The Law on Ownership and Other Real Rights (NN 81/15, Ownership Act), unlike most other regulations, can boast of resisting frequent changes by the legislator. The last amendment to the Law was in 2014, which may create the impression that it is a quality regulation that does not require changes. However, the Law still contains institutes that provoke certain controversies, such as the right to dispose of unremoved mortgages. Despite this, the provision of Article 347 of the Ownership Act still allows the owner of encumbered real estate, based on a document proving the cessation of the claim secured by that mortgage (removal declaration), to transfer that mortgage to a new claim, thereby potentially circumventing other mortgage creditors waiting in line to collect their secured claims.
When Does a Mortgage Cease
For the mortgage right on real estate to cease, it is not enough for the claim it secured to have ceased. Therefore, as long as it is not removed from the land registry, the mortgage is considered to exist regardless of whether the claim it secured has ceased. It is precisely during this period from the cessation of the claim to the removal in the land registry that the owner of the real estate is authorized to dispose of the unremoved mortgage. Submitting a proposal for registration by transferring the mortgage to a new claim is not possible without the consent of the owner of the real estate. In addition to the claim ceasing, the proponent is obliged to provide the land registry court with proof that the new claim is not greater than the claim secured by the registered mortgage.
To determine which of these two claims is greater, it is necessary to compare their maximum amounts. In order to compare the amounts of the claims secured by the mortgage and the one for which the mortgage is being established, judicial practice has taken the position that when determining the amount of the monetary claim, it is necessary to establish the maximum amounts of the mortgages for both claims, whereby the security refers to the absolute monetary amount based on the sum of all bases of security (primary and secondary).
The mortgage right exists to secure a specific claim, which means that it cannot exist without the claim it secures nor can it be independent of that claim. The right to dispose of an unremoved mortgage in some way deviates from the described principle of accessory nature. Namely, the mortgage is now disposed of by the owner of the real estate, which can be used to secure another claim. For the owner, this is particularly beneficial if it is a mortgage in a high priority order, as it increases their creditworthiness and the chances of obtaining a loan that will be secured by a mortgage in that position. On the other hand, such disposal of an unremoved mortgage puts mortgage creditors with later priority in a worse position, who have long been waiting for the settlement of the claim secured by the mortgage, and due to the owner’s disposal of the unremoved mortgage, they do not move forward in the priority order.
