The Essence and Legal Significance of a Mortgage Agreement
A mortgage agreement secures the performance of a creditor's claim with immovable property: if the debtor fails to perform the obligation, the creditor is entitled to demand the realization of that property and to receive the proceeds towards satisfaction of the claim. The Civil Code of Georgia regulates this field through the norms on registration of a mortgage (Article 289), multiple encumbrance of one immovable item with mortgages (Article 290), transfer of the mortgage and the claim it secures (Article 295), submission of the transaction to the public registry (Article 311¹), and the demand for realization of the mortgaged immovable (Article 301).
In practice a mortgage agreement is most often concluded when a loan or credit is extended: a bank or other lender provides money on condition that the borrower's immovable property is encumbered with a mortgage. It is at that moment that the parties decide what the agreement will contain, how and when it enters into force, and what follows from a breach of the obligation — and all three questions are settled precisely by the Code.
Registration and Notarial Form: When the Agreement Takes Effect
A mortgage acquires legal force from the moment of its registration in the public registry (Article 289). Registration takes place on the basis of the submission of the transaction by one of the parties, under the procedure the Civil Code establishes for submitting transactions to the public registry: a transaction made in written form must be submitted, and the transaction or the authenticity of the parties' signatures must be certified in the manner established by law; where the parties sign at the registering organ in the presence of an authorized person, certification is no longer required.
The transaction must indicate the owner of the immovable, the mortgagee and the prospective third-party debtor. By the parties' agreement it is also possible to indicate the amount of the secured claim, the interest, the term of performance and other conditions — which increases the completeness of the agreement and fixes the parties' positions.
As to form: a mortgage agreement concluded to secure a claim arising from a loan agreement must be certified notarially, and the notary is obliged to explain to the parties the legal consequences of a breach of the obligations under the loan and mortgage agreements. This requirement does not extend to mortgage agreements securing the claims of a commercial bank, micro-bank, microfinance organization, credit union, or an authorized or registered investment fund under the law on investment funds. By the parties' agreement, at the creditor's request the public registry issues a mortgage certificate, the issuance of which is registered; such an agreement also requires notarial certification, and any subsequent notarized action derived from it must be certified by the same notary. Only one certificate is issued for a joint mortgage.
Multiple Encumbrance, Priority and Transfer of the Claim
One immovable item may be encumbered with a mortgage several times (Article 290). Priority is determined by the date of registration of the application on the mortgage — so the position of second and subsequent mortgagees depends directly on who registered an application and when. Upon realization, the proceeds are first distributed to the claims secured by the earlier-registered mortgage, and only then is the remainder directed to the creditors next in order.
A mortgage can be transferred only together with the claim it secures: under Article 295, the mortgage and the claim underlying it may be transferred to another person only simultaneously and jointly. With the transfer of the claim the mortgage passes to the new creditor. The transfer is deemed genuinely made only when a written transaction on the establishment of the mortgage or the mortgage certificate is handed over to the new creditor. The transfer is registered in the public registry, except where a mortgage certificate has been issued.
Non-Satisfaction of the Claim and Realization of the Property
If the debtor fails to satisfy a claim whose security is a mortgage, the mortgagee is entitled to demand the realization of the immovable, unless the mortgage agreement provides otherwise (Article 301). Realization is carried out under the rules established by the Civil Code and the Law on Enforcement Proceedings; the parties may agree on a different procedure for holding the auction only in consideration of certain requirements established by law.
The rules for counting the proceeds also matter: the claim is deemed satisfied even where the proceeds from the realization are insufficient to cover the mortgage-secured claim, unless otherwise provided by law or by the parties' agreement. A special rule applies towards natural persons: where the lender is not an entity subject to the supervision of the National Bank of Georgia, a claim arising from a loan granted to a natural person (including an individual entrepreneur) is deemed satisfied despite the insufficiency of the proceeds from realization of the mortgaged and pledged items, and no other agreement between the parties is allowed.
Common Mortgage, the Mortgage Certificate and the Construction Plot
Where a claim is secured by mortgages over several immovables, a common mortgage arises: under Article 287 of the Civil Code every thing is used to satisfy the common claim unless the parties agree otherwise. Upon the parties’ agreement and at the creditor’s request, the public registry issues a mortgage certificate — a security that confirms its lawful holder’s right to demand performance of the obligations flowing from the mortgage agreement and, on default, satisfaction from the mortgaged property; only one certificate is issued over a common mortgage, and a certificate-confirmed mortgage changes the priority of claims.
For construction projects the Code contains a separate rule: where the object of the agreement is a structure or its separate parts, the contractor may demand a mortgage over the construction plot — an instrument that lets the client secure the financial risk of the works with land.
Frequently Asked Questions
When does a mortgage agreement enter into force?
A mortgage acquires legal force from the moment of registration in the public registry. Signing alone, up to that stage, does not create a mortgage — registration is decisive.
Can one property be mortgaged several times?
Yes. One immovable item may be encumbered with a mortgage several times, and the order of the creditors is determined by the date of registration of the application on the mortgage.
Is a notary mandatory?
A mortgage agreement securing a claim arising from a loan agreement requires notarial certification. The requirement does not extend to the claims of banks, micro-banks, microfinance organizations, credit unions and certain investment funds.
What happens if the sale proceeds do not cover the debt?
As a general rule the claim is deemed satisfied despite the shortfall, unless otherwise provided by law or agreement. For loans to natural persons by lenders not supervised by the National Bank, a different agreement is impermissible.
How We Help on Legal.ge
Concluding, registering and — where necessary — enforcing a mortgage agreement up to the realization of the property demands precise knowledge of forms, deadlines and priorities. On the Legal.ge platform you can find an experienced civil and banking law lawyer who will help you prepare the content of the agreement, manage the registration procedure and protect the creditor's rights at the realization stage. Choose a specialist on our platform and protect your interests at every stage of the mortgage relationship.