the mortgage and even the loss of the security.

One of the most interesting new options is the possibility of disposing of the mortgage place vacated after mortgage loan repayment. Without a doubt, when real estate is encumbered with several mortgages, mortgage security is the better the higher level of priority the mortgage has. The level of priority depends on the date when a given mortgage was registered in the Land and Mortgage Register. After the recent changes in law, the owner of the real estate repaying the loan with a higher level of priority may establish a new mortgage in the vacant place or move a mortgage with a lower level of priority there. So possession of a vacant space created by a released mortgage with a high level of priority is a significant advantage for a company looking for additional financing, even when the real estate is heavily encumbered. Looking from the lender’s perspective, the lender can no longer expect to have priority as a result of mortgages “stepping forward” after mortgage loan repayment (this was guaranteed by the previous regulations) unless they have secured clear guarantees, in an agreement with the borrower, that their mortgage will automatically move into the better, vacant mortgage place. To be effective, this claim of the lender must be entered into the Land and Mortgage Register.

Dr. Agnieszka Łuszpak-Zaj±c

Kancelaria Prawna Schampera, Dubis, Zaj±c i Wspólnicy Sp.k. law firm www.sdzlegal.pl
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