The primary subject of collateral value is real estate.
On this basis, citizens have the right to request large loans and purchase new properties.
Sometimes it is possible to use them again when building a credit relationship with a new borrower.
When is a subsequent mortgage of real estate allowed?
A subsequent pledge is allowed if the price of the property exceeds the loan amount or the mortgage on the apartment is partially repaid - an additional resource appears that can be disposed of by investing the residual value of the property in new investments.
For example, a mortgage paid in the amount of 2/3 for a three-room apartment allows you to purchase a room in a communal apartment in the same way - with a mortgage. In this case, the room is directly registered as the property of the buyers, without encumbrance. But the primary object - an apartment - provides a mortgage loan for the purchase of a room.
The room is allowed to participate in property transactions and other unimpeded disposal. Repaying the primary debt on a loan for purchasing an apartment will not provide conditions for removing the encumbrance, as would have happened in the case without purchasing a room.
The encumbrance will be lifted only if the payments for the purchase of the second object are settled.
If another bank becomes the investor of the second purchase, additional documentary support for the civil procedure will be required. This transaction takes on a tripartite nature, since each of the mortgagees is included in the process of interaction with the buyer of the property.
The concept and principle of seniority of collateral
The same thing can be pledged several times to satisfy the claims of different pledgeholders and different and to secure different obligations.
Art. 342 of the Code establishes the concept: seniority of pledges is provisions providing for a preferential right to fulfill the claim of one of the pledgeholders over others by obtaining satisfaction from the corresponding value of the pledged property.
The general order of seniority is enshrined in Part 1 of Art. 342 of the Code: when a thing becomes the subject of another pledge agreement, the previous pledge holders have a priority right to receive satisfaction from the value of such thing, and only then the subsequent ones.
It should be noted that the application of the general order of seniority practically reduces to zero the security function that a subsequent pledge could have. In other words, when transferring property into another pledge, the subsequent pledgee will bear the risks of not receiving satisfaction from the value, because the demands of all previous ones will be initially fulfilled.
Consent of the mortgagee
The creditor, who is encumbered by an object or a security on it in the form of a mortgage, must be notified of the debtor’s intention to enter into a new credit relationship.
He analyzes the current situation and gives consent. Providing consent is a right, not an obligation of the bank. The property registered in his favor acts as a guarantee provided by the payer. If the situation raises doubts about the borrower's solvency, refusal is allowed.
In case of consent, the bank issues an official document in which it certifies not only its own consent to re-issue a mortgage, but also determines its own advantage over the second investor in an official form, in the event of a risk.
This paper is attached to the new agreement drawn up for the second mortgage and states the priority right to repay the loan against the mortgaged property.
In what cases is a subsequent mortgage issued?
Subsequent mortgage what is it? This is the name for issuing a loan with the condition of providing a collateral object, which already acts as such under another obligation to the bank (). In other words, this is a re-encumbrance of property that is currently mortgaged.
It is allowed to issue a subsequent mortgage pledge not only in favor of another credit organization, but also of the same one. For example, some banks refinance their own mortgage loans.
There are two possible cases when a subsequent mortgage of real estate is issued:
- When refinancing a mortgage. If you contact another bank in order to get a more favorable loan, the primary lender will be able to remove the encumbrance only after repaying the debt. During this period, a subsequent mortgage is allowed, which means the right of the new bank to the mortgage immediately after the withdrawal of the current one.
- If you take out a new loan and remortgage the property.
The legislation allows one property to be encumbered with several bank obligations. Then the restrictions are written by the primary mortgagee in its own mortgage document. For example, the text may contain the following explanations regarding the bank’s consent to a subsequent mortgage:
- complete ban;
- permission, but only if certain requirements are met;
- free registration of subsequent collateral by other credit institutions.
Most often, the first option occurs, when the lender prohibits the registration of a subsequent pledge of property. To find out the conditions set by your bank, look at the text of the loan or mortgage agreement (if you mortgaged your existing property). In this case, re-encumbrance is impossible under any circumstances.
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If the borrower and the secondary mortgagee ignore the clause that subsequent mortgages are not permitted, the transaction will be considered illegal. In some cases, those involved may even be held accountable under applicable law. But decent banks will never do this, so it’s better to contact serious credit institutions.
A valid subsequent mortgage can only be created by law with the consent of the primary mortgagee. Including when they set certain conditions for the transaction.
Risks of subsequent mortgage of real estate
Damage and destruction of property acting as a guarantor of payment is the main risk that will affect the financial condition of the secondary creditor.
If, upon destruction, the building becomes 100% unusable, which will entail, as legal consequences, its cancellation and destruction in cadastral records, then uninsured property may lose guarantees in the same proportions.
The insured property is indemnified, but the amount of insurance may not cover the expenses of the second investor.
In addition to the material damage that a premises or site may suffer, there are other nuances. For example, a transaction for the second purchase of housing on a mortgage is canceled; title insurance was not provided during its implementation. This risk also falls entirely on the second and subsequent investors.
If, when registering a second mortgage and remortgaging, the consent of the first lender is not obtained, the agreement is considered void. But when collecting the money paid, difficulties will arise due to the lack of legal grounds.
Subsequent mortgage agreement
You can read a sample subsequent mortgage agreement in advance by asking the mortgage manager handling your transaction for it. If necessary, show the document to a lawyer, although, as a rule, no amendments are allowed to be made to it. However, a specialist will be able to tell you what risks you may encounter when signing this agreement.
