The Supreme Court of Cassation (‘SCC’) clarified the legal effect of the new registration of a non-renewed mortgage against third parties who acquired and registered their rights to the mortgaged property within the scope of the original registration. [1] [1]
The SCC adheres to the basic provisions adopted in the case law of the court, accepting that the third party, which acquires the property within the 10-year period of the initial registration of the mortgage is liable for the debt, but this liability arises from the mortgage itself (due to the opposability of the mortgage right created by the registration) and not from the mortgage notary deed which is not binding to the third party. Therefore, if the mortgage right is terminated on the basis of the expiry of the mortgage which has not been renewed, the third party who acquired ownership of the property and registered his rights within the scope of the original registration is not liable for the secured obligation and therefore cannot be considered to have created the mortgage, insofar as he is neither a party nor a participant in the mortgage notary deed.
The Supreme Judges also referred to the Interpretative Decision No. 3 of 17.03.2021 in case No. 3/2018. 20.20.20 of the Supreme Court of Justice (the “Interpretative Decision”), according to which a mortgage may be re-registered if the ten-year period of registration has expired and it has already been cancelled in accordance with the procedure provided for in the Registration Rules (“RR”), but such re-registration cannot be opposed to the third party, who acquired the title to the property and registered his deed before the new registration of the mortgage, as well as to his private successors in title, even though they acquired the title to the property after the new registration of the mortgage.
Considering the statutory provisions, as well as the answers given by the Supreme Judges, the following conclusions as to the legal effect of the registration of the mortgage can be made:
- A mortgage is created only if it is registered with the Real Estate Register (‘RER’). The registration has both a constitutive effect, since it gives rise to the legal effects of the mortgage, and a disclosure-protective effect;
- The mortgage is effective for 10 years as of the day of its registration. It may be extended if the registration is renewed before that period has expired. If the period expires without renewal, the mortgage may be re-registered, in which case it shall have the order of the new registration;
- Registered mortgages which have not been renewed and are erased due to the expiration of the 10-year period have no legal effect;
- As per the statute, only the termination based on a creditor`s consent or on a final court decision has termination effect to the mortgage;
- Deletion of the mortgage on the basis of a request of the interested party, without other evidence, when the 10-years term has expired, has no termination effect, insofar as the mortgage has already been terminated with the cancellation of the entry, i.e. the deletion only makes it clear that the mortgage no longer has legal effect;
- There is no prohibition on the re-recording of the same mortgage where the debtor has already disposed of the mortgaged property. In the case of a new registration, the registry judge shall not check whether the property is still owned by the debtor or by the person who has created a mortgage on his property to secure another person’s debt. The entry is made, but it will not benefit the mortgagor if there has been a prior disposition of the property that has been registered;
- The third party who has acquired ownership of the property and has recorded his deed before the new recording of the mortgage, which was deleted at the request of the interested party, as well as all his private successors in title, are protected by the fact that the first transaction is with property unencumbered by a mortgage;
- If the mortgage right is terminated due to the expiration of its registration, the third party who acquired ownership of the property and registered his rights within the scope of the original registration shall not be liable for the obligation secured and, therefore, shall not be deemed to have created the mortgage insofar as he is not a party to, nor has he intervened as a party in, the mortgage title deed.
The article above is for information purposes only. It is not a (binding) legal advice. For a thorough understanding of the subjects covered and prior acting on any issue discussed we kindly recommend Readers consult Ilieva, Voutcheva & Co. Law Firm attorneys at law.
[1] [2] Decision No. 60096 of 13.09.2021 in Case No. 1280 of the Supreme Court of Cassation (“SCC”), Second Division