What sort of security is typically created or entered into by an investor who is borrowing to acquire or develop real estate?
The most common types of securities, created or entered into by an investor in relation to financing of acquiring or developing real estate are:
Mortgages are typically established in the form of a notarial deed. However, exceptions are possible if the mortgagee is a Polish bank. It is then subject to registration in the land and mortgage register, which may take several months (with retrospective effect). Typically, the application for the registration of the mortgage is a condition precedent to drawdown. Mortgages are usually established up to 150% of the original loan amount. Mortgages are enforced in judicial enforcement proceedings (sale in public tender), which is a very lengthy procedure – it may take up to two years.
Registered pledges may be established over movables and rights; a floating charge over a collection of movables and rights (an enterprise) is also available. The establishment of a registered pledge is effective once the agreement is signed and registration is completed. This takes up to two months and, as in the case of mortgages, copies of the filed applications constitute conditions precedent. Enforcement methods include the seizure of ownership, sale in public tender, lease of the enterprise and management of the enterprise. As in the case of mortgages, registered pledges are typically established up to 150% of the original loan amount.
The main differences between financial pledges and registered pledges are that financial pledges can only be established for the benefit of financial institutions, they cannot encumber tangible assets or enterprises, and they do not require registration.
Under a security assignment, the property owners typically assign the claims and receivables under lease agreements, bank guarantees, construction agreements, property and asset management agreements and insurance policies. Although neither consent declarations nor notifications to debtors are required for the effectiveness of the assignment (unless the underlying agreement so requires), banks typically require evidence of the delivery of the notices to debtors as a condition for the disbursement of the loan. No enforcement procedure applies as the bank becomes the creditor under the assigned agreements as of the assignment date or other date specified in the security assignment agreement.
This unilateral voluntary statement in the form of a notarial deed can be made by the borrower or any other security provider. The signing of this deed, which is an enforcement title, expedites the potential enforcement process against its provider from a couple of years to a couple of days. As in the case of other types of Polish security, it is typically granted up to 150% of the original loan value. It does not require registration.