REALWorld Law

Real estate finance

Enforcement of security

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?

Angola

Angola

The enforcement of mortgages consists of the sale of the asset through court proceedings and the State has the right of first refusal.  The sale of pledges may be conducted judicially or extrajudicially.

The enforcement of securities may involve additional red tape andenforcement actions usually take many years and out-of-court remedies are not common practice.

Australia

Australia

In most cases, the borrower must be given notice of default and prescribed notice periods must be complied with before a lender can enforce a mortgage over land. The notice period will vary in each jurisdiction but generally 30 days' notice will be required before a lender can enforce its real estate security (such as exercising its power of sale).

Loan agreements and security documents will typically describe the events of default that must occur before a lender can enforce its security. Events of default will usually include failure to repay the loan on time, material adverse changes, and breaches of warranties or covenants.

Except where statutorily prescribed notice periods must be complied with, once the security is enforceable, the lender can enforce its security immediately. Depending on the type of security, lenders may enforce their security by appointing receivers and managers or taking possession of the security property.

Security assets can be disposed of by private agreement between a buyer and a mortgagee exercising its power of sale or between a buyer and a receiver and manager (depending on the type of enforcement procedures that have been implemented by the lender). Receivers and managers and mortgagees exercising a power of sale will be under an obligation to achieve market value for the security assets.

Belgium

Belgium

Mortgages can only be enforced after having obtained court approval. However, if the loan agreement itself is included in the notarial deed (meaning that it must be drafted or translated into Dutch or French (or German) depending on where the property is located) and it includes an executory title, there is no requirement to obtain prior court approval. Enforcement will take the form of either an auction or a private sale.

With regard to pledge agreements entered into by a pledgor non-consumer, , the pledgee can, with the permission of the pledgor, to be granted in the pledge agreement or at a later stage and subject to satisfying certain conditions, appropriate the pledged assets without prior court approval. In the case of a pledge over financial instruments, the beneficiary of the pledge is allowed to appropriate the financial instruments if this is expressly permitted in the pledge agreement, and the valuation method is stipulated in the pledge agreement. Pledged receivables can be collected by the beneficiary of the pledge provided the pledge has been notified to the relevant debtors.

Bosnia-Herzegovina

Bosnia-Herzegovina

The security becomes enforceable immediately upon the occurrence of a default provided that debtor and notary are notified of the default. It is important that the notary is notified since he or she will provide the official document on the basis of which enforcement will be implemented.

Enforcement is effected through the court by the judge with responsibility for execution matters. Repayments of the loan must be in default and the loan itself must be declared due and payable in full by the creditor. 

Canada

Canada

Each provincial jurisdiction imposes different procedural hurdles before a mortgage or hypothec in real estate can be enforced. Some provinces require judicial intervention while others permit non-judicial remedies.

Generally, the borrower must be given notice of default and prescribed notice periods must be complied with before a lender can enforce a mortgage or hypothec. Statutory notice periods vary in each jurisdiction.

China

China

When the borrower is in default, the lender can enforce the mortgage only if the borrower agrees. The lender can then be paid off by converting the value of the mortgaged property into money, or by proceeds acquired through an auction or sale of the mortgaged property.

If the lender and borrower fail to reach an agreement, the lender must file a lawsuit in the People’s Court to seek a court judgment and an execution order in order to obtain foreclosure and take possession of the property.

Croatia

Croatia

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.

Czech Republic

Czech Republic

If the debt secured by a pledge is not paid on time, the pledgee has the right to repayment of the debt from the proceeds of the sale of the assets which are subject to the pledge. The same rule applies to a pledgee holding a debt which is due but paid only in part or where the 'accessories' of the debt (ie the right to receive interest, delay penalties, delay fees and costs relating to pursuing the receivable) were not paid. The assets which are subject to the pledge may be sold on the application of the pledgee in a public auction or by way of a judicial sale unless the parties agree on another sale process.

Denmark

Denmark

If the borrower is in default the lender must send a reminder to the borrower and inform the borrower that a failure to pay will result in the termination of the loan and further costs for the borrower. Subsequently a letter of termination must be sent to the debtor/borrower.

If the borrower is still in default after the reminder and the letter of termination, the lender can use the reminder to obtain an execution at the enforcement court.

It usually takes about one to three months to obtain an execution over the property at the enforcement court.

When the lender has obtained an execution over the property, the lender is able to sell the property by foreclosure auction.

A sale by foreclosure auction usually takes from three to five months to obtain.

