immovable presentation 23.6.09 (no notes)

8/6/2019 Immovable Presentation 23.6.09 (No Notes)

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Banker Workshop on theBanker Workshop on the

Mortgage Law and RegulationsMortgage Law and Regulations

Presented to the Afghanistan Bank Association by thePresented to the Afghanistan Bank Association by theoffice of General Counsel,office of General Counsel, Da Da Afghanistan Bank Afghanistan Bank

June 28,2009 June 28,2009


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O utline of PresentationO utline of Presentation

Regulations for MortgageRegulations for MortgageFinance Companies (MFCs)Finance Companies (MFCs)and banksand banks

Mortgage Law Mortgage Law -- rather thanrather thandiscussing every Article, thisdiscussing every Article, thispresentation will:presentation will:

Explain key terms.Explain key terms.Explain the basic principlesExplain the basic principlesand goals of the Law.and goals of the Law.Explain important features of Explain important features of the Law as they appear in eachthe Law as they appear in eachChapter.Chapter.

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RegulationRegulation

Regulation of MFCsRegulation of MFCsDAB will review applicationsDAB will review applications

NO DEPOSIT TAKINGNO DEPOSIT TAKING

Regulations set requirements for:Regulations set requirements for:-- licensing & governancelicensing & governance-- permitted/prohibited activitiespermitted/prohibited activities --minimum prudential standardsminimum prudential standards

-- reporting reporting

Compliance monitored by DABCompliance monitored by DAB

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Regulation (continued)Regulation (continued) ))((

Regulation of BanksRegulation of Banks Will Will

Track legal requirements Track legal requirementsFulfill DABs ArticleFulfill DABs Article 4141 duties toduties toestablish rules, regulations andestablish rules, regulations andproceduresproceduresFocus on:Focus on:-- processes/procedures forprocesses/procedures forcompliancecompliance

-- consumer protectionconsumer protection-- safety and soundness areas, e.g.safety and soundness areas, e.g.High Risk Mortgage ProductsHigh Risk Mortgage Products-- Articles needing more detail, Articles needing more detail,e.g. rules for public auction.e.g. rules for public auction.

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Why do we need a Mortgage law? Why do we need a Mortgage law?

This law brings a legal This law brings a legalframework & modernframework & moderninternational bestinternational best--practices topractices to

Afghanistan. Afghanistan.

Before the Mortgage Law it waspossible to obtain a loan that issecured by transferring the deedof your house to a bank. Butthat approach was costly and

difficult for banks to enforce when a borrower defaults. The Mortgage law will help tolower loan costs for borrowers.It provide fair protection for

banks and borrowers.

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K ey TermsK ey Terms

I mmovable PropertyI mmovable Propertymeans tangible items that cannot bemeans tangible items that cannot bemoved from one location to anothermoved from one location to another

without change in shape and without change in shape and

substance. Land, homes andsubstance. Land, homes andbuildings are Immovable Property.buildings are Immovable Property.

Mortgage of I mmovableMortgage of I mmovableProperty :Property :

the registered right to immovablethe registered right to immovableproperty that is transferred by itsproperty that is transferred by itsowner to the Mortgagee for their useowner to the Mortgagee for their useto secure the debt.to secure the debt.

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O ther K ey TermsO ther K ey Terms

Mortgagee Mortgagee is a lender who acceptsis a lender who acceptsa Mortgage as security for a loana Mortgage as security for a loan.. Mortgagor Mortgagor is the owner of is the owner of Immovable Property used to secure aImmovable Property used to secure aloan. The Mortgagor is usually theloan. The Mortgagor is usually theborrower, but does not have to be theborrower, but does not have to be theborrower.borrower. Mortgaged property Mortgaged property Is Immovable Property used to secureIs Immovable Property used to securea loan.a loan.

Mortgage deed:Mortgage deed: A written signed document by the A written signed document by theMortgagor and Mortgagee thatMortgagor and Mortgagee thatdescribes the features of mortgageddescribes the features of mortgagedproperty, terms of the mortgage, andproperty, terms of the mortgage, and

obligations of the parties.obligations of the parties.

