Mortgage Agreements — the Legal Framework
A mortgage is the security device that Georgian law offers over immovable property: under Article 286 of the Civil Code, immovable property may be encumbered so that the secured creditor is entitled, ahead of other creditors, to satisfy the claim from the realisation of the property or from its transfer into ownership. That single sentence contains the economic essence of every mortgage agreement — the creditor looks to the value of a specific asset, and its priority is built into the institution itself.
The Code also makes the mortgage flexible. It may secure a future or conditional claim, provided the claim can be determined at the moment the mortgage is established; and a secured claim may later be replaced by another claim, which requires an agreement between the owner and the mortgagee and registration of that agreement in the registry. For credit lines and revolving facilities this is the feature that lets a single security interest cover a changing exposure over time, and it is the starting point of any well-drafted mortgage structure.
Whose Property Can Secure Which Claim
Before a mortgage agreement is signed, the parties must check the statutory restrictions in Article 286 of the Civil Code. Immovable property owned by a natural person, as well as watercraft and aircraft, may not be used to secure a claim arising from a loan or credit agreement extended to a natural person, including an individual entrepreneur. This restriction does not extend to claims of commercial banks, microbanks, microfinance organisations, non-bank deposit institutions — credit unions — and lending entities supervised by the National Bank of Georgia, so a classic bank mortgage over residential property is unaffected.
The restriction also does not apply where the contract provides that the mortgaged immovable is transferred to the mortgagee for use as a dwelling or, for a legal person, as a place of business. Note, however, that where a natural person already benefits from a registered mortgage, the restriction applies again to any subsequent mortgage agreement. Where the mortgaged plot is agricultural land, the rules of the Organic Law on Ownership of Agricultural Land must also be observed. Finally, the parties to the mortgage agreement are themselves directly responsible to the registering authority for the content of the agreement and the truthfulness and lawfulness of the facts stated in it — a reason to treat mortgage drafting as a serious legal task rather than a formality.
Creation and Registration — Notary and Public Registry
A mortgage acquires legal force from the moment of its registration in the public registry; a signed contract alone creates no mortgage. Registration takes place on the basis of a transaction filed by a party in accordance with the procedure established by the Code. The transaction must identify the owner of the immovable, the mortgagee and the prospective third-party debtor, and may additionally state the amount of the secured claim, the interest, the term of performance and other conditions agreed by the parties.
Formalities depend on who the creditor is. A mortgage agreement securing a claim under a loan agreement must be notarised, and the notary is obliged to explain to the parties the legal consequences of breaching the obligations under the loan and mortgage agreements; the registry-related procedures are then ensured by the notary. This notarisation requirement does not apply to mortgages securing claims of supervised banks, microfinance institutions, credit unions and authorised or registered investment funds. Getting the formalities right the first time matters because defects surface precisely when enforcement begins — years later, when they are most expensive to fix.
Common Mortgage and the Mortgage Certificate
Where a claim is secured by mortgages over several immovable items, the Code speaks of a common mortgage: under Article 287, every item may be used to satisfy the common claim, and the creditor may satisfy the claim from any item at its discretion, unless the parties have agreed otherwise. For creditors this is attractive — the security pool is flexible; for owners of the individual items it means each asset is exposed to the whole claim, which should be weighed and, where appropriate, modified by contract.
The parties may also agree that the public registry will issue a mortgage certificate at the creditor’s request; the issuance of the certificate is itself registered. The mortgage certificate is a security whose lawful holder may demand performance of the obligation secured by the mortgage and, on default, satisfy the claim from the mortgage object. It is issued in a single copy, and only a single certificate is issued for a common mortgage. The contract on which a certificate is issued must be notarised, and any subsequent legal act requiring notarisation must be certified by the same notary who certified the original mortgage agreement — a detail that can complicate later amendments if the original notary is no longer available.
Default — Transfer to the Creditor or Enforcement
When the owner of the mortgaged property delays satisfaction of the secured claim, Article 300 of the Civil Code provides distinct routes. The property may pass into the ownership of the creditor where the creditor and the owner apply to the registering authority with a joint declaration to that effect. Upon such transfer the secured claim is deemed satisfied even where the value of the property does not fully cover it, unless the law or the parties’ agreement provides otherwise; for agricultural plots, the requirements of the Organic Law on Ownership of Agricultural Land apply, and for non-supervised lenders special rules on the satisfaction of the claim operate.
Where transfer into ownership does not take place, the notary issues an enforcement sheet if the parties have agreed on this and the notary has explained in writing, in the notarial act, the legal consequences of issuing the enforcement sheet. Enforcement on the basis of that sheet is then carried out under the Georgian Law on Enforcement Proceedings. What this means structurally is that the mortgage agreement itself can be drafted to become an enforcement title — but only if the parties invest that effect in it at formation and the notarial formalities are respected.
Mortgage Over a Construction Plot
For construction projects the Code provides a targeted instrument: where the subject of the contract is a building or its separate parts, the contractor may demand a mortgage over the construction plot to secure its claims under the contract. This shifts part of the financial risk of the project onto the land itself, which is usually the most stable asset involved, and gives contractors a realistic security where the customer has little else to offer.
In practice, the value of a mortgage agreement is decided at the drafting stage: stating the secured amount, interest and term in the registry transaction, observing notarisation where required, choosing between a certificate and a registry-only structure, and planning the default route in advance. We assist with the full cycle — preparing the mortgage agreement, accompanying registration, and, where default occurs, selecting and executing the correct enforcement route.