Back to normal

Better security of receivables
Currently, a joint mortgage - as the security of one that can be obtained on several real properties - may be established under an agreement between the owner of the real properties and the creditor. As a result of the establishment of such a mortgage, the creditor - the mortgagee - may demand, at his own discretion, the satisfaction of his claims in whole or in part, from each of the encumbered real properties separately, or from some of them or from all of them collectively.
This method of securing the receivables is especially useful in crediting activity, particularly as far as the financing of large investments is concerned. Receivables are better secured on several real properties, owned by one or more people.

The establishment of joint mortgages
The amended Act on Land & Mortgage Registers and Mortgage provides for two methods of establishing joint mortgages: through the partitioning of the real property or under an agreement.
A joint mortgage is established upon the physical partitioning of the encumbered real property and it thus encumbers each of the real properties created, as a result of the partitioning. The partitioning of the real property should be entered onto the land & mortgage register, which means the opening of a new land & mortgage register for the detached real property. The joint mortgage may encumber real land properties as well as building real properties.
 The joint mortgage is established under an agreement, in which one receivable is secured on several real properties owned by the debtor. As with a regular mortgage, the validity of the establishment of the joint mortgage requires that it be entered onto the land & mortgage register (or several land & mortgage registers kept for the encumbered real properties). Therefore, one may establish a mortgage on all real properties owned by the debtor, (even if they are located, for example, in different cities), provided that they are expressly specified.

Costly downsides
Court fees are charged separately, on the establishment of a joint mortgage, with respect to each encumbered real property. This is the main drawback of a joint mortgage. In this respect, it does not therefore differ from the establishment of several regular mortgages. Introducing an alternative approach, would definitely make this method of securing receivables more attractive. On the other hand, the notary will charge only one notarial fee and one transfer tax on the establishment of a joint mortgage - as opposed to the establishment of several regular mortgages.

"Super-security"
phenomenon
Although establishing a joint mortgage is very much to the creditor's advantage, the fact that it encumbers each of the encumbered real properties fully,  poses certain dangers to the debtor. If the total value of the encumbered real properties substantially exceeds the value of the joint mortgage established, (and the value of the mortgage approximates the value of each of the encumbered real properties), the debtor may lose the practical possibility of encumbering these properties with further mortgages.
Paradoxically, the "super-security phenomenon" may, under certain conditions, turn out to be the upside of joint mortgage. This can occur when the investments implemented by special purpose vehicles are financed by a mortgage credit. The financing bank may then easily become the only entity financing the operations of a special purpose vehicle and control its credit activities comprehensively.
The problem of "super-security phenomenon", resulting from the discrepancy between the value of the secured receivable and the value of the encumbered real properties, may be resolved through the distribution of the joint mortgage. The creditor may distribute such a mortgage among specific real properties, indicating the proportions, in which his receivable will be secured with respect to each of the real properties. The distribution of the mortgage is carried out in the form of the notarial deed, which is the basis for entering the distribution onto land & mortgage registers. As a result of the distribution of the joint mortgage, separate securities (regular mortgages) are established on separate real properties. The mortgagee may undertake to distribute the joint mortgage, for example, after a part of the debtor's debenture is paid off or after other conditions are met.

Positively, though
The restoration of the possibility of establishing contractual joint mortgages, (as well as other changes introduced through the cited amendment to the Act on Land & Mortgage Registers and Mortgage), does not solve the problems of investors and credit institutions, when financing investments. However, the above changes which are intended to improve the court registration system and to facilitate the implementation of the modernized land & mortgage registry computer system, should be praised. The simplification and de-bureaucratization of registration procedures may undoubtedly be seen as a return to normality.  z

Konrad Marciniuk
The author is a legal advisor
at Miller, Canfield,
Paddock and Stone law offices