Spanish property registration law

Home / News / Spanish property registration law

April 23, 2010 /

Javier Gómez Gálligo


THE PROPERTY REGISTRY

Property registration law is the legal discipline that studies everything concerning the operation and effects of the Property Registry.

The Property Registry is a juristic registry.

Juristic registries report facts or circumstances, but they also have legal effects; that is, they add effects to any juristic act that is registered (For example, because of these added effects, a purchase that is not registered cannot be enforced against a purchase that has been registered, and an unregistered mortgage does not even exist).

There are other registries of this type, such as the Mercantile Registry (For example, a corporation or limited liability company has no legal personality until it has been registered in the Mercantile Registry). The Civil Registry too has legal effects that can be enforced against third persons, this time in the realm of personal situations (legitimation of marital status).

All this makes juristic registries different from administrative registries, which provide publicity or information only, without any juristic effects attached.

This distinction is given shape in the Spanish Constitution, such that administrative registries are in principle run by the autonomous communities (regions of Spain), while the juristic registries, such as the Property Registry, Mercantile Registry, Personal Property Registry and Civil Registry, are dependent on the state.

The proper object of a property registry is immovable property.

Acts and contracts concerning personal property cannot be registered in a property registry. Nevertheless, a registry of similar characteristics, the Personal Property Registry, has been set up. It is regulated by principles resembling those governing immovable property registries, but the main objects it registers are instalment purchases, leasing agreements, mortgages, attachments and so on.

The persons in charge of registry offices are property registrars. Property registrars act in a double capacity: They are public functionaries, but they perform their public function as professionals.

As legal professionals, they must belong to the Official Association of Property, Mercantile and Personal
Property Registrars of Spain. Each registrar organizes his or her office privately, and the office staff (registry officers and auxiliary staff) are not administrative civil servants, but employees of the registrar.

But registrars are professionals exercising public functions, and they are in fact equal in standing to national civil servants; and as such they are dependent on the Ministry of Justice, through the Directorate-General of Registries and Notarial Affairs, precisely because their mission is fundamentally
a juristic one: They must scrutinize all acts and contracts submitted for registration to ensure that the items are valid and correct, and they must disclose information on the ownership and encumbrances on immovable property.

Registrars enjoy independence and cannot be removed from office. This is the only way to ensure that the registration system runs smoothly. The act of registration entails the assignment of property rights that are very important in economic development. The registrar is the referee or impartial judge who sits at an equal distance from all the parties to a transaction and sees to it that the rules are the same for all legal agents, including the government itself when it acts as a private individual (not invested with imperium or special public prerogatives) in the property market. That is why registrars cannot depend on discretional government appointment, if registrars are to be truly independent and the registration system is to be neutral and effective. The same thing happens with registrars’ irremovability from office; if registrars could be removed at the discretion of government authorities, they would not
be impartial.

Registrars examine the legality of property transactions. Once transactions have successfully passed the trial of scrutiny and been entered in the Registry, they will be protected by the state as an official truth. Unregistered ownership can be conveyed by a contract followed by delivery (which is the two-part process that must be performed in Spain), but unregistered ownership has no value. It is considered
informal ownership. Registered ownership is exponentially more valuable.

The independence and irremovability of registrars is accompanied by a selffinancing system for registration offices. Registration offices are financed not through taxes, but through fees applied directly to cover the expenses of the office, so the registration system is neutral for the national budget. Only the person concerned or using the service the system provides must pay the fees.

The fact that registry offices and registrars operate independently, as a true private exercise of a public function, does not mean they operate arbitrarily. Registrars are subject to a very strict system of civil liability (regulated in the Civil Code), discipline (regulated in mortgage law) and even criminal liability (as the public functionaries registrars are). Professional ethics are moreover guaranteed by the existence of a corporation organized under public law, the Official Association of Property,
Mercantile and Personal Property Registrars of Spain, which acts as the deputy of the Ministry of Justice and exercises its own disciplinary powers as well. The structure of the association as such enables it to unify registration activity, monitor registration activity, encourage investment in technology and staff training and in short modernize the function of registrars. This would not be possible in uncoordinated individual action by registrars or through the “administrativization” or bureaucratization of registrars’ functions (which would in addition cause greater delay in document processing and a big increase in costs).

