Mortgage (hipoteca)
Updated on
A hipoteca is a security registered over a property that gives the creditor the right to be paid out of the value of that property ahead of other creditors.
Someone who takes out a home loan almost always gives the home as security. That security is the hipoteca. Under article 686 of the Civil Code, it gives the creditor the right to be paid from the value of the property ahead of other creditors who have no special privilege or earlier registration.
A mortgage must be entered in the . It does not stop the owner from selling, but it follows the property: in an ordinary sale the buyer requires it to be cancelled.
In an enforcement sale or a Tax Authority auction, mortgages lapse. The property is transferred free of security rights (article 824(2) of the Civil Code) and the bank is paid from the sale price, in the order the proceedings set.
Example
Illustrative example: a house with a €120,000 mortgage in favour of a bank sells at auction for €90,000. The buyer pays €90,000 and receives the house without the mortgage. The bank receives its share of that price; whatever remains unpaid stays a debt of the former owner, not of the buyer.
In practice, at an auction
A mortgage on the of an auctioned property is normal and does not, in itself, pass to the buyer. In sales run by an , the agent reports the sale to the registry, which cancels the lapsed entries (CPC article 827). After buying, check on the certificate that the cancellation has been made.