Typical types of security over, or in relation to, real estate include:
Last modified 13 Mar 2025
Ownership title to real estate is the right over which the mortgage (and/or call option) can be granted. Only real estate registered in the Land Registry can be subject to a mortgage (and/or call option).
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A form of trust has been introduced into Hungarian law by Act V of 2013 on the Civil Code (the "Civil Code") and Act XV of 2014. The trust is a relatively new concept in Hungary and no case law or practice has developed yet, in particular for the purpose of real estate finance transactions.
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Claims and receivables are normally transferred under Hungarian law by assignment. The Civil Code regulates also the transfer of a contractual position (including all rights and obligations of the transferor arising from the contract). Receivables can be assigned also under factoring transactions. As a result of the assignment or transfer of the lender's contractual position, also accessory mortgages and pledges securing the transferred claim transfer to the assignee, but its registration with the Land Registry, Company Registry or the Credit Collateral Registry (HBNY) (depending on the type of the security) is also advisable. In the case of a partial transfer of the secured claim, such related mortgages and pledges acquired by the assignee/transferee will rank subsequently to those securing the remaining claim of the original creditor, unless otherwise agreed by the parties. Call options, independent type mortgages and independent guarantees do not travel with the transferred claim automatically. The Civil Code also introduced a form of security trust, such security trustee shall continue to hold the mortgage or pledge on trust for the benefit of the assignee as secured creditor also following the assignment of the secured receivables.
Furthermore, section 17/A of Act CCXXXVII of 2013 introduced a special regime enabling financial institutions to transfer a portfolio of contracts or a portfolio of claims to another financial institution, subject to specific approval by the National Bank of Hungary.
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There are no additional restrictions on security providers regarding the granting of security over real estate due to the mortgagee being a foreign lender. Please note, however, that the lender shall comply with all mandatory provisions of Hungarian law applicable to providers of financial services as cross border services. On the basis of the laws introduced originally due to the COVID-19 pandemic, in certain cases the creation of mortgage or other security interest over real estate in favour of a lender with an ownership structure involving directly or indirectly certain foreign elements requires a notification to and acknowledgement by the competent Hungarian ministry.
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No tax is payable upon granting of a security. There is a small fee payable to the Land Registry for the registration of a mortgage (and/or call option). In addition, to enhance enforcement via judicial execution, banks normally require security agreements to be concluded in the form of a notarial deed and to notarize the terms of the secured credit facility agreement. The fees payable to the notary public for such notarization are regulated and depend on the value of the secured obligation and certain other circumstances (eg number of pages of the document), but also the notary public has some room for interpreting some of the mandatory provisions of law regulating pricing.
In the event that security is enforced, transfer tax (at a rate of 4%) is normally payable. VAT (at a rate of 27%) may also apply. Additional costs include notarial and legal fees, registration fees etc.
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Currently, there are no statutory restrictions on financial assistance in Hungary, other than in relation to public limited companies (nyilvánosan működő részvénytársaság). Public limited companies may, subject to certain further exceptions set out in the Civil Code, only provide financial assistance for the purchase of their shares if:
Hungarian law does lay down corporate benefit rules. For example, the directors of a company must exercise the levels of care generally expected from people occupying such positions and act in the best interests of the company as long as the company is solvent. If the company becomes insolvent, directors must act in the best interests of the creditors.
The articles of association of a company may contain provisions requiring the shareholders’ prior approval for certain transactions, such as granting security over the assets of the company.
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There are no additional restrictions on payments being made to foreign lenders in Hungary. Depending on the lender’s tax residence, a withholding tax may apply to interest payments.
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Yes, it is possible that a secured creditor subordinates its pledge or mortgage to that of another secured creditor, by way of an agreement on the swap of the ranking position of their mortgages in the Land Registry or of their pledges in the Credit Collateral Registry (HBNY) or other applicable registry. These require the agreement of all parties affected by such subordination, including the mortgagor (or pledgor), even if different from the borrower. In addition, the parties may also sign agreements on contractual subordination of ranking of payments (including, for example, payment of proceeds upon security enforcement or liquidation), such agreements are not binding on third parties and the obligations under such agreements may not necessarily be specifically enforceable in accordance with their terms.
