Mortgage agreement and legal relations in Ukraine


There are two principle legislative acts covering mortgage relations in Ukraine, they are accordingly the Civil Code of Ukraine and the Law of Ukraine "On Mortgage" the Law of Ukraine "On Mortgage" effective as of January 1, 2004 with numerous subsequent amendments, which are continuously included into the same by Ukrainian Parliament.

Thus, clause 572 of the Civil Code of Ukraine provides that on the grounds of a pledge the creditor (holder of the pledge) has the right to satisfy his claims at expense of the mortgaged property before all the other creditors of the same debtor in the event if such debtor (supplier of the pledge) has not fulfilled his obligation, which was secured with the mortgage.

Subsequently the Law of Ukraine "On Mortgage", namely clause 1 of the same, provides the following definition of mortgage:

Mortgage is the type of contractual securities, when fulfillment of contractual obligations is secured (i.e. guaranteed) with the real estate, which is left in possession and use of the mortgager, on grounds of which holder of the mortgage has the right to satisfy his claims at expense of the mortgaged property before all the other creditors of the same debtor in the event if such debtor (the mortgager) has not fulfilled his obligation (i.e. the principal obligation), which was secured with the mortgage.

The principal obligation is recognized as obligation of the debtor under a loan, credit, sale and purchase contract, financial leasing contract, etc. as well as obligation, which appears on the other grounds, which fulfillment is secured (guaranteed) with the mortgage.

The mortgager is recognized as a private person or a corporate entity, which mortgages the real estate in order to secure fulfillment of its own obligation or a third party's obligation before the holder of mortgage. Accordingly the mortgager can be the debtor itself or a third party, which is considered to be the financial (property) guarantor.

The holder of mortgage is recognized as the creditor under the principal obligation.

The debtor is recognized as the mortgager or the other entity (person), which is responsible before the holder of the mortgage for fulfillment of the principal obligation.

Clause 3 of the Law of Ukraine "On Mortgage" provides that the mortgage can secure fulfillment of any existing or future obligation or can be used in order to satisfy a claim, which may appear in future on the grounds of a contract, which was duly effected.

Mortgage is considered to have the secondary nature as concerning the principle obligation and is valid until the moment of termination of the principle obligation or until the moment of expiry of the mortgage agreement.

Clause 4 of the Law of Ukraine "On Mortgage" provides that the mortgage encumbrance of the real estate requires the state registration. If parties of the mortgage agreement have failed to do so, the mortgage agreement is still valid therewith claims of the mortgage holder are considered to have no priority before claimed of the other creditors to the debtor.

The descriptive list of mortgageable assets is given in clause 5 of the Law of Ukraine "On Mortgage", which provides that the mortgageable assets include a single or several real estate objects on the following conditions:

- if the mortgaged real estate is owned by the mortgager;

- if the real estate can be alienated by the mortgager and can be used in order to satisfy claims;

- the real estate is registered in accordance with the legal procedures provided as the allocated in kind object of property (ownership).

Therewith the mortgageable assets can include construction in progress objects or other real estate, which will be acquired in ownership by the mortgager after signing the mortgage agreement on condition that the mortgager can confirm with valid documents his right to acquire such real estate in future.

A part of the real estate object as well can be included into scope of the mortgage agreement only after the same will be allocated in kind and registered in accordance with Ukrainian legislation.

Clause 5 of the Law of Ukraine "On Mortgage" also provides that the property is transferred into the mortgage together with all accessories of the same if otherwise is not provided by the mortgage agreement.

Clause 9 of the Law of Ukraine "On Mortgage" provides legal regulations as concerning the possession, use and disposal of the mortgaged property (i.e. object of mortgage). Thus the mortgager has the right to use the pledged property according to the designation of the same, if otherwise is not provided by the law. Therewith using the pledged property the mortgager has to keep the property in the initial state considering therewith the reasonable wear & tear of such property.

The mortgager also has the right to collect fruits of the mortgaged property if otherwise is not provided by the mortgage agreement.

Therewith the following rights also belong to the mortgager subject to the appropriate preliminary consent of holder of the mortgage:

- to construct, to destruct or to make the capital repair of the building (construction), which is located on the land plot, which was mortgaged, as well as to improve significantly such land plot;

- to transfer the mortgaged property to the next (subsequent) mortgage;

- to alienate the mortgaged property;

- to lease, rent the mortgaged property as well as to transfer the same for use or for the joint business activities.

The mortgager has the right to make a will as concerning the mortgaged property as well.

Clause 16 of the Law of Ukraine "On Mortgage" provides that construction in progress can be mortgaged as well through appropriate transfer of rights for the land plot.

As provided by clause 17 of the Law of Ukraine "On Mortgage", the mortgage is terminated in the event:

- of termination of the principal obligation, which was secured with the mortgage or expiry of the mortgage agreement;

- if the mortgaged property was sold in accordance with the law;

- if the holder of mortgaged property becomes the owner of such property;

- if the mortgage agreement was recognized to be void;

- if the mortgaged property has become destructed and was not restored by the mortgager.

And the last very important issue of mortgage in Ukraine is the essential terms and conditions of the mortgage agreement, which are provided by clause 18 of the Law of Ukraine "On Mortgage" together with other requirements for the mortgage contract in Ukraine. Thus the mortgage contract in Ukraine is to be made in the written from with notarization and is to contain the following terms and conditions, otherwise can be recognized to be null and void on the grounds of a court award:

- for mortgager and holder of the mortgage, who are the corporate entities:

-- residents of Ukraine – name, registered address and identification number in the Uniform State Registry of Corporate Entities and private entrepreneurs;

-- for non-residents of Ukraine – name, registered address and state of registration of such corporate entity;

- for mortgager and holder of the mortgage, who are the natural persons:

-- citizens of Ukraine – the first name, the last name and the middle name, the residential address, personal identification number (tax number) in the State Registry of Natural Persons – tax and other state duties payers;

-- for foreign citizens and persons destitute of nationality - the first name, the last name and the middle name (if any), the residential address outside Ukraine;

- scope and amount of the principal obligation, terms and conditions of fulfillment of the same and/or a reference to the deal, which establishes the principal obligation;

- description of the mortgaged item, which is enough for identification of such item and/or the registration data of the same. If the mortgaged item is a land plot then designation of the same is also to be stated in the mortgage agreement;

- a reference about issuance or absence of the mortgage bill.

The above information is provided herein in educational and informative purposes only. It is provided that you have to get appropriate legal advice as regarding the legal and other issues of your interest in Ukraine in order to have the exact, extensive and up-to-date legal and other related information.

Do not hesitate to contact us if you have any questions or issues of legal nature, our Law Firm is working for you and our experienced legal specialists are always ready to help providing the client with appropriate legal consultations, legal reports and summaries, reasonable legal advices and all the other required legal support, assistance, coverage and protection.

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