Structuring Property Financing — the Security Architecture
Structuring the financing of property means building a legal architecture in which the creditor holds real security and the borrower retains workable access to funds. The Civil Code of Georgia supplies the building blocks: a mortgage over immovable property, a pledge over movable property or non-material property values, and supplementary devices — contractual penalty, suretyship and the debtor’s guarantee. A sound structure is a deliberate combination of these instruments, not a single document.
The starting point for any property-backed facility is the mortgage itself. Immovable property is encumbered so that the secured creditor may, ahead of other creditors, satisfy its claim from the realisation of the property or its transfer into ownership; the mortgage may also secure a future or conditional claim, provided the claim can be determined at the moment the mortgage is established. That feature is what allows a credit-line style facility to be covered by a single security interest created once, at the outset.
The Mortgage Layer — Registration and Statutory Limits
A mortgage acquires legal force only from its registration in the public registry, on the basis of a transaction filed by a party in accordance with the Code. The transaction must identify the owner of the immovable, the mortgagee and the prospective third-party debtor, and may state the amount of the secured claim, the interest, the term and other conditions. A mortgage agreement securing a loan claim must be notarised unless the creditor is a supervised bank, microbank, microfinance organisation, credit union or qualifying investment fund.
Structuring must also respect the statutory restriction on whose property can secure which claims: immovable property owned by a natural person, and watercraft and aircraft, may not secure a loan extended to a natural person. The restriction does not apply to supervised lenders, and it does not operate where the mortgaged property is transferred to the mortgagee for use as a dwelling or place of business. Where agricultural land is encumbered, the rules of the Organic Law on Ownership of Agricultural Land apply as well. These boundaries determine, before any drafting begins, which security structure is legally available for the transaction you have in mind.
The Pledge Layer and Supplementary Security Devices
The second core instrument is the pledge. Movable property of the debtor or a third person, or non-material property values whose transfer to others is permissible, may secure both monetary and non-monetary claims: the pledgee obtains priority satisfaction from the pledged property, by its realisation or — by agreement of the parties — by taking it into ownership. Pledges may secure future and conditional claims, and property that the pledgor will acquire in the future may also serve as security, becoming such from the moment of acquisition, with the priority of pledge rights determined by the moment of registration of the pledge.
Beyond mortgage and pledge, the Code allows the parties to agree on supplementary security devices: a contractual penalty, suretyship and the debtor’s guarantee. In a structured transaction these devices do different jobs — the penalty prices delay, suretyship adds another balance sheet behind the obligation, and the guarantee adds an independent promise to pay. Layering them over the collateral package is standard practice in larger financings, and the drafting question is always which layer bears which risk, in what order, and on what trigger.
Loan Issuance Rules — What the Code Requires of Secured Lending
Secured lending in Georgia is subject to specific statutory discipline. Where a loan or credit is secured by immovable property, by a vehicle as defined by the traffic law, by agricultural machinery or by water, air or rail transport, the lender must hand the funds to the borrower in cashless settlement form. This traceability requirement shapes the disbursement mechanics of the facility and should be reflected in the payment schedule from the outset.
The pricing and charges of the loan are equally constrained. The annual effective interest rate of a loan must not exceed 50 percent; for a mortgage-secured loan, the monthly rate agreed in the contract, inclusive of costs connected with the use of the loan, must not exceed one twelfth of 2.5 times the arithmetic average of the market rates published by the National Bank for the preceding calendar year. On default, the aggregate amount of any commission, charge, penalty or financial sanction per default episode must not exceed 1.5 times the current outstanding principal, and the daily penalty cap is 0.27 percent of the outstanding principal, with a one-off default penalty of no more than 20 GEL; early-repayment commission may not exceed 2 percent of the outstanding principal. In addition, unless legislation provides otherwise, a loan of up to 200 000 GEL must be issued in GEL. For structuring purposes these limits define the outer boundary of what the credit documentation may lawfully impose — and a structure that ignores them stores up nullity and dispute risk for later.
Construction Finance — the Mortgage Over the Building Plot
Construction projects have their own dedicated security 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. For the customer this is often the most acceptable form of security, because it attaches to the asset at the heart of the project rather than to the contractor’s general balance sheet.
Used thoughtfully, the construction-plot mortgage combines well with the other layers: the land carries the mortgage, equipment and receivables carry pledges, and payment discipline is reinforced by penalty clauses within the statutory limits. The combination is only as strong as its registration and priority positions, however, which is why sequencing — which security is registered first and against which claim — should be planned as deliberately as the commercial terms.
Building a Structure That Holds
Our approach to property financing structuring follows a fixed sequence: define precisely which claim is to be secured — present, future or conditional; select collateral whose value realistically covers the exposure; and then observe every formality, notarisation and registration requirement, because an unregistered mortgage has no legal force and the priority of pledge rights follows the moment of registration. Each element of that sequence is a common failure point when transactions are papered in haste.
We assist across the whole cycle: selecting the appropriate security instruments, preparing the mortgage, pledge and guarantee documentation, accompanying registration, and verifying that the loan conditions comply with the statutory limits on rates and charges. Contact us so that your financing plan rests on a legally sound foundation rather than on assumptions borrowed from other jurisdictions.