France

France

The secured creditor can enforce the mortgage following three different ways:

  • The beneficiary of a mortgage may apply to the court for an order to seize the property (commandement aux fins de saisie) to be served on the debtor by a bailiff (huissier de justice). Following the proceedings to be carried out in accordance with articles L. 311-1 onwards and R. 311-1 onwards in the French Civil Enforcement Proceedings Code, the property is sold by way of a public auction at a hearing before a civil court (Tribunal Judiciaire), where bidders must be represented by an attorney at law and where the lawyer of the creditor may not bid.
  • The beneficiary of a mortgage may also apply to the court for the attribution by court order of the property to the beneficiary of the mortgage, in accordance with the attribution judiciaire procedure pursuant to article 2454 of the French Civil Code. This option is not available to the creditor if the property is the main residence of the debtor.
  • Pursuant to article 2452 of the French Civil Code, it may be agreed in the mortgage deed that the creditor is to become the owner of the mortgaged property (pacte commissoire). In such a case, the value of the property shall be determined on the day of the transfer by an expert designated by the parties or, judicially if no agreement can be reached. However, this clause is ineffective if the property is the main residence of the debtor.

Note that in the event that (i) the loan agreement has not been contracted in the form of a notarial deed executed in front of a French notary or (ii) the notary mortgage deed does not reiterate the existence of the obligation to pay, the mortgage is not enforceable immediately and the beneficiary of the mortgage will have to go to court to have the existence of its claim recognized. The court order will be notified by bailiff to the borrower. Such procedure:

  • will be in addition to the non-insolvency procedures;
  • is lengthy; and
  • requires the payment of lawyers’ fees, bailiff's fees and other costs.
Germany

Germany

Normally, the documents involved in security provide for pre-conditions before the security can be enforced. Typically, the borrower must be in default or a declared default must have occurred. Generally, the lender must give notice of enforcement to the grantor of the security before starting enforcement procedures. In addition, a land charge (Grundschuld) must be terminated before enforcement; the mandatory termination notice period is six months.

Once the contractual requirements for enforcement are met, the land chargee/mortgagee may apply to the court to commence a public auction process and forced administration proceedings. Before proceedings can be commenced the land charge/mortgage deed must have been formally delivered to the property owner.

Hong Kong, SAR

Hong Kong, SAR

If the facility is on demand, all the lender needs to do is demand repayment.

More commonly, a term loan agreement will describe events of default which must have occurred before the lender can enforce its security. Typical events of default include non-payment of interest or principal, breach of representation, breach of covenant, material adverse change and insolvency.

Once the security is enforceable, the lender can enforce its security immediately. Depending on the nature of the security, enforcement could be by way of appointment of a receiver or by way of foreclosure or taking possession.

The security assets can be disposed of by way of private agreement and there is no requirement for public auction, although the lender does have certain duties to obtain a proper price for the assets.

Hungary

Hungary

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.

Ireland

Ireland

The key issues in relation to the enforcement of security are the validity of, and terms of, the underlying facility agreement and the security itself. In general, where the debt becomes repayable/due, and is demanded but not repaid, then the terms of the security will allow the lender to enforce its security.

Once the security is enforceable, the lender can usually proceed with enforcement immediately. Depending on the terms of the security and the assets concerned, enforcement will involve the appointment of a receiver, taking possession and selling.

The assets can be disposed of by way of private agreement and there is no requirement for a public auction. However, the lender and a receiver (if appointed) have a duty to obtain a proper price for the assets. Funds realized from the sale of the assets are used to pay the receiver and other costs associated with the enforcement, the lender’s debt and any remaining balance is returned to the borrower.

If the borrower is co-operative then the enforcement process can proceed smoothly, especially where possession is voluntarily surrendered. If the borrower is not co-operative, however, the process can take time and may involve court applications, particularly if the validity of the security is challenged or if possession is not voluntarily surrendered. In circumstances where a receiver is appointed over the assets of a company, certain statutory filings and advertising requirements must also be adhered to.

Where individuals and borrowings/security relating to their principal private residence are concerned, the situation can be more complex and certain procedures set out in Irish consumer credit legislation and/or by the Financial Regulator will have to be complied with when enforcing. This should not prevent the lender enforcing its security but it will slow the process down when compared to commercial real estate.

An Irish company (or indeed its directors, creditors and shareholders holding at least 10 percent of the company’s paid-up voting share capital) may petition the High Court to appoint an examiner in circumstances where that company is unable (or is likely to be unable) to pay its debts but where there is a reasonable prospect of the survival of the company and the whole or part of its undertaking as a going concern. During the period while an examiner is enquiring into the affairs of a company, a moratorium prevents secured creditors from enforcing their security without the consent of the court.

