Mortgage on the house: what it is and how it works

The mortgage in two words

The mortgage, therefore, is the form of protection through which the creditor (the credit institution that provides the loan) protects its economic integrity in the event that the debtor (the buyer of the property) does not pay the installments of the mortgage relating to the purchase of the house.

The bank therefore protects itself from the eventual insolvency of the customer through the mortgage, which allows the creditor to expropriate the property in question to satisfy his interest.

The mortgage on the house or on other assets is a real right of guarantee according to article 2808 of the Civil Code:
“The mortgage gives the creditor the right to expropriate, also in comparison with the third party buyer, the assets bound to guarantee his credit and to be satisfied with preference on the price obtained from the expropriation. The mortgage may have as its object assets of the debtor or of a third party and is constituted by registration in the real estate registers. The mortgage is legal, judicial or voluntary”.

Mortgage on the house: the three existing types

According to Article 2808 of the Civil Code, there are three different types of mortgage on the house or other property.

• Legal mortgage: is a form of protection required by the creditor when it needs a guarantee on particular types of claims (art. 2817 of the Civil Code);
• Judicial mortgage: is requested following the issuance of a judgment by a judge when there is a sentence that provides for the payment of a sum of money, the fulfilment of an obligation or compensation for damage (Art. 2818, 2819 and 2820 of the Civil Code);
• Voluntary mortgage: provides for the definition of an agreement between the parties in writing to guarantee the creditor. In this type, the most common case is the sale of real estate: the buyer grants the mortgage to the bank for the provision of the loan after the conclusion of a contract (art. 2821 c.c.).

On our blog we will evaluate only the voluntary mortgage because it is connected to the purchase of a house and the opening of the mortgage.

How does the mortgage on the house works

When we choose to buy a house and apply for a mortgage from the bank, we are faced with voluntary mortgage. The so-called mortgage loan is a loan equal to the economic value required by the buyers, in which the object of the guarantee becomes the property itself.

The moment the borrower fails to pay the instalments of the mortgage, he becomes insolvent and the bank can recover the lost value because it has as collateral the mortgage.
Since the value of real estate is subject to various fluctuations, creditor institutions usually require a mortgage of a higher value than the amount granted with the mortgage (which tends to never exceed 80% of the value of the property)in the event of a devaluation of the property market.

When is the mortgage placed on the house?

The procedure for obtaining a mortgage begins with the expert opinion. The bank organises the visit of an expert to the property to be purchased and defines its value.

To conclude the purchase contract, the notary intervenes that in addition to the conclusion of the deed of sale, will draw up the loan with which the bank undertakes to provide the loan for the purchase of the house and the buyer begins to pay the monthly installments provided for by the mortgage.
The notary will take care of registering the mortgage in the Public Registers and ten days after registration you can check the mortgage on the house with a mortgage.

How to remove the mortgage on the house

To permanently cancel the mortgage on the house you must remove the right of collateral present on the real estate. This right lapses when the buyer ends paying all the instalments provided for by the mortgage and settles the debt he has towards the bank.

The credit institution issues a certificate that it forwards to the competent offices, with which it certifies the removal of the encumbrance from the Public Real Estate Registers. In this way, the mortgage on the house is extinguished and there is no longer any relationship between creditor and debtor.

How long the mortgage on a property last?

The contract that provides for the real right of guarantee on the property, and therefore the mortgage on the house, lasts twenty years from the moment when the encumbrance is registered on the Public Registers.

In the event that a mortgage has a shorter duration, it is extinguished upon payment of the last instalment. If the mortgage has a duration of more than 20 years, the creditor can renew the mortgage after the maturity.

What happens if the mortgage cannot be paid off?

In case you can’t pay the bank’s mortgage payments, you risk losing your home. By virtue of the mortgage right, the bank can act against you by expropriating the tied asset.

An important note: in order to legitimately redeem the mortgaged property, the creditor must comply with the judicial process provided by law.

How to find out if the house is mortgaged

Before buying a property, it is always advisable to check for mortgages on properties. How? There are two ways:

• check the existence of mortgage on the house for real estate. This procedure allows to understand if a property is burdened by any constraints, mortgages or foreclosures and the timing of cancellation of encumbrances;
• check the existence of mortgage on the house by subject. In this way it is possible to verify the presence of any mortgages or collateral rights that a natural person has on one or more properties.

Both services offer the opportunity to know the existing constraints and the rights claimed by third parties on the property of your interest.
An important note: the mortgage certificate lists the formalities relating to a property and therefore the presence or absence of a lien, but does not indicate the economic value of the mortgage.

The three types of formalities of the mortgage certificate

There are three types of formalities:

• the transcription formalities relating to the deeds of sale of the property and changes of ownership of the property;
• registration formalities showing the history of mortgage registrations with the dates, any mortgages and the names of the owners,
• the registration formalities, a real-time update on the status of any mortgage (for example, its cancellation).

In case you need to know how much the mortgage amount is, you should develop the registration formality, relating to the mortgage of your interest, using the mortgage approval service by note, a document containing a summary of the mortgage deed and its value.

With these documents in hand you are able to know whether the property of your interest is mortgaged, for what value and whether the current owner has already extinguished the mortgage on the house.

Why you should know if a property is mortgaged

The mortgage on the house does not compromise the sale or purchase of the property, but the seller has the task of informing the potential buyer of the existence of the mortgage so that the act of sale takes place in the most transparent way possible.
Attention, however, because the mortgage is placed on the property and not on the person. This means that the debt contracted by the owner of the property remains on the house even if it is sold. Future buyers must therefore take over the mortgage.

In order to verify the mortgage or mortgages present on the property it is sufficient to have cadastral data available: type of property, province and municipality in which it is located, sheet and parcel.

Given the delicacy of these steps, our advice is to always turn to professionals in the industry. Our team of real estate agents, supported by a network of partners and consultants, will be able to support you at every stage, giving you all the necessary support to carry out the appropriate checks during the purchase.