Legal Framework of Pledges and Mortgages

The pledge means that the item offered as security is handed over to a third party or the creditor, who may seek a sale if the obligation is not satisfied. A pledge, therefore, requires the transfer of possession to the creditor. This dispossession is replaced by registration in certain cases where the legal system permits, specifically for objects such as individual fruits, animals, and machinery. This follows from Article 54 of the Law of Chattel Mortgages and Pledges Without Transfer of Possession of December 16, 1954; the constitution of a pledge without displacement of possession is governed by the aforementioned law.

Once possession is received, the creditor is entitled to offset these assets against those owed. In case of a breach of the obligation, the creditor is entitled to be paid via the obligation secured by the pledge. The creditor can sell the item before a notary, with a citation of the debtor, through a public auction, or by judicial authorization and the commencement of the assessment procedure. If, however, the debtor meets their obligation, the creditor must return the item under the same conditions in which it was given.

Characteristics of the Mortgage

The mortgage is a charge on property or inalienable rights to such property; for example, it can affect the right of usufruct. Mortgaged property may also be subject to a second mortgage, though the first mortgage retains priority. Like the law of December 16, 1954, a chattel mortgage can be placed on items listed in Article 12, such as commercial establishments, cars, motor vehicles, and industrial machinery.

However, both the chattel mortgage and the pledge without dispossession have been little used in practice, given the importance of property traffic and the legal protection provided by property registration. The Civil Code requires a mortgage document to be entered into the Property Register.

Core Principles of Mortgage Notes

1. Real Rights: The mortgage is a real right subject to goods directly borne by the fulfillment of an obligation, regardless of who the owner of the item is. Therefore, the owner can sell the mortgaged item, but it is transmitted with the burden of the mortgage. Since validity requires registration, any third party acquiring the property will acquire it with the existing load. The owner cannot perform actions that put the property in danger.
2. Obligation Coverage: The mortgage includes interest if the obligation guarantees results, even in the case of bankruptcy, unless otherwise agreed. However, the mortgage does not extend to legal costs and the costs of the foreclosure procedure unless specifically agreed upon.