The first owner is obliged to check the ground of his rights for the land. The new owner who is interested in the fact that the transaction was assured against faults, shall hire special firm, legal company, which examines the whole history of property on this land or the object of real estate for the period of 70 years. It is made in the purpose to find out if there are any circumstances or unknown previous owners who can have any rights for this land or the object of real estate. This type of the registration system has imperfection , which , in accordance with general opinion, consists of the fact that the system cannot give the purchaser of real estate or the creditor all necessary information and makes them to suffer considerable losses, necessary for inspection of content of registered documents.
In the second case the rights for real estate are registered. In this case any actions are subject to registration, which concern the stated rights. The advantage of such registration consists of the fact that the participants of the market of real estate have the possibility to receive necessary information from appropriate body without extra expenses. This system of registration is named Central-European and is the most popular in the world and presumes that the right of property is guaranteed by the state. There the lands and the objects of real estate are subject to the state registration in the land book in which the full and exact information of real estate is introduced. It is established for these purposes that all registered rights for coming into power must be introduced into land book. The guarantee of completeness and rightness of information of real estate is the most precious thing for this system. It can be reached by introducing into land book of information which is the most substantial for the characteristic of the legal position of real estate. First of all the rights of owners shall be registered, and also the lease of mortgage; the rights, appeared on the strength of other transactions; the rights of using of real estate by other persons than the owner /servitudes/, for instance the rights of establishment of boards with advertisement , the right of passage, different burdens /fees, arrests, court decrees/, mutual using particularly in condominiums. The enormous advantage of this system is the possibility to restore without additional expenses the history of owners of real estate objects. /9/
The bright proof of the role of Central Europe system is fixation of keeping of land book not only in the national legislation of separate countries, but also in the international acts. So the obligation of the state for keeping of land book is stipulated in the paragraph of the first article of the first additional protocol of European convention on human rights .
In accordance with the opinion of A. Lazarevskiy/ the head of the Division of the methodical assurance of the State Committee of property of Russia/, the above-mentioned system of registration when the state guarantees the rights of property, undoubtedly is cheaper than the registration of transactions. Exactly Russia needs such system. “From our point of view – he says – the first task is the creation of the sole for our country system of registration. First, we need register of objects of real property as physical objects, with statement of strict borders of the land on the location, with statement of physical parameters of constructions, and the second register – it is the register of legal rights of owners for this real estate. Second, the registration of legal rights separate from the first registration is necessary. In this case the land shall be considered not as a physical object, but as a range of rights for using of land in the permitted limits. The rights for change of using, sale, mortgage – all these rights shall be enumerated in the land book, and also the restrictions.
All the owners shall be named in the chronological order from the moment of registration of the object of real estate. The administrator – representative of the state, that is registering body, must guarantee reliability of realized operations. The observations and recommendations of doctor Otman Shtekkor /Union of the German mortgage banks/ are devoted to the problem of the real estate registration. He thinks that for issuing mortgage credits it is necessary both loan-contractual right and legislation of mortgage and land books. In the case of creation of system of land books it is very important to determine in good time the reasons of land registration. It is also important to provide that the registration records were full. The purchaser of property must entrust the correctness and completeness of records. Every interested person shall have the possibility to get quickly et not expensively reliable information of legal situation on land. Excessively high tariffs of the land-book administration and notary will only provide deviation from registration and lead to roundabout transactions. It is especially important that the information of land-survey will be in strict conformity with the records of owner rights in the land –book, that the identification of the lands and the establishment of their legal status can be realized in every time. /8/
The law “On pledge” stipulates one more type of registration of real estate – keeping by the mortgagor of the book of mortgage recording. In this case the mortgagor is obliged not later than ten days after appearance of mortgage to introduce in the book record of the type and the object of mortgage, and also the volume of liquidity of the obligation assured by the collateral. The mortgagor must bear responsibility for opportune and correct introduction of information of mortgage into the book and also for deviation because of incomplete and insufficient information from presentation of the records book for examination.* However, the stated norm does not work. The Civil Code does not stipulate the obligation of mortgagor to keep book of mortgage recording, and only establishes, that mortgagor is obliged to inform every next pawnee of all existed mortgages of this property and to be responsible for expenses, caused to pawnee by non-fulfillment of these obligations.** The absence of the norm of keeping by the mortgagor of the book of mortgage recording in the Civil Code can be possibly explained by the fact that this
* Article 31 of the law “On Pledge” of the Russian Federation on 29 of May, 1992 N2872-1
* * Item 3 of the article 342 of the Civil Code of Russian Federation.
