REALWorld Law

Real estate finance

Imperfect security

If a security interest has not been validly perfected, what is the position of the holder of that security if the borrower becomes insolvent?



One requirement for the creation of a mortgage right is that a copy of the instrument establishing the mortgage is registered with the Land Registry.

If the security has not been perfected, because of lack of registration at the Land Registry, this cannot be rectified after the borrower has been declared bankrupt. In such cases the creditor is treated as an ordinary, ie unsecured, creditor. The same applies if a right of pledge has not been perfected prior to the borrower's bankruptcy being declared.

Additionally, in case a right of pledge has been established a year before bankruptcy the receiver in bankruptcy proceedings (faillissementscurator) is (under certain conditions) allowed to nullify the right of pledge if there is prejudicial to the interests of the other creditors of the pledgor.