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The parties are free to choose the governing law of the security agreement subject to and in accordance with Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations (the ‘Rome I Regulation’). However, the mortgage/pledge, as an in rem right, shall be governed also in such case by Hungarian law if the security asset is located in Hungary, therefore it is not customary to stipulate a foreign law to govern the security agreement. Furthermore, in relation to pledges over claims the Rome I Regulation provides the law governing the pledged claim shall determine whether it may be pledged, the relationship between the pledgee and the debtor, the conditions under which the pledge can be invoked against the debtor and whether the debtor's obligations have been discharged. Also certain Hungarian regulatory (administrative law) requirements will apply to the parties even if they stipulate a foreign law to govern their contract.
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In order to be effective vis-à-vis third parties mortgages must be registered at the Land Registry, pledges must be registered at the relevant registry (Credit Collateral Registry (HBNY), Court of Registration or other relevant registry) and security deposits need to be duly perfected (eg by way of handover). In the absence of compliance with the above requirements, the lender will not be regarded as a secured creditor with respect to the relevant security asset in an enforcement, bankruptcy or insolvent liquidation procedure of the security provider, in a public reorganisation procedure of the security provider (introduced originally as part of the COVID-19 emergency legislation) or in a restructuring procedure of the security provider (introduced in 2022 as an implementation of the 2019/1023 EU Directive (20 June 2019) on preventive restructuring frameworks). However, according to the court practice, subject to the final registration of its mortgage with the Land Registry, the mortgagee can be regarded as a secured creditor if at least the pending registration of the mortgage is shown as side note on the land registry extract of the property at the time of the opening of the insolvent liquidation.
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In Hungary, the ‘polluter pays’ principle applies, thus a lender holding security over real estate is not liable for environmental damage (provided that it did not cause such damage itself).
If the security is successfully enforced, then the new owner and, if that is a different person from the owner, the user/occupier of the real estate have joint and several liability for environmental damage, it is important for lenders to have a prior knowledge of the land’s environmental status before enforcing (or even taking) security. The owner (including, for example, any person acquiring the property as a result of the enforcement of the mortgage, of the call option or by way of a consensual transaction) will only be relieved of environmental liability if it can prove that it did not itself cause the damage and can name the party actually responsible for the pollution.
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The mortgagee/pledgee would be able to enforce the security interests only if it has an overdue monetary claim against the debtor under the secured finance documents (in the case of an independent mortgage also termination of the mortgage may be required). In the case of an event of default other than non-payment, in order to enforce its security, the secured creditor must first terminate the secured loan agreement or accelerate the borrowers' payment obligations thereunder, in accordance with the terms of the particular loan agreement etc. The method in which a lender may enforce its security will vary depending on the type of security and the terms agreed by the parties.
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A debtor company and its creditors may enter into any voluntary arrangement they choose to deal with the debtor’s financial difficulties. Such agreements may, for example, suspend payments and/or the enforcement of the creditors' claims (including security interests) for a mutually agreed period of time or extend the original repayment term to accommodate the borrower’s financial position. Such an agreement is normally not binding on any third parties not being parties thereto.
Furthermore, as an alternative to insolvent liquidation, the directors or creditors (in each case subject to further requirements) of a debtor company may file for bankruptcy procedure (csődeljárás) with the court. Such bankruptcy proceedings are voluntary reorganization proceedings, during which a preliminary statutory moratorium applies and the debtor endeavours to obtain a further moratorium in order to agree on a settlement (composition) with its creditors.
In addition to the above, as part of the COVID-19 emergency legislation, a new type of formalized insolvency procedure called reorganization procedure (reorganizációs eljárás) has been introduced. It is to some extent similar to the above bankruptcy procedure, given that the main purpose of both type of procedures is to reorganize a debtor company in financial distress, ie to restore its solvency. There are two types of reorganization procedure: private (when it only applies to creditors involved in the reorganization) and public procedure (when it applies to all creditors). In the case of a public reorganization procedure, with the exceptions set forth in the above relevant legislations, the rules on bankruptcy procedure shall apply mutatis mutandis.