Italy

Italy

This question is answered assuming that the debtor is not insolvent.

An event of default under a finance document (including security documents) will entitle a secured creditor to enforce its security. Before enforcing the relevant security, the secured creditor must serve notice on the debtor and the obligor providing security through a Court Bailiff (ufficiale giudiziario), whereby the debtor or obligor is ordered to comply with its own obligations within a reasonable timeframe. If the timeframe set out in the notice is exceeded and the event of default has not been remedied, the secured creditor is entitled to enforce its security.

The usual procedure to enforce the mortgage is the following (on the assumption that the borrower has not become insolvent):

  • The enforcement procedure may be started through the service to the debtor of a writ of enforcement (atto di precetto), which is a formal injunction prepared by the creditor on the basis of its enforceable title (in principle, the certified mortgage loan deed).
  • The debtor will be ordered to proceed with immediate payment of the outstanding monies within a certain term (not less than ten days after receipt of the writ). In the case of non-payment, the creditor will be entitled to proceed with the seizure of the mortgaged asset, following the service of a second writ, the 'seizure deed' (atto di pignoramento).
  • The seizure is serviced and formally carried out, upon the request of the creditor, by the Court Bailiff of the locally competent court office.
  • After receipt of an application of sale by the creditor, the judge will set a hearing for the authorization of the sale, summoning the creditor holder of the mortgage as well as all other registered and secured creditors resulting from the Land Registry. All other creditors (whether secured or unsecured) may freely intervene in such proceedings, provided that they have an enforceable title against such debtor.
  • The sale of the seized real estate asset shall take place, according to the judge’s decision, either by means of the presentation of single purchase offers or by auction. In both cases the relevant order is made public so as to publicise the purchase opportunity to potential buyers.
  • Following the sale, the proceeds are distributed amongst all creditors in the enforcement procedure, after prior payment of the beneficiary of the mortgage.
Japan

Japan

A loan agreement and security agreement usually describe events of default which must have occurred before the lender can enforce its security.  Typical events of default include non-payment of interest or principal, breach of representations or warranties, breach of covenant, material adverse change and insolvency.

Once the security has become enforceable, the lender can enforce its security immediately.  Enforcement may be in a public auction (or execution against earnings from the collateral), private sale of the collateral or bulk sale (private sale of loan claims with security to another lender).  In the case of private sale, the lender has certain duties to obtain a proper price for the assets.

Netherlands

Netherlands

Formalities and step to be taken

Upon the occurrence of an event of default, as defined in the notarial deed of mortgage or a deed of pledge, the mortgagee/pledgee may exercise its right of mortgage/pledge in accordance with a summary foreclosure procedure. This means that the mortgagee/pledgee may procure the forced sale of the mortgaged property or pledged moveable assets, as the case may be, and may apply the net forced sale proceeds towards repayment of the outstanding claims in accordance with the ranking of its security right. Parties can agree in the pledge deed that the default of the pledgor must be determined by the court in advance.

The forced sale of mortgaged property takes place by way of a public auction and can be initiated by a civil law notary (at the instruction of the mortgagee). Moreover, a private – non-public – sale may also be effected by an application made to the relevant district court (at the request of the mortgagee or mortgagor). In such a case, the district court must approve the relevant sale and purchase agreement in which case the public auction will be cancelled.

As alternative to the abovementioned enforcement rights, in order to optimise the profits from a sale of the property, the mortgagee and the mortgagor could also agree on a consensual sale of the property by the mortgagor subject to the mortgagee releasing its right of mortgage provided that certain legal safeguards need to be applied to protect the mortgagee (eg that the mortgagee will directly receive the net sale proceeds (either via a notary account or by pledging the purchase price)).

The forced sale of pledged moveable assets usually takes place by way of a public auction (openbare verkoop). To prevent a public auction, the forced sale can also be initiated by means of an application made to the relevant district court in interlocutory proceedings (voorzieningenrechter) at the request of the pledge or the pledgor, unless otherwise agreed in the pledge deed. The district court in interlocutory proceedings can, at the request of the pledgee, rule that the pledged asset will be sold to the pledgee, in which case the court determines the purchase price.

At the same time as exercising the right of pledge, the pledgor and pledgee can, without approval of the district court in interlocutory proceedings, voluntarily agree on a sale which does not comply with a public auction procedure.

