REAL PROPERTY MORTGAGE
1. DEFINITION
A real property mortgage is a lien against real property that
does not become part of the creditor’s possessions, and as any real
right of guarantee, secures the fulfillment of an obligation by
empowering its right holder to promote the sale of the mortgaged
property at the price offered, in case the obligation is not
fulfilled.
A real guarantee is created upon assets not given to the
creditor. In case the obligation is not fulfilled, the
guarantee gives the creditor the right to receive his payment by way
of these assets, all in accordance with the law.1 The Spanish word for
mortgage, hipoteca has a Greek origin, with the meaning supposition: the action or effect of putting one thing
under another, of substituting, adding or using it. In this
way, a mortgage is something used to hold, support, or secure a
certain obligation. For the mortgagee, it consists of securing
a credit or the fulfillment of an obligation by holding a property
belonging to the mortgagor, or a third party for spontaneous
compensation. For the mortgagor or any third party representing
him, mortgaging is like encumbering real property to pay for a debt
or obligation, in case it is not fulfilled.2
A mortgage is a real right upon real property, in order to
guarantee the performance of an obligation or duty.3
Josserand defines mortgage as a real and undivided
guarantee that consists of the encumbrance of the debtor’s property
to the fulfillment of some obligation without dispossessing the
constituent and by allowing the mortgagee to seize that property and
have it sold at maturity or due date. No matter who has it, the
mortgage will be paid in full to the other creditors.
2. BASIC CHARACTERISTICS
The following are the basic characteristics of a mortgage:
1) Real Right: It is called “real”
because it consists of a direct and immediate power over property or
real estate. Unless the property belongs to a third party, the
right holder can make his power effective, even against their
will. The reason is that as a real power, it reaches the
property and is effective regardless of the person holding
it. It is real because it falls upon real property, which, as
any real right of guarantee, secures the fulfillment of an
obligation, through the concession of direct and immediate power
over someone else’s property. This power entitles the right
holder to transfer the property in order to have the money to cancel
the secured obligation or take the amount established as sanction
for the non-fulfillment (Article 409, Civil Code).
2) Accessory: A mortgage is
considered an accessory because it is issued as a way to guarantee a
principal obligation. In this way, all what affects the
principal obligation, will also affect the mortgage.
For the mortgage to be an accessory it does not have to secure an
existing obligation, it just needs to be issued in order to secure a
specific obligation. Otherwise, there would be no reason for
the mortgage to exist; it depends on an obligation. Therefore,
it is understood that a mortgage is not issued until an obligation
develops (conditional, future, etc.) Example: A mortgage
securing an overdraft in a current account.
3) Indivisibility: With the integral right of guaranty over
the entire property, an obligation is secured until it is
fulfilled. Therefore,
a) the payment of
part of the debt does not give the right to ask for its partial
payment.
b) the division
of the mortgaged property does not give the right to ask for the
division of the entire guaranty right; there is a unilateral
guaranty right to each one of those parts and is enforceable over
each or all of them at the same time.
The mortgage falls upon every one of the parts of the
property. If the property were divided, the acquirer of a
portion cannot demand its partial cancellation in proportion to his
share without paying the total value of the mortgage. Based on
this same principle, the mortgagor who makes a payment lacks the
faculty to claim the release of a specific part of the
property. All he can claim is that the general mortgage be
reduced according to the amount that has been paid (Articles 415 and
416, Civil Code).
4) Specialty or Specialty Doctrine: A mortgage is
characterized by the specialty doctrine, both, in specifying the
mortgaged property and in fixing the amount for the obligation in
guaranty. (Article 413, Civil Code)
As a consequence of the specialty doctrine, when the
mortgage is issued, the value of the property must be established in
a definite way. Thus, any interested person will know easily,
safely and at any time, the maximum value of the obligation;
besides, it will be guaranteed that the owner is entitled to
transfer the property or acquire new resources through the
imposition of other minor mortgages.
Besides determining
the property, the mortgage can only fall upon alienable property or
rights. The mortgage aims at demanding the sale of the
mortgaged property in case the principal obligation is not
fulfilled. The mortgage could not achieve its goal if the
property were inalienable; therefore, the property must be in trade,
alienable and specific.
5) The constituent cannot be dispossessed from his
property: In the case of a mortgage, its constituent cannot be
dispossessed from his property. The mortgaged property remains
under the power of the constituent mortgagor or third
party. The mortgaged property still belongs to its owner, and
the same is true for the group of properties to which it extends by
incorporation, destination or express agreement. Therefore, the
owner can make use of the property and enjoy all the intrinsic
benefits without affecting the guaranty he constituted. The
value of the property will then multiply through this intelligent
and subtle credit system.
In this way, the mortgage’s constitution does not give the
creditor any faculty to enjoy the mortgaged property; it only gives
him the privilege to pay with it the amount of his credit. The
property owner still possesses it and may exercise all attributes of
domain that are compatible with the right of the person in favor of
whom the security has been established.