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O ther K ey Terms ( Cont )O ther K ey Terms ( Cont ) ))((

Debt:Debt: The sum of money owed by Debtor The sum of money owed by Debtor(mortgagor) due to financing of the(mortgagor) due to financing of themortgage. Debt could be subject tomortgage. Debt could be subject tofinancing, penalties, indemnities andfinancing, penalties, indemnities andother liabilities.other liabilities. Default on Payment Default on Payment Failure to pay Failure to pay the Debt or the installment when duethe Debt or the installment when dueas set out in the Loan Agreement.as set out in the Loan Agreement. Default on performance Default on performance Failure toFailure toperform the obligations when due asperform the obligations when due asset out in the Loan Agreement.set out in the Loan Agreement. Power of sale Power of sale

After Default right of Mortgagee to After Default right of Mortgagee tocollect the amount of Debt from thecollect the amount of Debt from the

sale of the Mortgaged Property.sale of the Mortgaged Property.

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EX AMPL EEX AMPL E

Karim wants to buy aKarim wants to buy ahome. A bank lends Karimhome. A bank lends Karimthe money to buy thisthe money to buy thishome. This loan is thehome. This loan is theDebt Debt . The bank registers a. The bank registers aMortgage on the home toMortgage on the home tosecure the Debt.secure the Debt.Karim is theKarim is the Debtor Debtor andand

Mortgagor Mortgagor .. The bank is the The bank is the Mortgagee Mortgagee .. The home is the The home is the Mortgaged Mortgaged Property Property ..

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EX AMPL E ,EX AMPL E , c ontinued c ontinued

Samis son wants to buy landSamis son wants to buy landto build a home. The bank to build a home. The bank lends money to the son tolends money to the son tobuy the land. This loan is thebuy the land. This loan is theDebt Debt . The bank registers a. The bank registers aMortgage on Samis home toMortgage on Samis home tosecure the Debt.secure the Debt.Samis son is theSamis son is the Debtor Debtor ..Sami is theSami is the Mortgagor Mortgagor ..

The bank is the The bank is the Mortgagee Mortgagee ..Samis home is theSamis home is the Mortgaged Mortgaged Property Property ..

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CHAPT E R CHAPT E R 22: Creation of a Mortgage and: Creation of a Mortgage andRegistrationRegistration

:: A Mortgage may secure some or A Mortgage may secure some orall of a Debt.all of a Debt.More than one Mortgage may beMore than one Mortgage may be

allowed on the same Mortgagedallowed on the same Mortgagedproperty.property. The Mortgagor does not need to The Mortgagor does not need totake possession of thetake possession of theMortgaged property.Mortgaged property.Mortgage may be granted onMortgage may be granted onproperty that is jointly owned.property that is jointly owned.Failure to repay the Debt may Failure to repay the Debt may lead to loss of the Mortgagedlead to loss of the Mortgagedproperty.property.

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Creation of a Mortgage and Registration (Cont)Creation of a Mortgage and Registration (Cont)

Creating a Mortgage requires aCreating a Mortgage requires asigned Mortgage Deed and Loansigned Mortgage Deed and Loan

Agreement. (These can be Agreement. (These can becombined in one document).combined in one document).

The Mortgagor must provide a The Mortgagor must provide a written Document of Title that written Document of Title thatproves ownership of theproves ownership of theImmovable Property.Immovable Property.

The Mortgage must be properly The Mortgage must be properly

Registered in the Registry office.Registered in the Registry office.Registration requirement according Registration requirement according to Afghan Law.to Afghan Law.

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Requirements of Mortgage DeedRequirements of Mortgage Deed

Must Must show the maximum amount of show the maximum amount of a Debt in Afghani or foreigna Debt in Afghani or foreigncurrency.currency.Must Must clearly identify the Mortgagor,clearly identify the Mortgagor,Mortgagee, and Debtor.Mortgagee, and Debtor.

Must Must state each partys rights,state each partys rights,remedies, duties and obligations,remedies, duties and obligations,including the possibility that defaultincluding the possibility that defaultmay result in loss of property.may result in loss of property.Must Must be signed by Mortgagor,be signed by Mortgagor,Mortgagee, or their authorizedMortgagee, or their authorizedrepresentatives, as well as a witness.representatives, as well as a witness.May May include other requirements, if include other requirements, if they are consistent withthey are consistent with the law.the law.

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Requirements of a Loan AgreementRequirements of a Loan Agreement

Must Must be in writing and identify thebe in writing and identify theDebtor, if different from theDebtor, if different from theMortgagor.Mortgagor.Must Must include a clear promise to repay include a clear promise to repay the total amount of debt subject tothe total amount of debt subject to

the Mortgage.the Mortgage.Must Must include details on when, where,include details on when, where,and how the loan is to be repaid.and how the loan is to be repaid.Must Must be signed by Mortgagor,be signed by Mortgagor,Mortgagee, or their authorizedMortgagee, or their authorizedrepresentatives, as well as a witness.representatives, as well as a witness.May May include other requirements, if include other requirements, if they are consistent withthey are consistent with the law.the law.