A right of pledge over receivables can simply be enforced by collecting the pledged receivables. When enforcing an undisclosed right of pledge (stil pandrecht), the debtor of the pledged receivable should be notified first of the existence of the pledge.

Obstacles

The mortgagor can seek a court order in summary proceedings to stop enforcement if it is of the opinion that enforcement is not justified. If successful, these summary proceedings will frustrate enforcement by the mortgagee.

The validity and enforceability of a security right might also be subject to challenge on the basis that the underlying secured obligations are unenforceable under their governing law (if this is not Dutch law).

Enforceability may also be restricted by general principles of Dutch law, such as the principle of reasonableness and fairness (redelijkheid en billijkheid) as provided for in the Civil Code, and may be subject to rescission in cases of imperfect agreement (wilsgebreken), which are undue influence (misbruik van omstandigheden), fraud (bedrog), threat (bedreiging) or error (dwaling).

Nigeria

Nigeria

Usually, the loan facility agreement states the events of default, an occurrence of which triggers the rights of the lender to enforce its security. The means of enforcement may be by way of an exercise of power of sale, appointment of a receiver, foreclosure, action in court to recover the principal and interest or by taking possession.

Where the lender intends to enforce the security by exercise of the power of sale, it is to be noted that the power of sale must have arisen and the power must have become exercisable. The power of sale arises where the mortgage debt is not paid on the agreed date.

On the other hand, the power of sale becomes exercisable only where any of these conditions are fulfilled:

  1. notice requiring payment of the mortgage sum has been forwarded to the mortgagor and default has been made in payment of the money for three months after such service;
  2. some interest under the mortgage is in arrears and unpaid for two months after becoming due; and
  3. there has been a breach of some provisions contained in the mortgage deed or under the provisions of the relevant law.

Other forms of enforcing security over real estate, such as; appointment of a receiver, foreclosure, action in court to recover the principal and interest are usually set in motion by instituting proceedings in court for an order of the court to enforce any of the securities. Where the lender seeks to appoint a receiver, such appointment and the powers of the receiver is to be in accordance with the provision of the relevant law.

Norway

Norway

Pre-enforcement steps

Often the loan agreement itself will describe events of default which must have occurred before the lender can enforce its security. Typical events of default include non-payment of interest or principal, breach of representation, breach of covenant, material adverse change and insolvency. The agreement will also often describe formalities to be fulfilled before enforcement of the security can take place.

If the agreement itself does not describe events of default or formalities to be fulfilled before enforcement takes place, the Norwegian Liens Act of 1980 lists specific events where the lender can demand repayment (eg non-payment of interest or principal sum, insolvency). If the facility is an on-demand facility, all the lender need do is demand repayment.

The request for repayment should be sent by registered mail, with a defined two-week deadline for repayment.

Enforcement steps

Under the Norwegian Enforcement Act of 26 June 1992 No. 86, the secured party or lender may on the occurrence of a default event demand a compulsory sale of the secured property.

The Enforcement Act provisions are mandatory and enforcement must be effected with the assistance of enforcement authorities (being the court or the Execution and Enforcement Commissioner). It is not possible to contract out of the provisions of the Act in the loan agreement. However, the parties may agree a procedure of enforcement that will take place without court intervention, but this can only be done after the default has occurred and not as a part of the original loan agreement.

To enforce the security, the lender must request enforcement before the competent court. The filed request must comply with both the material and formal requirements set out in the Enforcement Act.

The dealing court will decide whether a compulsory sale should be conducted by a court appointed administrator or by way of public auction by the Execution and Enforcement Commissioner, or if enforcement should take place by way of taking possession.

In respect of security over financial collaterals the Norwegian Financial Collateral Act (Act of 26 March 2004 No. 17) entitles the parties to agree on a procedure of enforcement in the agreement, as distinct from security in real property. This is only relevant for financial collateral such as bank accounts and shares and other securities.

Poland

Poland

Enforcement of the mortgage secured over real estate is conducted on the basis of enforcement proceedings. This means that the creditor has to obtain a writ of execution consisting of an 'enforcement title', together with an execution clause (granted by the court injunction), as those constitute an 'execution base' being the ground for initiating the execution procedure.

Under Polish law an enforcement title may amongst others take the form of:

  • Notary deed
  • Court judgment

Notary deed

The notary deed, under which the debtor submits himself directly to execution, is considered the best form for execution. The creditor does not have to sue the debtor in order to obtain a legal verdict to enforce its claims, but may request the court to append an execution clause to the notary deed itself.

