MORTGAGES IN BULGARIA – SPECIFIC ISSUES

 

The mortgage is generally interest in land given to a creditor by the owners of a property as a guarantee for a loan.  Generally mortgage is registered over land, any buildings on it or/and over the right to build (the right to construct and own a building on somebody else’s land). Once registered, the mortgage follows the property and is redeemed only when the full amount of the loan is re-paid. After repayment of the loan, an entry is placed on the mortgage deed to specify that the mortgage is redeemed. The mortgage is registered with an entry in local land registry office after a Notary Deed for Mortgage is presented. It is always registered over strictly identified land/building or right to build and for a strictly identified amount of money and only by the owner of the property. On the same land/building or right to build, several different mortgages in favor of separate persons can be registered.  Should the loan is not repaid and the creditors need to be paid from the value of the property, the property should be auctioned in compliance with the relevant legal provisions and from the price obtained for it all loans are repaid to the priority creditors. The order of the repayment of the separate loans follows the order of the registration of the mortgages. After the property is auctioned, all mortgages are automatically redeemed. Should the price obtained for the property is not enough to cover the repayments of all loans, the creditors who have registered their mortgages last will be unable to obtain any money in repayment of their loan and will therefore have to seek damages under the general law. Every entry of a mortgage in the land register is valid for 10 years only. Therefore if the mortgage is intended to continue for a longer period, it should be renewed after 10 years. The redemption of the mortgage is made after the creditor has submitted a request for the redemption and a written declaration for his consent which declaration is certified before a notary public. Evidence for the repayment of the loan is also presented. It is important to be noted that even part of the loan is repaid the burden of the mortgage remains to the amount of the outstanding debt. Partial redemption of a mortgage is possible only when the mortgage registered is for one single sum of money but is registered over more then one property. In this case, if the debt is partially repaid to the value of one of the properties, the mortgage over this property can be redeemed. Having said that, most of the practical problems in relation to the mortgages are seen when properties in a process of constructions are mortgaged in favor of landing banks. Therefore if a buyer is purchasing a property in Bulgaria, which property is already mortgaged by the seller in favor of a bank, the buyer should insist that seller redeems the mortgage before transferring the ownership to him, otherwise the buyer could be responsible for repaying the seller’s loan, should the seller defaults on the payments himself. Therefore, we always recommend prior to transferring the ownership before a Notary public, a certificate from the land registry to be obtained to show whether the property is free of mortgages and third party interests. It is extremely important to be noted that when the land is owned by one owner and this owners has also constructed a building on his land, should the land is mortgaged, the mortgage automatically spreads over the building and it is not possible the mortgage over the building to be redeemed without the mortgage over the land to be redeemed.

This article was created by Valova&Angelova law firm.