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Law Also Requires Mortgagor to:Law Also Requires Mortgagor to: ::

Ensure the loan is repaid on time.Ensure the loan is repaid on time.Not sell the Mortgaged Property Not sell the Mortgaged Property

without the Mortgagees permission. without the Mortgagees permission.Pay all public charges on thePay all public charges on the

Mortgaged Property, and not allow Mortgaged Property, and not allow encumbrances or liens against theencumbrances or liens against theMortgaged Property.Mortgaged Property.Keep the Mortgaged Property inKeep the Mortgaged Property ingood condition.good condition.

Allow the Mortgagee to inspect the Allow the Mortgagee to inspect theMortgaged Property during regularMortgaged Property during regularbusiness hours.business hours.Insure the Mortgaged property Insure the Mortgaged property ( Except for Land) in accordance( Except for Land) in accordance

with the local standards. with the local standards.

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Law Also Requires Mortgagee to:Law Also Requires Mortgagee to: ..

Provide financing to the MortgagorProvide financing to the Mortgagorand apply repayments as agreed.and apply repayments as agreed.Produce a written accounting of how Produce a written accounting of how repayments are applied at least every repayments are applied at least every

three months.three months.Maintain normal business hours toMaintain normal business hours toreceive payments from thereceive payments from theMortgagor.Mortgagor.Not disturb the Mortgagor,Not disturb the Mortgagor,Borrower, or any other person thatBorrower, or any other person thatlawfully occupies the Mortgagedlawfully occupies the Mortgagedproperty as long as the Mortgagorproperty as long as the Mortgagorcomplies with the Mortgage Deedcomplies with the Mortgage Deedand Loan Agreement.and Loan Agreement.Give special disclosure if MortgagedGive special disclosure if Mortgaged

property is a home.property is a home.

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CHAPT E R CHAPT E R 33: E ffects of Mortgage on: E ffects of Mortgage on 3 3rdrd Parties,Parties,Priority of MortgagesPriority of Mortgages

:: Where there is more than one Where there is more than oneMortgage on the same MortgagedMortgage on the same Mortgagedproperty, the Mortgage Law property, the Mortgage Law determines the order, or priority, indetermines the order, or priority, in

which claims are enforced: which claims are enforced:Priority is based on the first toPriority is based on the first toregister a Mortgage.register a Mortgage.Mortgagee is responsible to check Mortgagee is responsible to check Registry and confirm that a MortgageRegistry and confirm that a Mortgageis recorded, has not lapsed, etc.is recorded, has not lapsed, etc.Special rules exist for:Special rules exist for:

Persons that provide materials orPersons that provide materials orservices to a Mortgaged Property services to a Mortgaged Property but are not paid.but are not paid.Execution creditors.Execution creditors.

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CHAPT E R CHAPT E R 33: E ffects of Mortgage on: E ffects of Mortgage on 3 3rdrd Parties, (Cont)Parties, (Cont) :: ))((

SubordinationSubordination A Mortgagee with priority can agree A Mortgagee with priority can agreeto allow another mortgagee to haveto allow another mortgagee to havepriority.priority.

It called Subordination AgreementIt called Subordination Agreementand must be in writing and recorded.and must be in writing and recorded.

33rdrd Party Transfer subject toParty Transfer subject toregistered Mortgagesregistered MortgagesPerson who acquires ownershipPerson who acquires ownershiprights takes subject to registeredrights takes subject to registeredMortgages.Mortgages.

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CHAPT E R CHAPT E R 44: Transfer of Mortgages: Transfer of Mortgages :: )) ((

Mortgagor can transfer MortgageMortgagor can transfer Mortgageloans to third parties.loans to third parties.

Transfer requires the Transfer requires the

Mortgagees written consent.Mortgagees written consent.Mortgagees can transferMortgagees can transferMortgage loans toMortgage loans to 33rdrd partiesparties

without the Mortgagor s without the Mortgagor sconsent.consent.

When the Mortgage has been When the Mortgage has beenproperly transferred by properly transferred by Mortgagee, payments and otherMortgagee, payments and otherobligations are owed to theobligations are owed to the

Transferee. Transferee.

