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Defaulting on Your Mortgage

In legal terms, a mortgage is interest in land given to a creditor by the owners of a property as a guarantee for a loan.  Generally a mortgage is registered over land, any buildings on it or over the right to build and can even be registered on a building you own on somebody else’s land. Once registered, the mortgage can only be redeemed when the full amount of the loan is repaid and once this happens, an entry is placed on the mortgage deed stating that the mortgage has been redeemed. The mortgage is registered with an entry at the local land registry after a Notary Deed for a Mortgage is presented. It is always registered over a specified piece of land or building or the right to build and for a specified amount of money and only by the owner of the property.

Defaulting on Payments

On the same land or building or right to build, several creditors can register a charge against the value of the property or land.  Should the loan not be repaid and the creditors want their money back, the property may be auctioned in compliance with the relevant legal provisions and from the price obtained for it all loans are repaid to the priority creditors, the first of which, is usually the mortgage lender known as the first charge. Repayments are made to each other charge or creditor in the order that they were registered. After the property is auctioned, all charges are automatically redeemed, but if the price obtained for the property is not enough to cover the repayments of all of the outstanding loans, the creditors who have registered their mortgages last will be unable to obtain their shares and will therefore have to seek damages under general law. Creditors can include other banks who have issues loans, credit card companies and other finance houses as well as members of the public or spouses who have made personal loans and registered a charge against the property or land.

The Loan Term

Every entry of a mortgage or debt in the land register is valid for 10 years only. Therefore if your creditor agrees that the mortgage or debt can be repaid over a longer period the entry into the land register must be renewed for it to be valid. The redemption of the mortgage is made after the creditor has submitted a written request for the recovery of the debt and a declaration of consent, both of which must be certified before a notary public. Evidence for the repayment of the loan must also be presented e.g. in the form of evidence of a default in payments of the loan. It is important to note that even if part of the loan is repaid the burden of the debt still remains outstanding and therefore must be repaid within the terms of the loan. If the sum of the mortgage covers more than one property, partial redemption of the mortgage is possible. In this case, if the debt is only partially repaid to the value of one of the properties, the mortgage over this property can be redeemed and can be considered debt free.

One Mortgage Covering Several Properties

Moreover, most mortgage problems in Bulgaria occur with properties in varying stages of construction, which have been mortgaged in favour of land banks. Therefore if a buyer is purchasing a property in Bulgaria and the property is already mortgaged by the seller in favour of a bank, the buyer should insist that seller repays the mortgage before transferring the ownership to the new buyer, otherwise the buyer could be responsible for repaying the seller’s loan if the seller default on the payments himself. Therefore, we always recommend prior to transferring the ownership before a notary public, a certificate from the land registry to be obtained to show whether the property is free of mortgages and third party interests. It is extremely important to note that when the land is owned by one owner and this owner has also constructed a building on his land, which may be mortgaged, the mortgage automatically spreads over the building and it is not possible to redeem the mortgage over the building without redeeming it over the land as well, which may have implications for the secondary purchaser.

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