Mortgage as Bank Security
The Faculty of Law at Al-Najah National University in Nablus hosted a Birzeit Legal Encounter entitled ‘Legal Aspects of Mortgage Insurance: One of the Guarantees for Bank Facilitations’ in collaboration with the Institute of Law and the Faculty of Law and Public Administration at Birzeit University on Sunday 29/03/2009. The audience was composed of students and workers in the banking sector.
Prof. Ali Sartawi; Professor of Law at Al-Najah University, started the meeting by welcoming the audience and emphasising the importance of collaboration between Al-Najah and Birzeit universities. He further stressed the need for cooperation and coordination between the faculties of law in Palestine and the Institute of Law at Birzeit University for the dissemination of the legal and the best practices in the legal profession.
The Director of the Institute of Law Dr. Ghassan Faramand pointed out the importance of educating and arming fellow citizens with the legal, scientific and practical knowledge, for they are the hope for the future. Dr. Faramand also stressed on the role of promoting and supporting joint activities of cooperation among local educational institutions with an interest in improving and enhancing the role of the legal community and decision makers.
Dr. Khaldoun Abu Al-Su’ud, Legal Counsel at the Arab Bank began his speech by shedding light on the importance of law in the daily life and explained the concepts related to the long and short-term loans granted by banks to their agents, who range form individuals to companies and institutions. Dr. Abu Al-Su’ud explained that all examples he mentioned are amongst the basic banking operations that banks require to grant loans.
Dr. Abu Al-Su’ud explained the loan mechanisms and procedures followed by banks when granting loans, shedding light on collaterals and guarantees that the agents present to banks as safeguards for payment of instalments, which can be divided into estate and non-estate sureties. The later includes shares mortgaged for a company, personal guarantee of receiving their salary through the bank, while complex guarantees are usually an estate.
Dr. Abu Al-Su'ud spoke about the legal and technical aspects of this type of guarantee as a basic and important pillar in the implementation of grants and loans on estate mortgaging. He presented a definition for estate mortgaging and clarified its characteristics. The guest explained the difference between estate mortgaging and mortgage insurance. Dr. Abu Al-Su'ud defined mortgage insurance as a contract between the indebted mortgaging party and mortgagor creditor party, where the mortgaging party is the original person in debt. He explained that the mortgaging person could be a third party, i.e. the guarantor, where the contract insures a real estate right as a mortgage in return for the debt. He also defined the mortgaged real estate as a contract between the creditor and the debtor concerning the real estate right that gives the creditor the right to precede ordinary creditors and the mortgagors succeeding in rank. It also follows the real estate mortgaged for other parties.
Dr. Abu Al-Su’ud identified the characteristics of official mortgage contracts or insurance mortgage. He showed that it is a binding real estate right and that it is an independent mortgage, but to the contrary, it is bound to the original debt, which exists so long that the debt exists, and ends when the debt is settled or when it is proved invalid or when invalidated. Official mortgage is also characterised by the fact that it is a real estate right. It can only be established and contracted upon by mortgaging real estate property even in the case when the original debt is a moveable property. Official mortgages as well are indivisible rights from two perspectives: - the mortgaged estate and the insured debt. They both are subject to the rule that says (any part of the real estate guarantees all the debt, and any part of the debt is guaranteed by the entire real estate). He paraphrased the rule saying that every part of the real estate guarantees the entire debt in that the creditor is entitled to recover the entire debt from any part of the real estate in case it is distributed or divided between the shareholders.
The entire real estate guarantees any part of the debt. For example, when the creditor (mortgagee) passes away, their personal right is distributed on the inheritors, and as such, every inheritor has the right to seize the property, and implement it to satisfy their right, even if the value of the property is greater than the value of the debt. The debtor has no right to oppose in the light that the inheritor owns only a part of the credit. However, even when this is what should be done, consideration should be given that he creditor should not abuse the right, otherwise law should intervene.
On the other hand, Dr. Abu Al-Su’ud spoke about the establishment of real estate mortgaging and its important practical aspects as to how to lay its foundations, and the conditions for this particular purpose. He alluded to the importance of making the mortgaging contract official by notarizing on an official document to protect the interests of both, the mortgagee creditor and the mortgaging debtor. He explained that notarizing the mortgaging contract onto official form aims at making the contract a valid legal document. This document is referred to as (bill securing immovable property) and its terms and conditions are drafted following the Jordanian Immovable Property Debt Insurance law number 46 for the year 1953, currently in force in the Palestinian territories. Dr. Abu Al-Su’ud further emphasised that failing to notarize the mortgage contract onto the official form makes it null and void.
Dr. Khaldoun explained the procedures to be followed for the completion of such transaction (transactions regarding insurance or mortgage) by the land registry so that both the creditor and the debtor abide by the instructions and conditions that should be followed:
Any of the parties involved, debtor or creditor alike, fill in an application for the insurance and registration, at the office of the director of registration at the land registry, for authentication and approval. All of the fields in the application need to be filled, and include the following fields: the name of the village, the lot, and the parcel of land, its size and particulars about the ownership shares, the amount of debt, names of both the debtor and the creditor and the duration of the debt. In case the debtor is a minor, a permit needs to be obtained from a Shari’a Judge or from the concerned Ecclesiastical Court for insurance.
When all conditions for insurance application are met, it is checked for any restraints preventing the transaction. The application is checked for containing all the necessary stamps and supporting documents, as revenue stamps, clearance certificate from the Finance Department and the concerned municipality, a valid certificate of company registration, power of attorney authenticated by the registrars office, in case the debtor or creditor acts upon a power of attorney issued by the Notary Public in the territories of the Palestinian National Authority or by one of the Palestinian Embassies, otherwise approved by Land Registrar in case the documents were prepared and presented by a notary public of a foreign country (Arab or non-Arab alike), then duly authenticated by the Ministry of Justice.
The officer in charge prepares five copies of the insurance policy. In case the creditor is of a foreign national, the officer in charge is to inform that party that they may not make the purchase unless approved by the Council of Ministers, and this approval is clearly stated in the field marked ‘conditions’ on the application. The same applies in the case when the creditor is a nominal entity such as banks or authorised companies.
An Insurance verification fee of %1 of the value of the debt is applied, in the case the real estate in question is a residential apartment and/or a plot of land on which there exists a construction or a building, and %0.1 Insurance verification fee is applied when the real estate is a vacant plot of land with no constructions or buildings.
Oral and written consent of each party involved regarding the contract is documented in front of the Registration Officer, or delegated official, who shall then witness the signing the of insurance registration log located at the Registration Directorate in which the year, month and serial number is logged in. The registration officer or the delegated official shall also be responsible for the age verification of the parties involved and ensured that both parties are consenting adults.
The official registers the number of the insurance bill, its date, the shares insuring the real estate, on the folio of the real estate, as well as on the list of transactions which shall be sent to the Centre of the Directorate to implement it on the red folio.
Each of the debtor and the creditor receive a copy of the insurance contract, while the third copy is kept by the Registration Officer, and the fourth is periodically sent to the Directorate’s main office.
Dr. Khaldoun Abu Al-Su’ud then talked about the effects of mortgaging real estates with respect to the mortgager, the creditor, the debtor and other parties, explaining the difference between the right to precede and that right to follow as two fundamental pillars for safeguarding the rights of the creditor. At the end, the guest clarified the meaning of expiration of mortgage term and its official mechanism.
It should be noted that 144 participants from the public and private sectors attended the foregoing workshop.
The Legal Encounter's Programme is organized in partnership with the Konrad Adenauer Stiftung.