As an implementation of the 2019/1023 EU Directive (20 June 2019) on preventive restructuring frameworks, a new type of formalised pre-insolvency procedure called restructuring procedure (szerkezetátalakítási eljárás) has been introduced in 2022. Such restructuring procedure is halfway between contractual restructuring and formal bankruptcy proceedings. The purpose of the procedure is for the debtor to adopt a restructuring plan with some or all of its creditors in order to prevent its future insolvency and ensure its operability. Depending on the debtor’s choice it could be a public or non-public procedure. If the debtor applies for a general moratorium and it is ordered by a court, the proceedings are public; if the debtor requests a limited moratorium and the court orders it, the proceedings are not public.
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If insolvent liquidation1 is ordered against a debtor, all enforcement / foreclosure proceedings against such debtor are terminated, all of its assets are placed under control of the liquidator appointed by the court. Claims against the insolvent company and security interests created over its assets (including, for example, the mortgage over its property, or the pledge created over its receivables) can be enforced only within the framework of, and according to the rules applicable to, the insolvent liquidation proceedings controlled by the liquidator. The lender must register with the liquidator within strict statutory deadlines in order to be able to assert its claims against the debtor and achieve due priority in the order of payments made by the liquidator to the creditors. In addition, in insolvent liquidation of the security provider, the liquidator or other creditor may file for legal action before the court to challenge any transactions concluded by the debtor (including, for example, granting of a mortgage) if it qualifies as either a fraudulent transaction, an undervalued transaction or a preferential transaction within the meaning of the Bankruptcy Act, in each case subject to other conditions (eg suspect periods) set out in the Bankruptcy Act. Furthermore, for the purpose of exercising the call option, the lender cannot set off its claims against the insolvent debtor if it exercises the call option following the commencement of the liquidation.
In addition, in the bankruptcy proceedings (csődeljárás) initiated against the security provider, enforcement of security is not possible under a moratorium applicable to the debtor company.
Similarly, in public reorganisation proceedings initiated against the security provider (introduced as part of the COVID-19 emergency legislation), enforcement of security is not possible under a moratorium applicable to the debtor company. In the case of private reorganisation proceedings such moratorium applies only to creditors involved in the reorganization.
In a restructuring procedure of the security provider (introduced in 2022 as an implementation of the 2019/1023 EU Directive (20 June 2019) on preventive restructuring frameworks), if the particular security falls within the scope of the moratorium (general moratorium or limited moratorium), then the enforcement of security is not possible under such moratorium.
1Under Act XLIX of 1991 on Bankruptcy Proceedings and Liquidation Proceedings (the ‘Bankruptcy Act’), insolvent liquidation proceedings (‘felszámolási eljárás’ in Hungarian) are involuntary or voluntary insolvent winding up proceedings. The aim of such proceedings is to satisfy creditors' claims through the distribution of the proceeds of the debtor's assets, and termination of the debtor company without legal successor.
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If a mortgaged or pledged asset is sold during the liquidation proceedings, after the deduction of certain costs and the liquidator's fees, the remainder of the sale proceeds shall be applied for discharge of the claim secured by such asset, with priority over other or unsecured creditors. In the event that there is more than one mortgage or pledge over the same security asset, according to the general rule, the order of priority is determined by the date of their creation. Furthermore, only those creditors' claims can be satisfied in the liquidation proceedings which have been registered by the liquidator (late registration will result in a disadvantageous position in the distribution order and, most probably, result in the final loss of the claim).
Last modified 13 Mar 2025
Is the concept of a trust or a split between legal ownership and beneficial ownership recognized?
A form of trust has been introduced into Hungarian law by Act V of 2013 on the Civil Code (the "Civil Code") and Act XV of 2014. The trust is a relatively new concept in Hungary and no case law or practice has developed yet, in particular for the purpose of real estate finance transactions.
Last modified 13 Mar 2025