Court judgment

This enforcement title is considered the most troublesome and expensive to the creditor. This is because the creditor has to bring the proceeding against the debtor and prove his claim before court.

Portugal

Portugal

As a first step, and depending on the relevant contractual arrangements, the lender must undertake a court procedure to enforce the security on the basis of the borrower’s default. Thus, in order to avoid judicial procedures, lenders often try to sell the real estate to a third party with the agreement of the borrowers, under accord and satisfaction agreements.

Romania

Romania

The enforcement of an immovable mortgage is a judicial procedure governed by the Romanian Code of Civil Procedure. It may only be conducted by a bailiff and under the supervision of a court of law. The commencement of enforcement proceedings against real property must be registered in the Land Book.

In order to be enforceable, a mortgage must comply with the following requirements:

  • The obligation resulting from the loan that it secures must be certain (ie its existence must be proved), payable (ie the amount must have been previously determined) and due (ie although outstanding, not yet satisfied by the borrower).
  • The creditor should have title to enforce. Under Romanian law, validly concluded mortgage agreements constitute enforceable titles.

The assets subject to the security can be disposed of by public auction or, if the price resulting from a valuation of the asset will be obtained and the parties agree, by direct sale.

Slovak Republic

Slovak Republic

The most common security used in Slovakia is a pledge. According to the Slovak Civil Code, a pledge may be established over an asset, right, other property value, flat, non-residential premises, set of assets, rights or other property values, on-going enterprise or its part, as well as over an asset, right, other property value, flat or non-residential premises, which shall be acquired by the pledgor in the future. The pledgee (being the lender) will be entitled to demand satisfaction of its claim under the pledge where it remains unpaid by the pledgor.

Following the due date of the claim, the pledgee is obliged to:

  • Notify the pledgor (and the pledge debtor, if that person is not the same as the pledgor) in writing of the commencement of enforcement of the pledge
  • Specify the method of the enforcement, and
  • Register the enforcement of the pledge with the Notarial Central Register of Pledges or with such other relevant register (eg enforcement of real estate shall be registered with the Cadastral Registry, enforcement of a business interest shall be registered with the Commercial Register, and enforcement of securities shall be registered with the Register of Pledges to Securities of the Central Security Depository)

After the notification, the pledgor is not entitled to transfer the security without the prior consent of the pledgee. After the expiry of at least 30 days following the notification of the enforcement to the pledgor and the pledge debtor, the pledgee shall then be entitled to sell the secured assets at auction or by means agreed with the pledgor in the agreement establishing the pledge. However, the pledgor and the pledgee may after the written notification agree that the pledgee shall be entitled to enforce the security before the expiration of the 30-days' period.

Spain

Spain

In relation to defaults, Spanish courts are reluctant to accept the enforcement of the security for reasons apart from non-payment of the loan or any amounts which are required to avoid damaging the security or the asset (eg common expenses, insurance or taxes on the real estate asset).

A lender is only entitled to declare the early termination of the loan on the grounds of non-payment of money due in the event that this has been provided for in the loan agreement. In the absence of an early termination clause duly recorded at the Land Registry, the lender is only entitled to claim the principal and interest overdue but not the whole amount of the loan. If the mortgaged property is transferred before the payment of any overdue instalment and there are other instalments not yet due, the property will be transferred subject to the mortgage corresponding to that part of the loan pending payment.

Early termination of the loan cannot be declared (and therefore security may not be enforced) unless the default in payment extends to three monthly instalments (or the equivalent amount, if payments are not made on a monthly basis or if the default corresponds to payment obligations other than debt service).

Before initiating judicial or extrajudicial foreclosure proceedings the lender must notify the borrower formally (through a notary in Spain, a certified letter, fax or any means which may state on record that the notification has been given and include the contents of the notification). The notification must state both:

  • That there has been a breach of the terms of the loan, detailing the specific breach and that, consequently, the loan is terminated early in accordance with the relevant provision of the loan agreement
  • The total amount due as a consequence of the early termination of the loan. If the loan agreement allows the lender to do so, it must issue a certificate stating the balance on the account of the loan with a breakdown of the amounts due as principal and the amounts due as interest as well as the rates of interest applied. This certificate must be submitted to a notary public in Spain, who must certify that the liquidation of the debt has been carried out as agreed upon by the parties. In other cases, the amount claimed should be evidenced to the court

A general principle of Spanish law prohibits what is known as 'pacto comisorio' (ie any agreement whereby the creditor would have an automatic right to keep property given as security or collateral if the debtor fails to pay), except in certain specific cases (eg when the collateral is cash). Consequently, foreclosure must take place through a public sale of the secured property normally through a formal auction procedure, which must be supervised by a judge or notary public. In practice, it is advisable that mortgage deeds provide for the possibility of using either process at the creditor's option.