FUNCTIONS OF THE PROPERTY REGISTRY

The main functions of the Registry are the following:
1. To endow property trade with legal certainty. Before mortgage legislation was enacted, whenever property was purchased, there was no assurance that the seller was the genuine owner, nor could the liens on the property be accurately ascertained. The Property Registry was created to attest to the property owner’s identity and any encumbrances.

2. To foster credit. The Registry helps support the financial system, because it is the instrument for
ensuring that, in case of default, the lender will be compensated from the borrower’s assets. The Property Registry was created with a tie to financing companies and institutions, banks and credit institutions, because property cannot be mortgaged if its owner is not known.

3. To reduce interest rates and avoid usury and fraud. In the late 19th century, lenders had to face such
risks that they would very frequently charge usurious interest rates. What lenders would do to cope with the possibility that other lenders might appear with a better right to the borrower’s assets (such as a
previous mortgage) was to raise interest rates unfairly. In another example of usurious conditions,
lenders would force borrowers to acknowledge having received much more money than was really lent.
These unfair lending practices gradually vanished and in fact interest rates slowly went down as the property registration system become more and more widespread.

4. The Registry has a precautionary purpose: It precludes litigation. It is said that whenever a registry opens, a court closes; and the litigation rate is much lower where there is a way to inspect property contracts on a preventive basis. It is also important to stress that in Spain property registration is not automatic. A registrar will judge the legality of acts and contracts submitted for registration and will reject any acts or contracts that are void.

5. Agility in contracting. The Property Registry reports a single ownership for each piece of property. There is no possibility of reporting contradictory titles, no need to run any checks outside the Registry. The state guarantees that the registered holder of title is the true owner and that there are no  encumbrances other than those that the Registry discloses.

If there were no property registry set up along the lines used in the moreadvanced countries, each buyer would have to check the seller’s title to the property. And a buyer would never be absolutely certain that the seller is the true owner.

REGISTRATION SYSTEMS IN COMPARATIVE LAW

Registration systems can be classified into three classes, according to the acknowledged effects of registration:
1. The systems with the fewest effects are recording systems. This is the system in certain states of the USA. In them, the buyer has to do the work of investigating the seller’s titles, which have been recorded, but the buyer can never be entirely sure of the seller’s title. To avert risks of eviction (loss of the thing to its true owner), the buyer takes a kind of insurance called “title insurance”, which guarantees payment of an indemnity if the buyer loses ownership of the thing. These are mere recording systems.

2. Deed registration systems. This is the case of the French system, which is characterized by the fact that registration has the effect of shackling third parties, such that anything not registered cannot
trouble the buyer. The buyer can rest assured that any encumbrances or liens under unregistered titles can do the buyer no harm.

3. Title registration systems, such as the German, Swiss and Spanish systems, where the property registry not only guarantees that anything not registered cannot challenge a registered title, but also ensures the ownership of the conveyor. Under this system, the property registry proclaims a single ownership of a given thing, and a purchaser in good faith can never be troubled by the possibility of eviction or loss of the conveyor’s title.

Title registration systems, such as the Spanish system, are logically the most efficient systems, because they substantially reduce transaction costs, that is, what it costs any stakeholder on the real estate market to consummate a contractual operation (such as  purchase, redivision of lots or mortgage financing). Since title is perfectly clear and registered rights are undisputed, the expenditures needed to perform a property transaction are much lower than in those countries where the effects of registration are not as powerful.

THE OBJECT OF REGISTRATION IS IN-REM RIGHTS

What in-rem rights can be registered?