6) Recording the Mortgage: The doctrine in
general considers that for a real right of guaranty or mortgage to
develop, it must be recorded in the Public Registry.
In Costa Rica, the mortgage must be recorded in a public
document (for the mortgagor, owner and creditor’s safety). For
the mortgage to be legal, it must be given through public deed, or
else, it will not be recorded in the Registry. This requirement
is mandatory for the purposes of the mortgage. Through this
action, the creditor’s rights or those of third parties that are
interested in knowing about the mortgage will be protected and the
mortgage will be executed.
7) Concession of Persecution, Sale and Payment:
a) Persecution is
characteristic of any real right (with some known
exceptions).
b) Sale
action: only inherent to those real rights of guarantee.
c) Preferred payment: It is important and necessary
to distinguish between preferred payment and preference because of
rank, degree, quality and date in which the rights were
constituted.
d) Preference of
Payment: Characteristic of real rights of guarantee, since it
assumes that the value of a property is used to pay some credit or
principal obligation. In the case of bankruptcies, the
mortgagees have preference of payment.
e) Preference
according to rank: Preference according to rank, degree or date
of the mortgage’s constitution is present in different real rights,
either principal or accessorial.
There may be several mortgages upon a single
property. The constitution of a mortgage prevents the
establishment of others for the benefit of third parties, because
with it, the rights of the mortgagee previously favored will not be
damaged; this mortgagee has a priority right in relation to future
mortgagees. Therefore, in accordance with the date of submittal
or what was established in the deed, mortgages can have different
degrees. When a mortgage disappears, there may be several other
mortgages over a property. The minor one takes the place of
the other and the rest ascend one level, following the order in
which they were established.
3. TYPES OF
MORTGAGES
Mortgageable
property:
The mortgaged property must be alienable and
immovable. In this way, the mortgage can fall upon objects or
rights; it should be a property or a real right, which can be
alienated and registered in the Public Registry (since it is
necessary to record the mortgage in the Registry, the mortgaged
property must be recorded as well).
Since imposing the lien involves the possibility of a
forced sale of the property, it is necessary, as indicated in the
last paragraph, that the committed property can be sold. Now,
not everything that can be sold is susceptible of being mortgaged
(Article 410, Civil Code).
Property that cannot be alienated: Personal
property
(The guaranty is called
“security”).
a. The benefits or pending leases originating from the
separation of the property in which they were produced, since they
are an accessory of the property while they are pending and because
they are regarded as personal property once they are separated from
the real property (see article 533, Code of Commerce).
b. Personal property placed permanently on a building,
but separated from it: Personal property fixed on a
construction or building, separated from it, because of their
immovable nature only because of their adherence to the building or
construction.
The easements, other than those that are part of the
dominant property: These real rights are accessorial and lack
independent legal existence from the property.
The rights to use the property and dwell there cannot
be mortgaged.
Benefits from the accessories and improvements of
the mortgaged property:
Even if not mentioned in the public document in which the
mortgage was issued, according to Article 411 of the Costa Rican
Civil Code, such a mortgage includes any kind of pending benefits
during the foreclosure, including natural accessories and
improvements made in the mortgaged property (whether they were
necessary, useful or for luxury). The following are not
included: movable property used for voluntary improvements and which
has not been incorporated into the property or which can be
separated from it without causing damage is not included in the
mortgage; insurance compensations, forced expropriation, damages
coming from the property and in the buildings ruled by the Law of
Horizontal Property, the right to joint ownership, which in the case
of common elements, belongs to the owner of a floor or unit.
In addition to and in accordance with Article 411 of the
Civil Code, properties cannot be consolidated if they are
independently mortgaged in favour of different mortgagees. When
only one of the properties to be consolidated is mortgaged, the
guarantee is extended, unless provided otherwise.
Constitution of the mortgage:
Except in the case of legal mortgages, mortgages are issued
through the posterior recording in the corresponding section of the
National Registry. The mortgage’s validation must be given in a
public document (Article 21, Clause B of Executive Right 9885-j,
April 16, 1979, reformed by Executive Decree 12247-j, January 24,
1981 – Public Registry Regulation). It must meet all the
requirements established in Article 73 and 75 of Law 39, January 5,
1943 and its reforms – Notary Organic Law and Article 465 of the
Civil Code. If this procedure is not followed, the mortgage
cannot be recorded in the Public Registry, which is mandatory in
order to complete information such as the purpose of the mortgage,
whether it is protecting the creditor’s rights or those of third
parties who want to know about it.
Constituent’s capacity:
According to the general principal, only those who can
alienate are allowed to mortgage, and only those with domain over
property or rights, or with the legal authorization to carry out
acts of domain through legal representation, may
alienate. Thus, Article 410 of the Civil Code establishes that
only that who can mortgage can alienate.
