Transfer of mortgages

Concept

The mortgage loan transfer is a somewhat complex institution. It is a legal business, by means of which the mortgagee assigns, with just cause, its credit to a third party. Who would be the new assignee creditor, which is subrogated in its position. Later on we will see the intervening subjects and their effects.

Regulation

Article 112 of the Civil Code (CC) regulates the assignment of receivables in general. It establishes that all rights acquired by virtue of an obligation are transferable in accordance with the law, unless otherwise agreed. The Mortgage Law (LH) refers to it in articles 149 and following.

As we have already mentioned, any assignment of the credit necessarily entails the assignment of the mortgage:

Art. 1528 CC provides that the sale or assignment of the credit includes that of all accessory rights. Such as the bond, mortgage, pledge or privilege.

According to art. 1878 CC and art. 149 LH, the mortgage credit may be assigned or alienated to a third party. Totally or partially, with respect to the formalities required by the Law.

Therefore, the partial assignment of the credit implies the partial assignment of the mortgage. Contrary to art. 1860 CC and 122 LH which enshrine the principle of indivisibility. However, in practice it is admitted. Since the indivisibility of the mortgage does not mean that the credit secured by it is also indivisible.

Finally, art. 149 LH provides for the requirement of a public deed, and its registration in the Land Registry.

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Credit Assignment and Assignment of Litigious Credit in Spain

Credit Assignment in Spain comprises that of all ancillary right thereof, such as any sort of collateral, guaranty, mortgage, pledge or privilege.

Requirements

The subjective requirement of the mortgage assignment affects the assignor and the assignee. It has been discussed whether the general capacity to contract is sufficient for the assignment. Or whether, on the contrary, the assignor creditor must have the capacity to dispose of Real Estate. Without wanting to be exhaustive, we will say that the requirement of the same capacity to acquire as for the transfer of the mortgage loan is in favor. Art. 334 CC.

The legal requirements set forth in the Law of March 31, 2009 must be taken into account. For the case in which both the transferor and the transferee are not credit institutions.

As an objective requirement we find that the mortgage credit must necessarily be transferable.

Limitations and exclusions

It may be limited if:

• The secured credit is non-transferable. Either by its nature, agreement or legal provision. Art. 1257 CC.
• It is a future credit secured by a security mortgage. It may only be transferred after it has been recorded in the Registry that the future obligation has been contracted.
• The amount of the claim is  undetermined and secured by a maximum mortgage. It may not be assigned with full effect until its determination.
• It is an extinguished credit, even if the mortgage has not been cancelled. It supposes the ineffectiveness of the assignment for lack of object. Without prejudice to the public registry faith in favor of the assignee, the requirements of art. 34 LH and 149 LH being fulfilled.

The assignment of credits implies the transfer of a legal business. Therefore, it must be taken into account that the following are excluded:

• The hereditary transmission.
• The legal subrogation.
• The purchase and sale of mortgaged properties with discount or retention, foreseen in art. 118.2 LH.
• The subrogation by payment in an executive procedure, art. 659 LEC.
• The subrogation by adjudication in the forced alienation, art. 670.5 LEC.

It can be excluded by a previous agreement:

It would be admissible from the civil perspective, by virtue of art. 1112 CC.

From the perspective of mortgage law, its registration in the Registry is debatable. The doctrine is divided between:

• Those who affirm its possibility of registration, since it allows to know the extent of the right by limiting the faculties of the acquirer and,
• Those who deny such possibility, since it would constitute a prohibition of alienation contrary to art. 27 LH that rejects its access.

Parties involved

The parties involved in the mortgage assignment are the assignor and the assignee.

As regards the assigned debtor, it should be noted that he is not the subject of the assignment. In addition, his consent is not required, as stated by the High Court in its ruling of July 2, 2008. In short, it states that this bilateral business is mainly between the assignor and the assignee. The assigned debtor will not be subject to it, since he is not a party to this business. For this reason, he does not have to give any consent to it.

From this consideration, the only repercussion that this legal business produces on the debtor is deduced. That is exclusively, the observance of certain rules that regulate the legal consequences of the payment made by the latter. We will see it in the effects of the assignment on the debtor later on.

As regards the solvency of the debtor, we must differentiate whether or not the creditor assumes responsibility for it.

Under Art. 1529 CC, the assignor shall not be liable for its solvency, even if it was prior and public. Unless expressly stipulated otherwise.

When the assignor is liable for its solvency in good faith, and in the absence of stipulation as to its duration, it shall be one year. To be counted from the assignment of the credit if the term has already expired.  Art. 1530 CC.

Effects

A distinction must be made between effectiveness inter partes, with respect to third parties and the debtor.

1. Effectiveness inter partes

Pursuant to Art. 149 LH, it requires a public deed and registration. Regarding the need for registration, the SC denies its constitutive nature. Thus, the High Court understands that its abscence does not prevent the assignee from executing the mortgage through the summary judicial procedure. However, a large part of the doctrine considers the contrary. Fundamentally because if the registration of the mortgage is constitutive in nature, its assignment must also be constitutive.

2. With respect to third parties

Only the registration is required, in accordance with the provisions of arts. 32 and 144 LH.

3. With respect to the debtor

Paragraph 1 of article 149 LH has eliminated the need to notify the debtor of the mortgage assignment. The execution of a public deed and its registration is sufficient. However, the foral civil legislation of Catalonia does establish the obligation of notification of the mortgagor. And, if applicable, the registered holder of the mortgaged property.

Art. 1527 CC establishes that the debtor who satisfies the credit to the creditor (primitive), before knowing the assignment, will be released from his obligation. Now, with the new wording of art. 149 LH it must be understood as limited to credits or loans not secured by mortgage.

Therefore, the effects differ as to whether:

• The debtor has been notified:

He will only be released from his obligation, and the consequent cancellation of the mortgage, if he makes payment to the new creditor (assignee).

• The debtor has not been notified:

According to art. 176 RH, when no such notification is recorded in the Registry, and the latter has paid the assignor, it may be cancelled. By means of a document evidencing such payment, without prejudice to the responsibilities of art. 151 LH.

Therefore, the cancellation of the mortgage credit is only possible by means of a letter of payment from the assignee creditor and not from the assignor.

Conclusions

The assignment of a mortgage loan is a complex legal transaction.  In the case of an assignment of a credit secured by a mortgage, the mortgage is assigned since the mortgage is always an accessory to the credit. A partial assignment is possible, where special attention must be paid to its effects.

The parties involved are the assignor and the assignee, but not the debtor, who must not consent to the assignment.

The requirements of the LH must be complied with in order for the assignment to be effective inter partes, with respect to third parties and the debtor. Art. 149 LH et seq.

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