  • Above all, of course the most important, broadest in-rem right is the right of ownership (or
    domain), which is the right to use, enjoy, dispose of and claim property, within the limits set by
    the social function of the right.
  • Limited in-rem rights, also called “rights in third-party property”. These include rights of enjoyment (usufructs, rights of use, easements, censos[1], rights of habitation, surface rights, overflight rights).
  • Lastly, there are rights in property as collateral and rights of first refusal, where the disclosure the
    Registry provides is very important, because the holders of these rights have no possessory relationship with the property. Rights in property as collateral include mortgages and antichreses. Rights of first refusal include prospective and retrospective rights of first refusal, which may be legal or conventional.

All these types of in-rem rights can be registered and need to be registered if all their effects are to be deployed. If they are not registered, they cannot affect buyers; the only encumbrances any buyer has to take into account are those that are registered.

Personal rights (personal agreements, obligations to give, do or refrain from doing things, promises) are not registered. Registrars therefore frequently refuse to register numerous clauses of notarial deeds, precisely because such clauses have no real efficacy (That is, such clauses cannot be enforced vis-à-vis third persons).

EVENTS THAT NEED NOT BE REGISTERED

There are some exceptional events that need not be registered in order to be binding for buyers:
a) Legal prospective and retrospective rights of first refusal. Unlike conventional rights of this
sort (that is, rights accorded between parties in a contract), prospective and retrospective rights of first refusal that are established by law (for example, a lease subject to special legislation on urban leases) do
not need to be registered in order to be enforceable vis-à-vis third parties.
b) Sometimes case-law has regarded apparent easements as enforceable vis-à-vis third-party purchases too, even when the easements are not registered.
c) What are known as “tacit legal mortgages”, such as the encumbrance of a flat for payment of the last two years’ property tax, and the encumbrance of flats and retail premises in buildings where a horizontal property system is in force for payment of the proportional share of owners’ association expenses for the last two years before purchase, are also enforceable without registration.

All these events are exceptions to the general rule that anything not registered

REGISTRATION IN PRINCIPLE IS PURELY DECLARATORY, SAVE MORTGAGE REGISTRATION,
WHICH IS CONSTITUTIVE

We have already seen that it will not be necessary to register certain types of in-rem rights that, despite their legal nature as true in-rem rights, already have a third-party enforceability, by virtue of the law or the evidence of the senses, that is greater than the enforceability registration can give them.

Legal rights of prospective and retrospective first refusal, urbanplanning easements and obligations
stemming from urban planning are some examples of rights that need not be registered, even though they are inrem rights. They are binding for buyers even if they are not registered. Outside these special cases, in-rem rights must be registered in order to be binding for third parties. This does not mean in-rem rights cannot exist without registration, but that they cannot trouble any third parties who check with the Registry and find that the rights in question are not registered.

There is only one event where registration not only has the effect of endowing the right with third-party
efficacy (declaratory effect), but also has the effect of calling the registered right into existence (constitutive effect), and that is mortgage registration.
Mortgage rights are the only in-rem rights whose importance is such that they cannot exist without registration. An unregistered mortgage is unenforceable not only vis-à-vis third parties, but also between the very parties to the mortgage. There is also some discussion about whether surface rights are constitutive, although the Spanish Supreme Court has ruled that the registration of surface rights is
mandatory but not constitutive.

POSSESSION AND PROPERTY REGISTRATION

Initially, mortgage legislation permitted the registration of possessory titles as a means of fostering
registration. Gradually, however, given the uncertainty of titles of possession as reliable evidence of an in-rem right, the possibility of registering possession (in act, possessory title) was shut down.

Nowadays, titles referring to the mere or simple fact of possession cannot be registered. However, that does not mean that possession, as a right, has no connection to the Registry. Quite the contrary: The Property Registry assigns important presumptions and consequences concerning possession to the registered owner of title.

To all legal intents and purposes, it will be presumed that registered in-rem
rights exist and belong to the owner of title in those rights, in the fashion disclosed in the registration entry, and it will also be presumed that the registered owner of title has possession of the rights in question.

REGISTRATION-BASED ACTION CONCERNING REAL ESTATE

One clear manifestation of the efficacy of property registration is what is called “registration-based action concerning real estate”, which is a kind of legal action that can be taken in a hearing against a person or persons who hold no registered title and who nevertheless challenge a registered right or disturb the exercise of a registered right (for example, the kind of action a registered owner of title can take against a squatter).