question shall be resolved by the law “On mortgage”. However, the law “On mortgage” does not contain either such norm, and it is omission of legislator. In my opinion the law “On mortgage” shall contain norm of obligation of mortgagor to keep the book of mortgage recording or the book of registration of mortgage into which the mortgagor is obliged not earlier than ten days after appearance of mortgage to introduce information of type, object of mortgage and the volume of liquidity of obligation assured by collateral, and to present it for examination to every interested person. Besides it is necessary to stipulate also responsibility of mortgagor for inopportune keeping of records in the book of mortgage registration, for incompleteness or incorrectness of records and also for deviation from duties to present the book of mortgage registration to the interested persons.
The original mortgage begins there and then where and when the creditor independently on his location can receive reliable information of position of the real estate which he is interested in, including information of previously made mortgages or rent agreements independently on location of the client.
The mortgage presumes registration of mortgage transactions in standard order by the sole body in narrow connection with legal practice, court, arbitration court, in this result the possibility of repeated mortgage is excluded. The functioning of this system is impossible without creation of the unified general base of information of mortgaged real estate. In this it is its main difference from systems, which are based on separate information, published in different newspapers and advertisement editions, which do not bear responsibility for reliability of proposed information. This problem can be decided with help of central network of computer communications.
2.2.4 Insurance – important element decrease of credit risks.
Carrying out of mortgage operations is as well connected with definite risks, to which refer risk of loss (destruction) or damage of the subject of gage etc. Insurance allows considerably reduce this kind of risks.
The legal basis for insurance of mortgage operations are the norms contained in the Paragraph 3 of the Chapter 23, and also in the Chapter 48 of the Civil Code of the Russian Federation, Law of the Russian Federation from November 27, 1992 No 4015-1 “On organization of insurance business in Russian Federation” and Federal Law from July 16, 1998 No 102-FЗ “On mortgage (gage of the real estate)” (hereinafter referred to as “law on mortgage”).
Article 343 of the Civil Code of the Russian Federation stipulates that the pledger or pledgee depending on who of them has gaged property, is obliged, if other is not stipulated be the current legislation or agreement, to insure gaged property at expense of the pledger. The same provisions are contained and defined in a more detailed way in the Article 31 of the law on mortgage. Provisions of this law say, that insurance of the property gaged in accordance with agreement on mortgage, is conducted pursuant to conditions of the indicated agreement. Thus, in case of absence in the agreement on mortgage of other conditions on insurance of the gaged real estate, the pledger is obliged to insure this property at his own expense for a total cost from risks of losses and damages, and if the total cost of the property exceeds the size of the backed liabilities – for the sum not less than the sum of these backed liabilities. /7/
As a rule, the beneficiary according to agreement on insurance of real estate being subject of the gage, is nominated the pledgee, that is the creditor under liabilities, backed with the gage. However and in cases, when the gaged property is insured for the benefit of other persons (for example, for the benefit of the pledger), for the purpose to protect interests of the pledgee - creditor, the pledgee has right to satisfy claims under liabilities backed with the mortgage directly from insurance indemnity paid in case of loss or damage of the gaged property. The indicated requirement is subject to satisfaction on priority basis before satisfaction of claims of other creditors of the pledger and persons, to whose benefit is carried out insurance.
If pursuant to the terms and conditions of the agreement of insurance the gaged property is insured for the sum lower than the total cost of property, than in the case of insured accident which has entailed loss or damage of insured property, insurance company reimburses to the pledgee only part of losses calculated proportionally to ratio of the sum of insurance to full (insurance) cost of the gaged property. Insurance agreement may stipulate a higher size of insurance indemnity, but not exceeding the full (insurance) cost of property. The indicated provision referring to so-called incomplete property insurance, is stipulated in the Article 949 of the Civil Code of the Russian Federation.
Insurance of gaged property is one of important terms and conditions of agreement on mortgage. Pursuant to the Article 35 of the law on mortgage if the pledger does not fulfill his responsibility to insure the gaged property, the pledgee has right to require advance fulfillment of liabilities, backed by the mortgage, and if such demand will not be satisfied, the pledgee has right to impose collection on the gaged property.
Chapter 3. The problems and the perspectives of mortgage crediting.
3.1. Foreign experience of mortgage crediting
The examination of the world experience of mortgage credit organization shows, that this market has considerable potential.
