Compulsory Mortgage: Securing the Claim Against Immovable Property
The Law on Enforcement Proceedings gives creditors instruments that resemble the interim measures familiar from the court stage, but which operate at the enforcement stage. One of them is the compulsory mortgage: its entry into the registry takes place on the basis of the creditor's application, and the compulsory mortgage begins with registration. In other words, a creditor holding an enforcement document encumbers the debtor's immovable property in the registry and thereby protects the claim.
The law also regulates the volume of the compulsory mortgage: where several immovable properties of the debtor are encumbered, the amount of the claim must be distributed among the respective immovable properties, and the creditor determines the distribution. In addition, the immovable property also serves as security for the registration costs, which are charged to the debtor. This detail lets the creditor account for the costs when planning the mortgage's coverage.
The Mortgage Passing to the Owner: When the Security Ends
The compulsory mortgage is a temporary instrument, and the law defines its end: where the enforcement document is annulled through an enforcement decision, or enforcement is declared inadmissible, the compulsory mortgage passes to the owner of the land plot. This also applies to cases where the debtor satisfies the creditor. For the debtor this matters because performance of the obligation — or the annulment of the document — also removes the mortgage, and that argument can serve in negotiations as well.
Sequestrum and Compulsory Administration: The Alternative to Auction
The third mechanism — the sequestrum — is an alternative to selling the property at auction. At all stages of compulsory enforcement, on the basis of the creditor's request and in the manner established by law, property due from the debtor may be transferred, for compulsory administration, to an administrator appointed by the court, or — where the case is in the proceedings of the National Bureau of Enforcement — to an administrator appointed by the Bureau, or to the owner himself. The purpose of compulsory administration is to satisfy the obligation within as short a time as possible at the expense of income received from using the property according to its economic designation — thereby avoiding, in the debtor's interest, the realisation of the property by auction.
The conditions for applying compulsory administration are precisely defined: where full satisfaction of the enforceable claim is expected within no more than 3 months through compulsory administration, and the market value of the property held in the debtor's ownership exceeds the amount of the enforceable claim by at least ten times, the National Bureau of Enforcement is authorised, on the basis of the debtor's substantiated request and regardless of the creditor's consent, to decide to apply compulsory administration for a period of no more than 3 months. This period may be extended only once, by no more than 1 month. In a case in the proceedings of a private enforcement officer, the debtor may request compulsory administration from the private enforcement officer, and the Bureau may apply it at the stage of rendering auction services, before the public announcement of the compulsory auction.
The law also sets subject-matter limits: compulsory administration of property of special circulation listed by law is not carried out, except where the debtor consents to the use of that property. Therefore, when planning a position, the regime of the property must be checked first, and only then should the party choose between a mortgage, a sequestrum or a court-ordered interim measure.
When to Choose the Mortgage and When the Sequestrum
The choice of instrument depends on the nature of the claim. The compulsory mortgage is simpler — an encumbrance entered in the registry at the creditor's initiative, tying the claim to immovable property. The sequestrum implies active administration — deriving income from the property and avoiding the auction. For the debtor the sequestrum is often better, because the property stays in their ownership; for the creditor, the mortgage is often preferable, because it starts with registration and the creditor keeps control of the distribution. The sequestrum's conditions — the 3-month term and the tenfold excess of the property's value — guarantee that administration is applied only where the claim will genuinely be satisfied.
Frequently Asked Questions
How is a compulsory mortgage registered?
By entry in the registry on the creditor's application; the mortgage begins with registration. Where several properties are encumbered, the claim is distributed among them, and the creditor determines the distribution.
When does the compulsory mortgage end?
When the enforcement document is annulled or enforcement is declared inadmissible — the mortgage then passes to the owner of the land plot; also when the debtor satisfies the creditor.
On what conditions is compulsory administration applied?
Where full satisfaction of the claim is expected within no more than 3 months and the property's market value exceeds the claim at least tenfold; the term may be extended only once, by no more than 1 month.
Can the auction be avoided?
Yes — through the sequestrum: the property is transferred to an administrator or the owner, and the debt is satisfied from income, without an auction; the property remains the debtor's.
How We Help on Legal.ge
Lawyers on Legal.ge working in enforcement proceedings help creditors with the registration of compulsory mortgages and the distribution of claims, and help debtors with the mortgage passing to the owner, requesting a sequestrum and avoiding the auction. We assess your situation from both positions and identify the most effective security mechanism. Contact us to plan the route together.