On July 7, 2015, the long awaited amendments to Serbia’s 2005 Mortgage Act have been adopted. The amendments brought several important changes, primarily aimed at increasing the efficacy of the foreclosure proceedings, but also at eliminating some provisions shown to be obsolete. The following is a brief overview of the aforementioned key amendments.
In terms of mortgage creation, one rather simple improvement is that the person having the direct possession of the real estate is no longer required to give its written statement agreeing with establishing the mortgage over the respective real estate. This should make the procedure of creating the mortgage significantly more expeditious.
One of the most prominent changes in terms of mortgage enforcement relates to the possibility for any creditor, regardless of the ranking of its claim, to initiate the foreclosure procedure. Such creditor will insert in the sale and purchase contract the plan for division of funds acquired through the sale of the mortgaged real estate, among all creditors with higher rankings, and all mortgages will be terminated once foreclosure procedure is completed.
Moreover, thanks to these amendments to the Mortgage Act, after the conclusion of the foreclosure proceedings, if some of the creditors have not managed to satisfy their claims, the mortgage will nonetheless be erased, therefore leaving such claims unsecured. This change should in practice increase attractiveness of any real estate put up for sale in a foreclosure proceeding. With respect to technical issues of mortgage registration, news is that the central register of mortgages is abolished altogether as redundant, given that all the information contained therein are already publicly available through the State Register and the Cadastre.
Finally, though the new and amended Mortgage Act provisions imposed numerous improvements, its integral text continued to provoke controversies in practice. Primarily reason for said controversies is that in April 2015, the Constitutional Court declared that the provision of the Mortgage Act, which excluded the possibility of a lawsuit against the final decision on registration of the notice on the sale of a real estate, is unconstitutional.
Ratio legis of the contested provision was to actually enable the very purpose of “out–of–court” foreclosures, since once the register finally decides to register the notice of a creditor that the real estate is on sale in out of court procedure, creditor could be sure that the procedure is finally completed, and that there is no possibility for challenging it, nor prolongation through often lengthy court proceedings. At the time this institute entered the legal system of Serbia in 2005, it represented a novelty, offering certainty to creditors that if debtor defaults on its payment, the sale of the real estate would be carried out swiftly and efficiently.
Mortgage Act, as amended in July 2015, still contained the respective unconstitutional provision. However, the newest amendments to the Mortgage Act, adopted on 28 September 2015, do not contain a barrier that, following the final decision of the State Cadastre on registration of the notice on sale, the debtor can initiate an administrative dispute. Such administrative lawsuit generally does not interrupt enforcement of “out–of–court” sales procedure, but under the Act on Administrative Disputes, the court could postpone the execution of the contested administrative decision made by the Cadastre, provided that such execution would cause irreparable harm to the claimant.
With the new amendment in place, it remains to be seen whether the possibility of administrative lawsuit will diminish the popularity of out-of-court mortgage in loan agreements, and to what extent would this affect the credit market in Serbia.