This sort of action, based on the legal standing or presumed validity of registry entries, will always require a registrar’s certificate in proof of the fact that the entry in question is in force and is not
contradicted. Registry entries thus furnish registered owners of title with a possibility of taking summary action to defend their rights from de-facto possessors who do not have sufficient legal title to occupy the property at issue. This is a special kind of action for the enforcement of registration pronouncements, similar to the enforcement of a court ruling, in that the grounds for opposition are very limited.

This procedure does not have the effect of res judicata; it is restricted to supporting or not supporting theregistered owner of title vis-à-vis a defacto occupant of the property. The ultimate decision about the parties’ rights in the property, however, is reserved for declaratory action, which either party may initiate. In that case, the proceedings will be conductedunder the rules for plenary suits.

MORTGAGE PRINCIPLES

Mortgage principles are the basic rules in which property law is structured. They are notions that enable
us to study and systematize mortgage law, and they are based on terms of positive law and assertions of case-law. They are therefore ideas drawn from the principles of case-law that enable positive law to be systematized.

Authentic titling

The requirement of authentic titling is stated in section 3 of the Spanish Mortgage Act, which requires titles to be formalized in a public document as a general rule for access to registration.
There is some doctrinal argument about whether what is registered are the acts or the contracts, the documents or the rights. The most correct thesis is that which holds that documents are filed with the registration authorities, the inrem rights stemming from the acts or contracts formalized in the documents are registered, and title is disclosed.

Documents submitted for registration must be public documents, that is, documents authorized by public functionaries acting in the exercise of their powers as such. The following are, thus, the kinds of titles that can be registered: a) notarial deeds, b) documents issued by judicial authorities, c) documents issued by administrative authorities.

In addition, in the second place, the right whose registration is sought is required to be created directly in the document. So, to register a right of ownership in a property, one must submit the contract of formal purchase (or other title of acquisition) that forms the immediate grounds for the acquirer’s right. No other, later title referring to the title of acquisition will suffice.

Lastly, the documents must provide certification in themselves or in the company of other supplementary documents, in which case the latter
must be enclosed.

The following are exceptional instances in which private documents are registered: requests by sole heirs (A sole request accepting an inheritance without a partition deed is thus sufficient); caveats noting reditor financing for improvements; the distribution of mortgage liability among several properties; and the registration of contracts of sale on instalment plans and financial leasing agreements in the Personal Property Registry (which isgoverned by official contract forms approved by the Directorate-General of
Registries and Notarial Affairs).

The function of registrars as scrutinizers

Scrutiny is the task of judging whether a title is valid or invalid, in content as well as in form, and whether it meets the requirements set by legislation for registration, a task that is entrusted to an independent legal scholar who had no part in drawing up the document. In addition to judging
the conformity of the act or contract to the terms of law (a judgement that must be taken by the authorizing notary or the acting judicial or administrative authority), the property (or mercantile)
registrar must judge the validity of the act of disposal, the capacity of the parties to the document and the formalities of the legal act once formalized.

The function of registrars as scrutinizers has been regarded as belonging to voluntary jurisdiction. It is
not an administrative act, because registrars act independently and on their own responsibility, so their scrutiny decisions are not subject to appeals under administrative law. The doctrine on damages caused by improper public service is not applicable, nor is liability secured by government assets, because each registrar secures his or her liabilities with his or her own assets and the group civil liability insurance plan to which all registrars belong. Nor is theirsa judicial function, because the office of the registrar is not part of the judicial structure.

It is therefore a function halfway between the judicial and the administrative, which has been catalogued as belonging to voluntary jurisdiction.

The point of scrutiny is to avoid registering bad titles, through the action of a legal scholar independent of the parties who executed the title. Scrutiny is intended to serve as an underpinning to the set of presumptions stemming from registration.

