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?



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.


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).