In the event of a declaration by the judge of the debtor's insolvency, if the asset affected by the security is necessary for the continuation of the debtor’s professional or business activity, the mortgagee cannot initiate proceedings to enforce the security until one of the following events occurs:

  • An agreement is reached among the creditors
  • One year has elapsed from the declaration of insolvency
Sweden

Sweden

A preliminary requirement for enforcing any type of security under Swedish law in a default situation is that some claim for money has to fall due in order for the lender to be able take the relevant measures. So for example, a breach of a loan to value covenants is not sufficient in and of itself to merit enforcement (irrespective of any agreement to the contrary). Unless there is a payment default, acceleration of all or part of the loan will be required.

Prior to insolvency, the enforcement of mortgage security will always involve formal court proceedings rather than the lender simply asserting its contractual rights. A court decision should in most cases not be problematic but there may be some level of delay involved. More specifically, enforcement necessitates obtaining a writ of execution and requesting a sale of the relevant properties at a public auction. This procedure usually takes several months and may, depending on the circumstances, take substantially longer. In this connection lenders have no formal right to set a minimum price for the properties.

In bankruptcy, the administrator will sell the property/ies in such a manner and at such a price as he or she determines is in the best interest of all creditors. The administrator will consult with and obtain consent from those mortgagees that are likely to receive any proceeds from a sale. If there are several such mortgagees and they cannot agree on a proposed sale, the administrator will usually consider selling the property/ies at a public auction (where no consent is necessary).

In terms of amounts, Swedish law provides that a lender is entitled to obtain payment from the realization of mortgage security up to the amount of the face value of the mortgage certificate(s) representing the security (provided that the proceeds are sufficient to cover mortgages with the priority over the mortgage certificate held by the lender). If this is insufficient because the lender's claim exceeds the face value of the certificate(s) in question, the Swedish Land Code (Jordabalken) provides that the creditor may obtain a supplementary payment of an amount equal to fifteen per cent of the amount of the face value of the mortgage certificate(s), plus interest on that amount from the day on which the property unit was attached or a bankruptcy petition was filed. If the mortgage fetches a higher value than the facility, the creditor must pay the difference back to the debtor. This applies at all times and is not subject to any modifications.

The obstacles and procedures associated with enforcing mortgage security have led to a situation where lenders almost always choose to enforce security taken over the shares of the (SPV) property owning company. Enforcement of a share pledge is one exception to the rule that you must deal with an administrator or a court in an enforcement situation. Provided that the relevant agreement follows market practice, the lender will in such cases be entitled to sell the shares on such terms and in such manner as it sees fit. The lender will be nevertheless be under a statutory duty of care in relation to the custody of and enforcement of the pledged shares and it is not possible to contractually disclaim this duty entirely (in cases of wilful misconduct or gross negligence the lender will always be liable for breaches of this duty of care). In practice, the duty of care entails an obligation to notify the pledgor of any sale of the shares and to account for the proceeds of the sale.

Thailand

Thailand

In order to enforce the provisions of the mortgage contract the mortgagee must notify the mortgagor in writing of the mortgagor's duty to perform his obligation within a reasonable time (such reasonable time shall not be less than 60 days from the date of the receipt of the notice) to be fixed in the notice. If the mortgagor fails to comply with the notice, the mortgagee may enter an action in court for a judgment ordering seizure of the mortgaged property and sale by public auction. In addition to this remedy, the mortgagee is entitled to foreclose on the mortgage subject to certain conditions; provided that if the mortgagor is not the debtor, the creditor shall notify the mortgagee in writing within 15 days commencing from the date of the notice to the debtor or else the mortgagee shall be relieved from the obligation to pay interest, indemnity or any ancillary arising from such debt from the subsequence of 15 days. The provisions of the Civil and Commercial Code also provide for the various rights and duties of the parties to such an agreement.

United Arab Emirates - Abu Dhabi

United Arab Emirates - Abu Dhabi

A lender is entitled to satisfy the debt from the mortgaged property when the debt falls due, provided that the mortgage has been registered at the DUPM. Failure to register a mortgage renders it void pursuant to Law No. 13 of 2015 Concerning the Regulation of the Real Estate Sector in the Emirate of Abu Dhabi (the "Mortgage Law").