If the applicant disagrees with the registrar’s decision to refuse or suspend registration, the applicant can ask for a substitute scrutiny, that is, for a second registrar (whose name is taken from a roster approved by the Directorate-General of Registries and Notarial Affairs) to confirm or overturn the decision. If the substitute registrar overturns the decision, the act or contract will be registered under the responsibility of the substitute registrar.

If the scrutiny is confirmed, the applicant can appeal to the Directorate-General of Registries and Notarial Affairs at the Ministry of Justice (The applicant can also go directly to the Directorate-General without first calling for a substitute’s scrutiny). Whatever decision the DG hands down is subject to appeal in the civil jurisdiction (court of first instance, followed by appeals to the Provincial Appellate Court).

The parties can also go straight to civil court to air the issue of the title’s validity without the need to go first through an appeal against the registrar’s decision. This is purely optional, as sanctioned by the recent Act 24/2005 of 18 November on measures to boost productivity.

If the matter concerned in the appeal is the special regional law of the autonomous community where the registry office is located, the appeal is filed with the competent authorities of the autonomous community.

Specificity of parties

The Spanish registration system is characterized by the fact that it follows the real folio technique. That means that registration records are organized according to properties; one folio is opened for each property, and that folio contains the property’s legal history. Any encumbrances, circumstances or restrictions of the right that are not entered in the folio are not going to trouble buyers. Limited in-rem rights, rights in property as collateral and generally any encumbrance or limitation of ownership or in-rem rights must be entered where the property or right in question is registered in order to have effects vis-à-vis third parties.

In addition, any in-rem right whose registration is sought must be clearly defined, as must its ownership, contents, transferability and duration. In
mortgage matters, the principle of specificity of parties requires the liability for principal and interest to be clearly defined and forbids it to be in excess of five years in connection with principal and interest.

Chain of title

Chain of title is understood as the need for entries to be linked to one another in a concatenation.

So, in order for titles declaring, transferring, encumbering, modifying or terminating ownership or other in-rem rights in property to be registered or caveatted, the right of the person executing the acts in question (or the person in whose name the acts in question are executed) must be previously registered or caveatted.

It is generally said that the registered title holder of today has to transfer title to the registered title holder of tomorrow. Thus, there has to be a chain of entries. This applies to titles of conveyance (for example, sale from A to B, and sale from B to C; in order for C’s ownership to be registered, A’s ownership has to be registered first) as well as to titles concerning limited inrem rights (For example, A sells to B, and B wants to ask bank C for mortgage financing; in order for the mortgage to be registered, the purchase has to be entered first; that is why normally in practice the sale and mortgage are formalized and filed for registration immediately and simultaneously).

When this concatenation of entries fails, the chain of title is said to be broken. This can be remedied in several ways.

The first and simplest way of mending the chain is by showing the titles in between, that is, by filing the
missing unregistered titles (known as prior titles).

Second, on a subsidiary basis, when the titles in between cannot be shown, an ownership proceeding can be conducted to mend the broken chain of title.

The principle of chain of title has some exceptions. These are the cases of attorneys-in-fact, proxies, bodies representing companies, liquidators, executors, bankruptcy liquidation committees and so on, where the chain of title will never require the prior registration of the officers in question.

Nor is prior inheritance in the heirs’ favour necessary in order to register documents executed by the heirs and limited to ratifying private contracts made in life by the decedent (This is logical; such property never belonged to the inheritance). Nevertheless, in order to avoid inheritance tax evasion,
two requirements must be met in this case: The contracts must exist in writing and must be signed by the decedent.

Altogether, the main exception is where property is registered for the very first time. In these cases, reliable proof must be given or shown that the conveyor was the owner, but registration of the conveyor’s prior title is not required.

Priority

“Priority” means that the right registered first takes preference over any rights registered later. As opposed to the general rule that preference in inrem rights is found by the date of creation of the rights, where property that has undergone first registration is concerned, priority is found by the date of the entry in the registry, which is in turn the date of the title-filing entry. This is summarized in the famous aphorism “Prior tempore potior jure”. When any kind of title declaring or constituting inrem rights in property has been noted in a registry caveat, no other title of the same or a previous date that is equal or
incompatible and conveys or encumbers ownership of the property or any other title or in-rem right can be caveatted or registered.

