When a borrower is in default, are there any formalities required or obstacles to be overcome before the lender is able to enforce its security over real estate?
Events of default must be specified in the security document. When an event of default occurs, the lender may ask the public notary to issue an enforceability confirmation in relation to the security document. When such confirmation is issued in relation to a mortgage the lender will submit an enforcement proposal to the court. In relation to a fiduciary transfer of ownership ,the lender will ask the public notary to enforce the security.
A lender may only sell property secured by a mortgage following an event of default by following the court foreclosure procedure, which takes the form of a public auction.
At the first public auction, the property may not be sold unless it achieves two thirds of its market value. At the second public auction (if required), the property must achieve one third of its market value. If such a price is not achieved at the second auction, the lender may propose further auctions, and the lender's mortgage ranking will remain undamaged.
If the property is secured by a fiduciary transfer of ownership to the lender, security is generally enforced by the public notary. If the public notary fails to sell the real estate within three months, the lender will become the owner of the real estate in the amount of the secured debt plus interest, costs and taxes.