Mandatory points in the text of the document:
- the essence of the transaction with an indication of the subsequent pledge;
- rights and obligations of the parties (bank and borrower);
- information about the primary collateral and loan agreement;
- guarantee of the pledgee's right to a subsequent pledge under the Civil Code ( and );
- procedure and conditions for recovery in case of violation of the terms of the contract;
- resolution of disputes;
- requirement to conclude additional contracts (for example, insurance and valuation of collateral);
- mandatory state registration of subsequent pledges;
- data and signatures of the parties.
The document is drawn up by the bank where you receive a new loan. Usually it is drawn up according to a certain template. If all the conditions are clear, you agree with them, sign the agreement and submit it for state registration of the subsequent mortgage (). After this, the bank has the right to demand the registration of collateral in its favor, and the borrower has the obligation to repay the new debt.
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At the same bank
At the legislative level, it is not prohibited to repeatedly cooperate with the same bank and re-encumber the property that is the object of collateral for a mortgage loan. In a sense, the whole procedure is simplified, since the requirements, set of documents and the sequence of all stages are already familiar and understandable. In certain situations, employees may be ready to make concessions and reduce the time for reviewing the application and completing the transaction itself.
A common situation is that the same client applies to the bank where the loan for the purchase of real estate was issued to obtain a consumer loan. Since the credit burden on the borrower and his family members will increase significantly with the issuance of a new loan, the bank requires the second loan to also be secured with collateral. Re-encumbrance of real estate acquired with borrowed funds is not prohibited by law or bank policy.
Subsequent mortgage process
First of all, you need to obtain consent from both banks for a subsequent mortgage, taking into account the selected loan program. If the procedure for refinancing loans has already been established, then other types of loans may not require subsequent collateral at all (). This issue should be clarified with the bank where you want to apply for a new loan.
How is a transaction followed by a real estate mortgage carried out:
- Choose a bank and a lending program that allows you to re-register the collateral.
- Obtain the new lender's approval and the mortgagee's consent to the subsequent mortgage.
- Collect a package of documents for real estate and submit it to the bank for verification.
- If the result of the review is positive, sign the loan documentation and submit it for registration to Rosreestr. Some banking institutions allow you to do this right in your own office, but for a fee.
- At the same time, loan funds are issued. If you take out a loan to refinance, you must immediately use the money to pay off the original loan. A consumer loan does not require closing the existing mortgage; the funds received can be spent at your own discretion.
- When refinancing, after a couple of days you should check that the current debt has been closed. When the mortgage is repaid, order a certificate of fulfilled obligations to the bank and the original mortgage note (if it was previously issued).
- Submit an application for removal of the encumbrance. You will likely need to have a representative of the bank - the primary mortgagee - present. The right of subsequent mortgage must already be registered with Rosreestr, so the subsequent mortgage is imposed automatically.
- Upon expiration of the registration period, the borrower receives an extract from the register of real estate rights. It should already contain an encumbrance in favor of the new creditor.
If the borrower is married, the consent of the spouse will be additionally required to apply for a mortgage. The fact is that not only their property, but also their debts are joint.
Please note that a certificate of consent for a subsequent mortgage from the first bank is a mandatory document. It is attached to the package of papers and confirms the legality of the transaction. A sample consent for a subsequent mortgage should be taken from the organization where you are applying for a new loan. According to the terms of the loan, the document may contain various information. Usually it is required to indicate the details of the mortgage agreement, the characteristics of the collateral, the amount of debt at the moment, the presence of overdue debt and the quality of repayment.
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If the text of the loan documentation for the primary mortgage does not contain any restrictions regarding subsequent collateral, you should go to a bank branch and order permission for the transaction. At the same time, the mortgagee has every right to refuse to issue you such a certificate. As a rule, it is drawn up by the legal department, which may see certain risks in the subsequent mortgage.
In this case, you must be given a written response justifying the decision. There are likely certain legal restrictions that allow the primary lender to refuse. But banks usually do not prevent debt refinancing with another organization.
What documents are needed
To remortgage an already mortgaged home, you need to prepare a package of documents consisting of:
- Russian civil passport belonging to the pledgee;
- a second identification document at the lender’s request (for example, a foreign passport, SNILS, driver’s or military license);
- documentation for the real estate pledged: a certificate of registered property rights, which is the basis for the rights of ownership of the document (for example, an exchange agreement, purchase and sale agreement, deed of gift), a single housing document (EZhD replaces extracts from house books and certificates of absence of utility debts) , appraisal report (if more than six months have passed since receiving the past);
- a loan agreement concluded with the previous lender;
- loan statements at the request of the new lender indicating the balance of the debt;
- a previously executed mortgage (pledge agreement).
It is better to check in advance with the company you are applying for a remortgage for a complete list of all necessary documents. And some papers are required already at the application stage, so prepare them right away.
Remortgaging real estate is quite possible. And in order to arrange it on the best terms, take into account the nuances discussed in the article and contact a trusted company.
What's happened
Federal Law No. 102 “On Mortgages” (Article 43) clearly defines the concept of a subsequent mortgage and the possibility of allowing it. In accordance with this regulatory act, a subsequent mortgage is a re-pledge of property that is collateral for a mortgage loan issued but not paid in full, under a new property encumbrance agreement.
Lenders can be either different institutions/persons or the same mortgagee (bank), only for different loans.
It is important to understand why a subsequent mortgage is needed at all. The most common situation is refinancing an existing loan, that is, refinancing on more favorable terms from another bank. During the re-registration period, which may take some time, a new encumbrance is placed on the property. Then, when the final settlement is made with the first creditor bank, the pledge in its favor will be canceled.
The second situation is when the borrower finds himself in a difficult financial situation and is forced to take out another loan secured in the form of existing real estate. The law does not prohibit encumbering the same object several times.
Important! In simple words, the same property can be pledged under several loans. This is the essence of a subsequent mortgage - the property is encumbered in favor of two mortgagees at once.