The mortgage banks appeared for the first time in Germany in XVIII century. The first mortgage bank was the state bank, founded in Silesia in 1770 for rendering financial support to large landowners. At the beginning of XIX century the activity of mortgage banks extended on the small landlord properties, and then on the peasant lands. In the middle of 60 years of XX century there were in Germany 13 state and 25 private land banks. The control package of shares of majority of the banks belonged to large banks.
In other countries there is no similar strict system of mortgage banks. So in the USA in 1916 the land banks were organized in 12 districts for issuing long-term loans under collateral of land. At the present time the mortgage credits in the USA are granted on the whole by loan-savings associations, mutual-savings banks and small farmers banks, which have regional meaning. /6/
In Canada the mortgage banks are engaged on the whole in crediting of operations with real estate. At the beginning the object of their activity was crediting of agriculture under collateral of land and agricultural constructions, and then – in principle housing construction.
In France the biggest land bank (“Crédit fonds de terre de France “ ) and its affiliate “ Office of businessmen ” (“ Comptoir des entrepreneurs ”) grant credits to landowners and construction companies for housing and production construction. Mortgage operations are realized also the bank of land crediting (French land bank) which was founded in 1853. The bank credits on the whole the large construction for the period from 3 to 20 years.
In the European countries, as Finland, Sweden, Belgium, Holland there are both private and state mortgage banks. So in Finland the private banks grant mortgage credits. Real estate serves as collateral – land and constructions, both production and non-production. The banks mobilize more than 70% of means by issuing of mortgage bonds. In Sweden four mortgage banks function which are under state control. They are engaged in crediting of housing construction, agriculture, shipbuilding, and also trade. In Belgium the special credit organizations realize operations of granting long-term loans, which form so-called state credit section. This section consists of Central department of mortgage crediting, which loans are guaranteed by the state. In Holland the mortgage credits are granted by agricultural credit institutions, organized on cooperative basis. They are unified by the Central cooperative peasant bank (Rabobank).
There are mortgage banks in some developing countries (Argentina, Mexico, Nigeria and others).
Now we will consider some distinctive features of organization of mortgage crediting in developed countries. The experience of these countries in this sphere to some extent can be used in the conditions of Russia.
For the countries of Romanic German right (The whole Western Europe, except Denmark) the similar regime of mortgage is typical: notary certified act, land-survey or land book, publications of mortgage ant other essential formalities.
The registration of mortgage is realized by state officials ( in the countries with land book – by the judge). He registers all acts of law of estate on transactions with real estate (sale, purchase, servitude , privileges and others) and also forms real and personal card-index. With his help it is possible to receive real picture of mortgage and privileges with respect to real estate. All these factors permit creditor to be convinced of the fact that:
the mortgage property really exists in acts (with help of land-survey or land book);
the property is not mortgaged (with help of card-index of registration or judge).
Without above-mentioned services it is impossible to create good functioned safe mortgage system. Otherwise great difficulties may appear for organizations which grant loans.
If the creditors do not have strict idea of mortgaged property, they can suffer losses because of the reason that such property did not exist. Moreover because of the fault in records, which should be kept in strict chronological order, the creditor can lose his preferential right, which will be transferred to other creditors./8/
In other countries the conception of mortgage is more flexible and less formalized , especially in the countries of English Saxon right with regime “Equity & Common Law”. Particularly there is no necessity in naturally certified act, and mortgage can bear general character, that is the object of mortgage is not emphasized or the publication is absent. Two above-mentioned systems are used in Denmark.
Why in the case of availability of rich own experience before revolution and possibility of using of the experience of developed countries the mortgage in our country did not occupy adequate place?
The claims on this question can be made to all participants of the market – borrowers, creditors and the state. And even first of all to the state, because till now the favourable legal base was not created, by no means the creation of the secondary market is stimulated. The latter is very important. Many economists think , that this is secondary market which will become kernel round which the whole structure will begin develop. Four level similar system (and rather effective) already exists in the USA, in which federal agency of mortgage crediting is introduced as a additional element in chain between links “the state” and “mortgage bank” – it is to some extent the agent of federal government. And there are several such agents in the USA – Federal National Association, Federal Homebuilding Loan Mortgage Corporation, Federal Land banks, created for crediting under mortgage of farming lands and , which act in accordance with the principles of above mentioned associations, and others. All these organizations represent original areas on which the present segment of the securities market functions. Receiving the guarantee from the government these associations buy the pledges from private financial institutions. In their turn the monetary means come to associations from the sale of own securities. The profit received from the trade of these securities is invested to great extent to the homebuilding and in this manner the retrospective link is effected. /6/