Mortgage
In the world of court auctions, mortgage is one of the most frightening words, yet for buyers it is almost always good news. It is a security that a creditor — usually a bank — holds over a property: if the debt is not paid, it gives the creditor the right to have the property sold and to be paid out of the proceeds, ahead of the others. In legal terms it is a real right of security (arts. 2808 et seq. of the Civil Code), which allows the encumbered asset to be expropriated even from a third-party purchaser and gives priority over the price.
Features and subject matter
A mortgage has three features worth knowing: it is accessory (it exists to secure a claim), specific (it encumbers particular assets and for a precise sum) and indivisible (it remains in full on all the encumbered assets and on every part of them). Its typical subject matter is immovable property and registered movable property (art. 2810).
An often overlooked point: a mortgage comes into being with its registration in the land registers (art. 2808). The title alone is not enough: it is registration that creates the right and fixes its rank, i.e. the order of priority when several mortgages encumber the same asset. The holder with the best rank is paid first out of the proceeds.
The three types: legal, judicial, voluntary
Depending on its source, a mortgage is one of three types. It is legal when it arises directly from the law in favour of certain parties (art. 2817); judicial when it is based on a judgment ordering payment (art. 2818); voluntary when it derives from an act of will of the grantor, by contract or unilateral declaration — the typical case is a mortgage loan (art. 2821).
Why a mortgage leads to an auction
Behind a great many auctions there is precisely an unpaid mortgage. When the debt remains unpaid, the mortgage creditor exercises the “reinforced” enforcement action that the security gives it: it starts forced enforcement, the court puts the property up for sale and uses the proceeds to pay the creditors, each according to their rank.
The point that matters: the buyer acquires it free
And here it is, the aspect that changes everything and that many people are unaware of. A property bought at auction does not carry the mortgage with it. With the transfer decree the judge orders the cancellation of the mortgages and attachments encumbering the asset (art. 586 of the Code of Civil Procedure). The asset passes to the successful bidder “purged”, that is, free of encumbrances, while the debts remain with the procedure and are paid — when and to the extent possible — out of the sale price.
This is an important difference compared with other burdens: an easement, for example, remains after the auction; a mortgage, on the other hand, is cancelled.
The myth to dispel: “Do I take over the mortgage?”
It is the number one fear of newcomers, and the answer is no. The former owner’s debts do not become the buyer’s: you do not take over their mortgage. What you pay is the award price and the transfer taxes; the judge cancels the mortgages. Indeed, it is one of the real advantages of buying at auction.
How to check before bidding
The mortgage history of a property is public. You can find it in the mortgage register search and summarised in the appraisal report attached to the procedure: there you can see which and how many mortgages encumber the asset, even if they will then be cancelled on transfer. It is mainly useful for reconstructing the property’s history and avoiding surprises.
On addicta every auction shows the court and the procedure number, so you can trace the documents and check the situation directly at the source.
Information provided for general purposes, not legal advice. In any specific case, the procedure documents and the legislation in force prevail.