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Views/ Amendments to the Law on Mortgages
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Darko JovanovićAdvokat / Senior Partnerdarko.jovanovic@karanovic-nikolic.com
14/07/2015
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Long awaited amendments to the Law on Mortgages were adopted on 8 July. The amendments introduce simplified extra-judicial procedures for settlement of a creditor's claims, they provide greater security of enforcement and collection, and they abolish redundant provisions on establishing ineffective centralised records on mortgages.

The main amendment puts creditors in a better position in the event of an extra - judicial sale of mortgaged real estate. Creditors whose interests are secured by a mortgage can now request the sale of mortgaged property, regardless of the ranking of their secured interests. In addition to this, consent of the tenant, i.e. third persons having certain derivative rights on the property, does no longer constitute condition for the mortgage agreement or mortgage statement, to be deemed as directly enforceable document.

The amendments also make it easier for debtors to appeal a decision on the extra-judicial sale of real estate by removing the burden on debtors to put forward "undisputable evidence" in bringing such an appeal.

The new provisions make it possible for the creditors to authorize third person by the notarized power of attorney to perform actions with aim to settle the claims on their behalf.

Mortgaged real estate can be sold directly but for a value not lower than 90% of estimated value of the property, prior to publication of a call for auction. If the real estate is not purchased at the first auction, the price may be lowered to 60% of the property's estimated value. If the real estate is not sold within 18 months, the cadastre will ex officio delete the note on extra-judicial sale and inscribe the note that the creditor who requested the extra-judicial sale can thereinafter request settlement of its claim only by way of court sale of real estate.

The mechanism for distribution of funds gained through the extra-judicial sale of mortgaged real estate is heavily regulated. A creditor requesting the sale is obliged to insert a provision in the sale purchase agreement which determines the distribution of funds and instructions for payment. The agreement must be delivered to the debtor, the owner of the mortgaged real estate, as well as the remaining creditors and third persons who have rights over the mortgaged property.

Finally, the amendments address one of the most problematic provisions of the Law on Mortgages regarding the retention of mortgage rights of unsettled creditors on sold real estate. Now, as a result of the amendments, even if a creditor is secured by a mortgage, if his claim is not settled during extra-judicial sale procedure, the mortgage will be deleted and will no longer be an encumbrance to the sold real estate.  

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