Legal capacity (the power to act) is required. In the
case of minors or disabled individuals, legal authorization is
needed. It is also important to mention that the mortgage can
be carried out through a representative.
Mortgage by consent:
As a real right constituted over real property, in order to
secure the fulfilment of an obligation, a mortgage can be given by
the mortgagor in favour of a third party over someone else’s
property with the consent of the property owner or mortgaged
right.
For such purposes, the owner and the mortgagor must appear
in the public deed.
Modifications:
When modifying a mortgage, we must also refer to the
cession of mortgage credit, transference of the mortgage, extension
of the mortgage, division and consolidation of the mortgaged
property, as well as the postponement of the mortgage degree.
Assignment of the mortgage credit and transfer of
the debt and mortgage:
Since the right of mortgage serves as guarantee to the
secured credit, it is transferred with it (only with it and always
with it), thus, changing the right holder, who then acquires that
right.
At first, credit transfer is possible for any reason, no
matter if it is a purchased title or a free title. But if it is
contractual, it should be established so in public deed and duly
recorded. The mortgagor must know about it (if this information
is omitted, the transfer will be valid, but the transferor will be
responsible for the damages that the transferee may suffer as a
consequence of it).
Transfer of the debt, mortgaged property and
transfer of the mortgage to secure another debt:
Just like the transfer of the secured credit
assumes the transfer of the mortgage, in principle, since they are
not linked as the credit’s title and the mortgage title (contrary to
the guaranteed credit) of the debt and the mortgaged object are,
each can head its way; first because it does not have to belong to
the debtor, and then because even if it does when it is mortgaged,
he can alienate it later in a way that he will continue as debtor,
but the object will belong to someone else.
The transfer of the mortgaged property does not affect the
right of mortgage because the latter liens it regardless of who owns
it (in other words, the property is transferred along with the
lien). Similarly, the transfer of the secured debt does not
affect the right, regardless of who the mortgagor is (in case the
debtor has changed).
If the mortgaged property is sold and the seller and
buyer had agreed that the latter would subrogate not only in regards
to the responsibilities derived from the mortgage, but also in
regards to the personal obligation guaranteed through it, the first
will be free from such obligation with the direct or implicit
consent of the mortgagee. This would mean that the mortgagor
would change, which is possible as in any other case where there is
no mortgage guarantee and with the creditor’s consent. As we
said before, both the credit and the mortgage remain
unchanged.
If the transfer of the guaranteed obligation had not been
agreed upon, but the buyer had deducted its value from the selling
price or he had withheld it and at the obligation’s maturity it were
fulfilled by the mortgagor who sold the property, he would
substitute for the creditor until the buyer repays the total amount
withheld or deducted. This second hypothesis is actually
two-fold: with the deduction and retention of the amount secured
with a mortgage, (quantity deducted from the value of the property)
the mortgagor does not change; however, if the mortgagee is paid by
the mortgagor and not by the buyer, who would gratify him with the
amount deducted from the price, that mortgagor has the right, over
the buyer, to receive the payment for the amount deducted, which was
not used to satisfy the debt. Such a right, which is not
the credit guaranteed with the mortgage (because there he continued
as first mortgagor) is secured until cancelled with the mortgage
that guarantees the debt, free by the payment made by the
debtor.
As we can see, the mortgage is transferred and 1) is
acquired by the mortgagor of the first debt, and 2) secures the new
debt of the buyer with the previous mortgagor.
Extension:
A possible extension of the mortgage is also regarded as a
modification so it can cover unpaid interests, for being
inadequate.
Division and consolidation of the mortgaged
property:
The division of the mortgaged property occurs when the interested
parties agree on dividing the mortgage among the resulting
properties. Article 669 of the Civil Code establishes, in the
last paragraph, that no document indicating acts of segregation,
material division or consolidation of mortgaged real property with a
common mortgage or of mortgage certificate will be registered in the
Public Registry if they do not adjust to Articles 4089 and 411,
second clause of the Civil Code.
In this regard, article 409 of the Civil Code establishes that:
“The mortgaged property can be divided or consolidated
once. But in order to do the same with the resulting
properties, the debtor or owner of the property must have the
mortgagee’s consent, making the respective guarantee substitution
for each instance.”
The same article states that in case of lot segregation, the
procedure will be the same as for material resolutions. In both
cases, no portion will be released if the parties do not establish
the others’ responsibilities, all in accordance with Article 413 of
the same body of law.
On the other hand, Article 411 of the Civil Code mentions in its
second clause: “There can be no consolidation if the properties have
independent mortgages in favor of different mortgagees. When
only one of the properties to consolidate has a lien, the guarantee
will be extended, unless stated otherwise.”
Proposition for type of mortgage:
The change in rank is not rigorously an alteration or
modification of the right of mortgage itself.
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