This principle has its proclamation in the civil substantive realm in article 1473 of the Civil Code, which regulates the double sale of property. According to this article, if a property is sold to different people, ownership will belong to whoever registers their ownership first.

The principle of priority is thus one of the most important effects of the registration system, inasmuch as the buyer can buy, safe in the knowledge that his or her right will take preference over any other, unregistered in-rem right, even if the challenger is of the same or a previous date.

To avoid property fraud of the sort consisting in a single seller’s selling the same property to different buyers, and also to avoid the sale of property as good and marketable when it is actually encumbered, a system of coordination between notarial and registration offices has been established for certainty in
property trade. Under the system, regulated in the Royal Decree of 29 December 1994, before a notary
authorizes a deed, the notary must fax the property registrar for information, save where the buyer waives this procedure on grounds of urgency.

Unopposability

“Unopposability” means that only registered encumbrances can be enforced against a person who buys
property relying on registry information. No other encumbrances can be enforced against the buyer.

An exception is made for what are called “tacit legal mortgages”, such as a property lien to secure payment of property tax or building owners’ association expenses for the last two years. These can be enforced even if not registered.

Unopposability is proclaimed in section 32 of the Mortgage Act, one of the most important sections together with section 34, which regulates the principle of conclusive title. The question of whether the requirements the third party must meet in order to be protected are or are not the same requirements that must be met for protection under conclusive title is hotly disputed in doctrine.

Conclusive title

This is the effect or basic standard of Spanish property registration law. The Registry ensures a single title of ownership and guarantees it against third parties, so a buyer who registers his or her title will never lose it through eviction as a consequence of any grounds for voiding the conveyor’s title.

Registration does not clear all grounds for voiding the buyer’s own title, but it does clear any grounds for
voiding the previous title (the title whereby the person who is now the conveyor acquired ownership). It is thus said that the possible nullity of registered titles or inaccuracy in the registry cannot be used to challenge sub-buyers who were not party to the contract and relied on registry information.

Only if the registry discloses some potential grounds for nullity (for example, through a caveat noting a
lawsuit) will the buyer not be protected by conclusive title.

So, these are the requirements in order for third parties to be protected: the person must be really a third party or sub-buyer; the person must have acquired the right non-gratuitously (In gratuitous acquisitions the acquirer enjoys no protection, unless the giver was already a protected third party); the purchase must be made from the registered owner of title; the purchaser must have his or her title registered;
and no grounds for voiding the title must be reported in the registry.

THE MORTGAGE

We cannot fail to make some special reference to that which is, after ownership, the most important in-rem right that is registered: the mortgage.

The legal concept of the mortgage has played a fundamental role in the development of the property market.

Practically all building that is not done y homeowners themselves is financed through mrtgages.

In the last five years, the balance of the mortgages handled by financial institutions has doubled to a volume of more than 600,000 million euro, which shows how important mortgages are in modern construction. The efficiency of our financial, mortgage and registration system has enabled Spain to enjoy the lowest mortgage interest rates in the world (around 3%).

The mortgage is an in-rem right to realize the value established to secure a pecuniary obligation. It is accessory and indivisible by nature and is constituted upon registration. It pertains to disposable immovable property and requires no bailment.

1. It is an in-rem right. Like the attachment, the mortgage involves a lien on an asset to secure payment
of a debt, but, unlike the attachment, the mortgage is an in-rem right, so all the principles of registration
(legitimation, unopposability, conclusive title and priority) operate in respect to the mortgage. As the inrem right that it is, the mortgage can be conveyed and can be encumbered with another in-rem
right (such as a submortgage). Thirdparty interventions with a paramount right cannot be mounted against a mortgage, because mortgages, unlike caveats of attachment, are inrem rights.
2. It is an in-rem right to realize value. That is the essence of the mortgage: that when the principal obligation becomes due, the collateral can be disposed of to pay off the lender.
3. The mortgage secures a pecuniary obligation. All kinds of obligations can be secured by mortgages, but potential non-performance by the debtor always has to be translated into economic terms. In obligations to furnish money, no such conversion has to be performed, but in all other obligations to give, do or refrain from doing things, the money equivalent of the obligation has to be established, just in case of nonperformance.
4. Accessory nature. A mortgage always requires an obligation to exist, on which it depends and which it
secures. Transfer of the debt entails transfer of the accessory rights, such as the mortgage.