If the value of the property is insufficient to satisfy the debt, the lender may have recourse to the borrower's other assets as an ordinary (unsecured) creditor, but it must look to enforce its rights against the property first. The lender must follow the statutory procedure and if the mortgage document attempts to circumvent this procedure then those provisions are void.

The Mortgage Law sets out the enforcement procedure for mortgages. Upon a default the lender must send a final demand letter to the debtor (and any guarantor) demanding full and final settlement of the outstanding debt within 30 days or a reasonable period prescribed by the lender.

Upon the expiration of 30 days, if the debtor has not settled the outstanding debt or has not reached an agreement with the lender, the lender can file an application for an attachment order over the real estate and for an order for the mortgaged property to be sold in public auction. The debtor will have the right to respond to the attachment order and request postponement of the sale of the property by auction. The court may postpone the sale of the property for a period of up to 60 days if the court is of the opinion that the mortgagor may be able to settle the debt within this period or of the sale of the property would cause serious damage to the mortgagor. If the court does ultimately allow the sale of the property, then the sale of the property will be by way of public auction according to the procedures applicable at the relevant court.

United Arab Emirates - Dubai

United Arab Emirates - Dubai

A lender is entitled to satisfy the debt from the mortgaged property when the debt falls due, provided that the mortgage has been registered at the DLD. Failure to register a mortgage renders it void pursuant to Law No. 14 of 2008 Concerning Mortgages in the Emirate of Dubai (the Mortgage Law).

If the value of the property is insufficient to satisfy the debt, the lender may have recourse to the borrower's other assets as an ordinary (unsecured) creditor, but it must look to enforce its rights against the property first. The lender must follow the statutory procedure and if the mortgage document attempts to circumvent this procedure then those provisions are void.

The Mortgage Law sets out the enforcement procedure for mortgages. Upon a default in payment by the borrower, the lender must give 30 days notice through a Notary Public before commencing execution proceedings.

If the payment is not made within such 30-day period, an execution judge shall, upon the request of the lender, order an attachment against the mortgaged property, enabling it to be sold at public auction in accordance with the DLD's auction rules.

The execution judge may decide to postpone the sale by public auction for up to 60 days (and such postponement can only be made once) if he finds that the borrower will be able to repay the debt during this time or the sale would cause the borrower 'substantial damage'. It is not clear exactly what would constitute substantial damage in this context.

Orders have been made for attachment and sale by public auction using the provisions of the Mortgage Law. This is a quicker route of enforcement than the Civil Code enforcement provisions, which in practice may take considerably longer.

UK - England and Wales UK - England and Wales

UK - England and Wales

If the facility is on demand, all the lender need do is demand repayment and proceed to enforce the security if that demand is not met.

More commonly, a term loan agreement will describe events of default which must have occurred before the lender can enforce its security. Typical events of default include non-payment of interest or principal, breach of representation, breach of covenant, material adverse change and insolvency.

Once the security has become enforceable, the lender can generally enforce its security immediately.  Depending on the nature of the security, enforcement could be by way of appointment of a receiver under the provisions of the Law of Property Act 1925 (an LPA receiver), an administrator or by taking possession.

The security assets can be disposed of by way of private agreement and there is no requirement for public auction, although the lender does have certain duties to obtain a proper price for the assets.

UK - Scotland

UK - Scotland

If the facility is on demand, all the lender need do is demand repayment, but the procedures laid down in the relevant legislation regarding enforcing a standard security outlined below must be strictly adhered to before seeking to enforce the remedies available to the lender.

More commonly, a term loan agreement will describe events of default which must have occurred before the lender can enforce its security. Typical events of default include non-payment of interest or principal, breach of representation, breach of covenant, material adverse change and insolvency.

Where a borrower is in default of the terms of a standard security the lender may exercise any of the following remedies which are set out in the relevant legislation:

  • The power of sale
  • Extract rents from any tenant(s) of the property (once the lender has taken possession)
  • Carry out repairs

Before the lender may exercise any of these remedies, certain preliminary steps must be taken. The steps taken by the lender will be dependent upon the situation which arises in relation to the subject of the security. They can be to:

  • Serve a calling-up notice (the most straightforward procedure by which a lender may enforce its power of sale or extract rents).
  • Serve a default notice (ultimately giving the borrower a period of time within which to remedy the breach failing which the lender can move to call up).
  • Make an application to the Sheriff Court under Section 24 of the Conveyancing and Feudal Reform (Scotland) Act 1970 (where the requirement is to obtain possession urgently and sell the real estate. However, this procedure can only be used in certain prescribed situations set out in the legislation).

