The Legal Framework of Real Estate Finance
Legally, real estate finance is a combination of three components: the loan (credit) agreement, the securing of the claim with a mortgage and, in case of default, the realization of the encumbered property. This chain is regulated by the Civil Code of Georgia: Article 623 defines the concept of the loan agreement, Article 624 its form, Article 624¹ the rules for granting a loan secured by immovable property and transport, Article 289 the registration of the mortgage, and Article 301 the demand for realization of the property when the secured claim is unsatisfied.
From the standpoint of the creditor and the financier every link matters: the structure of the agreement determines what claim arises; the security determines how well that claim is protected; and the rules of realization determine how the creditor receives the proceeds. These links are described below in the precise terms of the law.
The Loan Agreement: Concept and Form
Under a loan agreement the lender transfers into the borrower's ownership money or other generic things, and the borrower undertakes to return things of the same kind, quality and quantity (Article 623). As to form, a loan agreement is made orally; by the parties' agreement a written form may also be used; however, the authenticity of an oral agreement cannot be established solely by witness testimony (Article 624). In financing practice this means that relying on witnesses is not enough to prove the existence of a loan — a written form and payment documentation are preferable.
The Rules for Granting a Secured Loan
Where a loan or credit secured by immovable property and/or transport is granted, the law toughens the settlement form: where a loan or credit is secured by immovable property and/or a vehicle defined by the law on road traffic, and/or agricultural machinery, as well as by water, air or rail transport, the lender is obliged to transfer the funds to the borrower by cashless settlement (Article 624¹). This requirement records a payment trail and reduces the likelihood of fraudulent schemes.
The Mortgage and Realization: Protecting the Creditor
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; the transaction must indicate the owner of the immovable, the mortgagee, the prospective third-party debtor, and by agreement also the amount of the secured claim, the interest, the term of performance and other conditions. A mortgage agreement securing a claim arising from a loan agreement requires notarial certification, though this requirement does not extend to certain subjects of the banking and microfinance sector. Upon the parties' agreement, at the creditor's request a mortgage certificate is issued.
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 otherwise provided by the mortgage agreement (Article 301). The claim is deemed satisfied even where the proceeds of realization are insufficient, unless otherwise provided by law or agreement; for a loan granted to a natural person by a lender not subject to banking supervision, a different agreement is impermissible. Realization is carried out under the rules established by the Civil Code and the Law on Enforcement Proceedings.
The exceptions to the notarial form and the certificate regime together form the complete picture of mortgage-secured finance: the issuance of the mortgage certificate is registered in the public registry, and only one certificate is issued for a joint mortgage. Any subsequent notarized action derived from the mortgage agreement must be certified by the same notary who certified the agreement itself — a rule that prevents errors in the identification of the parties and disputes over repeated establishment. For the financier it is therefore important that the disbursement of the loan, the creation of the mortgage and its registration be planned as one calculated chronology, since skipping any link leaves the claim unprotected and deprives the creditor of leverage at the debtor's first difficulties.
Frequently Asked Questions
In what form must a mortgage-secured loan be granted?
By cashless settlement — for loans and credits secured by immovable property and certain transport this is mandatory under the law.
Can an oral loan rest on witnesses?
No — the authenticity of an oral loan agreement cannot be established solely by witness testimony; a written form is possible and recommended by agreement of the parties.
When does the mortgage take effect?
From the moment of registration in the public registry; the transaction must necessarily indicate the owner, the mortgagee and the prospective third-party debtor.
What happens on default?
The mortgagee may demand realization of the property; even where the proceeds are insufficient, the claim is deemed satisfied unless otherwise provided by law or agreement.
How We Help on Legal.ge
Real estate finance demands a legally clean structure: a proper agreement, cashless disbursement, timely registration and a calculated realization scenario. On the Legal.ge platform you can find an experienced civil and banking law lawyer who will help you prepare the documentation, register the mortgage and protect the creditor's position at every stage. Choose a specialist and finance your project with full legal security.