The Act of 30 March 1994 on subrogation and novation in mortgage loans (decisive for the lowering of interest rates) set an exception to the principle of the accessory nature of mortgages by allowing borrowers to have their mortgage assumed by a new lender in the same secured legal relationship without the consent of the original lender when the borrower has obtained a new loan to satisfy the outstanding debt. In this case, the mortgage subsists with the same rank, despite the fact that it
secures an obligation whose financial conditions have been modified (usually improved interest
rates or repayment terms) and one of whose parties (the lender) has changed in person, albeit not in
function.
5. Indivisibility: The mortgage will subsist in its entirety until it is cancelled for all mortgaged assets,
even if the secured obligation is reduced. Similarly, if a mortgaged property is divided into two or more
new properties, the mortgage will not be distributed among them until and unless the lender and borrower voluntarily agree to do so.

Meanwhile, the lender can claim the entire secured sum from any of the new properties into which the
original property was divided or from all of them at once.
6. It is constituted upon registration. Without registration, a mortgage not only has no effects vis-à-vis third parties, but it cannot have any effects between the parties, either.
7. Lastly, mortgages are characterized by the fact that there is no bailment. The mortgaged asset remains in the borrower’s possession, not the lender’s, unlike what happens with a pledge. The borrower, owner of the mortgaged property, can convey the property to a third party without the need for the lender’s consent; any accord forbidding this would be void. Because of the mortgage, however, the conveyed property remains the direct, immediate collateral securing payment of the obligation, no matter
who its possessor is. This third-person acquirer of the mortgaged property who is thus affected by the mortgage is termed a “third possessor”, and, in the event of foreclosure, the foreclosure claim and the demand for payment must be addressed not only to the borrower, but also to the third possessor.

There is a special foreclosure procedure for registered mortgages that is characterized by going straight
to the forced realization stage without the need to have the asset valuated (That is why an appraisal price is accorded in advance) or the borrower located (Notice served at the address given in the registry is sufficient). The grounds for opposing foreclosure are very limited. The fundamental grounds are payment; so either proof of payment is shown, or the property is publicly auctioned and the sum is
used to pay off the lender, then subsequent lenders, and, lastly, if there is any surplus, it is delivered to
the owner of the auctioned asset.

The portfolio of mortgages in the hands of financial institutions serves as coverage for the issuance of mortgage certificates, bonds and securities (which is what is termed the “secondary” mortgage market, as opposed to the “primary” market made up of mortgage loans).

Spanish financial institutions have made a very great effort in recent years to cope with the demand for housing mortgage credit, which has forced them to seek financing in secondary markets through the issuance of mortgage certificates and bonds. They have been very successful. In fact Spain is, after
Germany, the second European country in terms of the importance and solvency of its secondary mortgage market, according to international ratings agencies.

New concepts in mortgage financing more in tune with the current needs of financial institutions have recently been introduced in Spain (Act 41/2007). These new concepts, such as the rechargeable mortgage, the “global” mortgage and the reverse mortgage, insert extra flexibility into the principle of
the accessory nature of mortgages. In Europe, work is underway at the request of the European Commission on a rapprochement of the mortgage legislation of the EU countries, as a step
previous to the unhurried future study of a European mortgage. This would involve the unification of such widely disparate matters as mortgage appraisals, consumer information legislation, usurious lending legislation, determination of the applicable legislation, regulation of foreclosure,
procedure for privileges vis-à-vis the mortgage, and so on.

[1] N.T.: A typically Spanish type of encumbrance involving a loan followed by payment of an annuity, secured by property.