There are certain factors to take into consideration before any action is taken:

  • The requirement to obtain the best price

    The most common remedy utilized by heritable creditors is the power of sale. When exercising the power of sale, the lender is obliged to obtain the best price. Unfortunately, no further definition is provided within the relevant legislation which would allow us to ascertain exactly what is meant by the ‘best price’. However, the Registers of Scotland have established a practice. The Registers require a certificate to be lodged together with the application for transfer of ownership certifying that there have been at least two adverts published prior to the sale being concluded. Annexed to the certificate will be copies of the advertisement. It would not be possible therefore to conclude a sale without marketing even if the price would be considered to be a reasonable offer for the subjects.

    It is common for lenders to instruct a surveyor to carry out a valuation at the outset of the sales process and to seek their advice with regards to the best means of marketing and selling the subjects. This can be particularly important where the property is unique and there is a limited market.
  • The difficulties with taking possession

    If the lender takes steps to market the security subjects, then until a sale is completed the lender will be liable for the insurance of the property. Further, in the event that there are any notices of liability for costs registered against the subjects by a factor (a person or firm charged with superintending or managing properties and estates) or the local authority then the lender may find that they are obliged to make payment of the sums outstanding. The lender would not however be liable for non-domestic rates (local real estate taxes).

Tenants

There are a number of issues to consider where there are tenants occupying a building over which a security has been granted. The steps required will be dependent upon whether it would be the lenders intention to collect rents, sell the property subject to the leases or sell the property vacant.

Security

The lender would need to consider changing the locks at the premises and in the event that they are empty arrange for them to be secured to prevent damage.

Appointment of insolvency practitioner

Another mechanism open to a lender to enforce its security (provided it has taken a floating charge) would be to consider the appointment of an insolvency practitioner through either a winding up petition or an administration. The insolvency practitioner could then take on the responsibility for concluding the sale of the real estate or management of any tenants.

Ukraine

Ukraine

The mortgagee must deliver a default notice to the mortgagor and, if different, to the borrower with a demand to remedy a default under the underlying loan agreement or, as the case may be, the mortgage agreement within at least 30 days. Such notice should include the description of event of default, the amount of pending secured obligation, description of collateral, chosen method of extrajudicial enforcement and demand to fulfil the secured obligations within mentioned period. If the mortgagor or, as applicable, the borrower has not complied with the requirements of the default notice, after the expiry of the remedy period set out in the default notice, the mortgagee is entitled to enforce the security.

Ukrainian law provides for the following methods of enforcement of security over real estate:

  • judicial enforcement (through courts);
  • extra-judicial enforcement, which may include:
  • sale of the property directly to a third party or through public sale at auction; or
  • taking title over the property by the mortgagee; and
  • by way of a notary's writ.

The trustee is entitled to enforce the trust property by way of its sale to any third party unless the trust agreement establishes otherwise. For that purpose, the trustee shall serve on a debtor and, if different, a trustor a 30-day prior notice on its intention to enter into a sale and purchase agreement with respect to the trust property and the minimum sale price. To acquire the pre-emptive right to purchase the trust property, a debtor or a trustor shall inform the trustee on its intention to purchase the trust property and credit the indicated sale price to the notary’s deposit. It should be made within five days after receipt of a trustee’s notice, otherwise the pre-emptive right is not provided, and the trustee may sell the trust property to any other third party.

Ukrainian law explicitly allows the parties to envisage different enforcement procedure in the trust agreement.

United States

United States

Each state and local jurisdiction imposes different procedural hurdles before a security interest in real estate can be enforced. Some states require judicial intervention while others permit non-judicial remedies.

In most cases, the borrower must be given notice of default and prescribed notice periods must be complied with before a lender can enforce a security interest in real estate. Statutory notice periods vary in each jurisdiction but generally 30 days' notice will be required before a lender can enforce its remedies over such real estate security (such as exercising its power of sale).

Loan agreements and security documents will typically describe the events of default that trigger a lender’s right to enforce its remedies. Events of default will usually include failure to repay the loan or any periodic payment due on time, and breaches of warranties or covenants.

Zimbabwe

Zimbabwe

Firstly, the lender will need to place the borrower in mora through a letter of demand. This letter contains deadlines and highlights the consequences of the debtor’s failure to meet those deadlines. If the debtor fails to meet those deadlines, the lender will appeal to the court of law to make a ruling. The court will then authorize the messenger of court to attach, remove and sell by public action, the property of the debtor. After the sale, the messenger of court will pay the creditor or lender the amount due to them.