What does a mortgage prenotation mean?
Mortgage prenotation is, according to the Civil Code and the Code of Civil Procedure, one of the most powerful means that a lender has in order to ensure their claims on money against their debtors. In practice, for instance, it is very often required as a condition to agree on the conclusion of a loan agreement with natural and legal persons. Banks request, or may request the registration of a mortgage prenotation on a property in order to approve a loan.
A legal check for the registration of a mortgage prenotation, according to Article 1274 of the Civil Code, is provided by a court decision, order for payment, mediation minutes and by any other judicial documents or orders recognized by the law as legal check for the registration of prenotation.
Simply stated, a mortgage prenotation is a charge in rem, same as a mortgage, an easement, a seizure, which is borne by the property of the debtor, i.e. it follows it through any subsequent transfer, until the claim on money of the (encumbered) lender is satisfied.
A mortgage prenotation is defined as a type of mortgage, which is subject to the suspensory condition of two conditions being met in order to be converted into a final mortgage. The prenotation only grants the right of pre-emption for the acquisition of a mortgage. When the claim is finalized, the prenotation is converted into a mortgage which is considered to be registered from the day of the prenotation.
The collateral nature of the mortgage prenotation ensures that the lender will be entitled to a mortgage in the order that their prenotation was registered. In simple words, when the prenotation is converted into a mortgage, the day of registration of the latter one shall be the day of registration of the prenotation and the holder of the prenotation right lender shall be benefited as if the mortgage has been registered from the beginning.
Multiple mortgages of different lenders may exist on a property. The “first come, first served” principle shall apply. That is, in case that the property is auctioned, the creditor who has the corresponding order in the mortgage prenotation shall receive the money.
Registration of a mortgage prenotation
The registration of a mortgage prenotation forms one of the interim measures which may be ordered by the court which also defines the insured amount. This right shall be granted to the lender who shall not be entitled to register a mortgage in order to ensure their claim on money, as mentioned above, through a future coercive order on the mortgaged property. The procedure shall be carried out by application. What is included in this application? The reasons why there is a potential risk or an emergency to lose the possibility to satisfy the lender and the need to register prenotation on a property owned by the debtor are mentioned.
That is, the registration of a mortgage prenotation takes place with the consent of the property owner and in particular when a loan has been granted. However, it may take place without the consent of the property owner to ensure the claim of the lender. It is customary for a Bank, for example, to issue an order for payment against one borrower and to register a mortgage prenotation of which the property owner has no knowledge.
Elimination of a mortgage prenotation
Regarding the elimination of a mortgage prenotation, Article 1330 of the Civil Code states three ways of implementing it:
- With the consent of the lender, provided in the same way as the elimination of a mortgage.
- By a court decision revoking the registration of the mortgage prenotation.
- If ninety days have gone by from the final award of the claim on money without the prenotation being converted into a mortgage.
The process includes the submission of application on the elimination of a prenotation to the court, however it is important to clarify both ways of eliminating the mortgage:
- By consent: The debtor, for instance, after repaying their loan, requests from the bank a proof of repayment which then their attorney submits to the competent court. That is, both parties agree and the decision removing the mortgage prenotation is issued.
- By a court decision revoking the decision ordered with its registration or the decision ordering its elimination. In both cases, the decision on the elimination of a mortgage prenotation shall be submitted to the competent Land Registry of Cadastral Office.
Registration and elimination of a consensual mortgage prenotation with a legal act
With Law 5095/2024, the possibility to register and eliminate a consensual mortgage prenotation with a legal act was established. This is the most common procedure after the granting of a housing loan and the removal of the prenotation in case of repayment of the loan.
In particular, this act constitutes a valid document for the registration of a consensual mortgage prenotation and as well as for the elimination of a consensual mortgage prenotation, which shall be issued by an attorney, member of the Bar Association of the Prefecture where the Court of First Instance to which the application is submitted is based. The application and the supporting documents may be submitted online. The application on the registration or elimination of a consensual mortgage prenotation must be accompanied by the written consent of the defendant, which shall be obligatorily signed by their attorney.
For the written consent, either a notarial or digitally signed document is required, or a private document which bears a certificate of the authenticity of the signature of the person giving consent by the Citizen Service Centre or any other public or municipal authority. The written consent reflects the agreement of the defendant on the registration of the mortgage prenotation on their property, mentioning the reason and the amount of the debt, as well as the amount of the mortgage prenotation and a description of the property or properties to be noted.
The attorney who issues the legal act shall be chosen from the list prepared and submitted by the Bar Association to the Clerk’s office before the beginning of each judicial year, and shall be selected according to the list’s order by the Clerk in the act of submission of the relevant application.
With a similar act issued by an attorney, the mortgage prenotation may be eliminated or reformed, always with the consent of all contracting parties.
Transfer of a property having a mortgage prenotation
Often, due to inadequate information or absence of legal support, a large percentage of potential buyers hesitate to proceed with the purchase of a property which has a mortgage prenotation because they believe that it forms an obstacle. However, the reality is entirely different!
The transfer of a property having charges such as a mortgage prenotation is possible and safe once the proper procedure is followed. The charge in rem following the property is registered to the competent Land Registry or Cadastral Office. The potential buyer by checking the ownership documents shall be informed on the charge and decide if and when the removal of the prenotation shall take place. It is reasonable that each buyer wishes to acquire a property free from charges and wishes to eliminate the mortgage prenotation before the purchase and sale contract is finalized. In order to achieve this, in case that a property has a mortgage prenotation due to a loan, the seller shall be required to provide the buyer with a letter of the bank which shows the intention of the bank to remove the prenotation in case of repayment of the debt.
In conclusion, the existence of charges in rem on a property does not form a reason to discourage transfer. The latter one is feasible within the framework of purchase and sale provided that there are appropriate procedures to identify and eliminate such charge, as analysed above.
Attention! The transfer of a property shall be completed and shall exist following the transcription of the contract and not from its signature. The buyer must immediately attend to the transcription of the contract. There are cases where, until the transcription, a new charge may be registered to the property due to the obligations of the seller.
Our office undertakes the support and counselling of principals throughout the process for the elimination of the mortgage in order to make the purchase and sale possible both during the purchase and sale process for a smooth and problem-free completion of the process for all contracting parties.
