Mortgage on Property
What is a mortgage?
The answer to the question of what a mortgage is can be found in the provisions of the Ownership and Other Real Rights Act, which defines a mortgage as a real right over a particular asset that entitles the creditor to satisfy their claim from the value of the pledged asset if the claim is not paid when due. A mortgage is therefore one of the real-right instruments by which a creditor seeks to secure payment of their claim. It is created without the asset being handed over to the creditor, who is therefore not entitled to hold the asset in their possession as a pledge. This distinguishes a mortgage from other forms of security for claims, such as fiduciary transfer of ownership (fiducia), which allows a debtor to transfer ownership of their asset to the creditor to secure payment of the claim. Mortgage loan
Creating a mortgage on real estate and movable property
It follows from the Ownership Act that a lien on real estate can only be created in the form of a mortgage. In practice, a mortgage most commonly secures a claim such as a loan given for the construction, extension or reconstruction of the property on which the mortgage is placed, or a loan given for land improvement works and the building of family homes. Exceptionally, a mortgage is also possible on movable assets and rights that can only be acquired by entry in a public register and may not be used without being entered in such a register, such as the Croatian Register of Ships, in which a mortgage is entered when it is to be created over a ship. Sub-mortgage
What is a mortgage – how can a buyer check whether a property for sale is encumbered by a mortgage?
On the basis of a valid mortgage agreement, the creditor requests that the mortgage on the property be entered in the land registry (zemljišna knjiga). Once the mortgage is registered in the land registry, it is recorded as an encumbrance on the property and the creditor thereby acquires a mortgage lien. However, because a property encumbered by a mortgage remains in the debtor's possession and does not pass to the creditor, the land registry is the only place where the mortgage is visible as an encumbrance. Therefore, to avoid buying a property encumbered by a mortgage, a buyer is entitled to check the land registry, which is public, before purchase to see whether any encumbrance is entered in the land registry folio. If the property is encumbered by a mortgage, it will be entered in Section C (encumbrances) of the land registry extract, stating the beneficiary and the amount.
What is a mortgage? – Mortgage action
If the debtor has not settled a claim secured by a mortgage when it falls due, the creditor can bring a mortgage action to start court proceedings and obtain a final court judgment ordering the debtor to tolerate satisfaction of the claim from the value of the pledged property. In other words, once a final court judgment has been obtained, the creditor can initiate enforcement proceedings in which the mortgaged property is sold at public auction, and the creditor is paid from the proceeds of the sale.
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