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CHAPT E R CHAPT E R 55: Non: Non--Payment and Non PerformancePayment and Non Performance ::

Default occurs when loan paymentsDefault occurs when loan paymentsare not made as agreed by theare not made as agreed by theMortgagor. It may also occur whenMortgagor. It may also occur whenthe Mortgagor does not keep otherthe Mortgagor does not keep other

obligations.obligations.Upon Default, the Mortgagee mustUpon Default, the Mortgagee mustgive written notice of the default togive written notice of the default tothe Mortgagor.the Mortgagor.

When Mortgaged property is not a When Mortgaged property is not aHome , Mortgagor hasHome , Mortgagor has 3535 days todays to

remove the default.remove the default. When Mortgaged property is a Home , When Mortgaged property is a Home ,Mortgagor hasMortgagor has 6060 days to remove thedays to remove thedefault.default.

The parties may agree to longer periods The parties may agree to longer periodsin the Mortgage Deed or Loanin the Mortgage Deed or Loan

Agreement. Agreement.

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Default and Power of SaleDefault and Power of Sale

If a Mortgagor does notIf a Mortgagor does notremove the default with aremove the default with aspecified time, the Mortgageespecified time, the Mortgageemay take the following may take the following actions:actions:

Require Mortgagor to deliver allRequire Mortgagor to deliver allrents, profits or other paymentsrents, profits or other paymentsrelated to the Mortgaged Property related to the Mortgaged Property to the Mortgagee.to the Mortgagee.

Direct tenants to pay all rents,Direct tenants to pay all rents,profits or other payments relatedprofits or other payments relatedto the Mortgaged Property to theto the Mortgaged Property to theMortgagee; orMortgagee; orSell the Mortgaged Property underSell the Mortgaged Property undera Power of Sale.a Power of Sale.

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Default and Power of Sale,Default and Power of Sale, c ontinued c ontinued

The Mortgagor submits certain The Mortgagor submits certaindocuments to a court showing thedocuments to a court showing theterms of the Mortgage and theterms of the Mortgage and thedefault.default.

The court must approve the Power The court must approve the Powerof Sale if the documents comply of Sale if the documents comply with the Law. The Mortgagor may with the Law. The Mortgagor may then proceed with a sale of thethen proceed with a sale of theMortgaged Property.Mortgaged Property.If the court does not rule withinIf the court does not rule within 2020days, the Mortgagor may proceeddays, the Mortgagor may proceed

with a sale. with a sale.

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Default and Power of Sale,Default and Power of Sale, c ontinued c ontinued

The Law provides protection for The Law provides protection forMortgagors accused of default.Mortgagors accused of default.

The Mortgagor or another Person The Mortgagor or another Person with rights to the property may ask with rights to the property may ask the court to stop or a delay athe court to stop or a delay a

Power of Sale when:Power of Sale when: There is no default or the Debt There is no default or the Debthas been paid.has been paid.Proper notice was not given;Proper notice was not given;Not enough time has passedNot enough time has passed

since the notice of default .since the notice of default .Other violations of the Law Other violations of the Law have occurred.have occurred.

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Right to Redeem the Mortgaged property andRight to Redeem the Mortgaged property andNotices of saleNotices of sale

Before power of sale theBefore power of sale themortgagor or anothermortgagor or anothermortgagee can redeem themortgagee can redeem the

property by paying theproperty by paying theunpaid debt.unpaid debt.Before power of saleBefore power of saleMortgagee should issue twoMortgagee should issue twofollowing type of notices:following type of notices:

Specific written notice of sale toSpecific written notice of sale tomortgagor, other mortgagees andmortgagor, other mortgagees andlien holders.lien holders.Public general notice inPublic general notice inpublication or other possiblepublication or other possiblemeans.means.

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Power of sale, Auction & PricingPower of sale, Auction & Pricing

A Power of Sale over Mortgaged Property A Power of Sale over Mortgaged Property may take place by public auction or privatemay take place by public auction or privatesale at any time or place undersale at any time or place undercommercially reasonable conditions.commercially reasonable conditions.

The Mortgagee may elect to lease the The Mortgagee may elect to lease theMortgaged Property to a third party orMortgaged Property to a third party orpurchase the Mortgaged Property at apurchase the Mortgaged Property at apublic sale.public sale.

The Mortgagee may not accept a price for The Mortgagee may not accept a price forthe Mortgaged property that is less thanthe Mortgaged property that is less than7575% of the value of comparable% of the value of comparableImmovable property.Immovable property.

The property can be sold at lower price, if The property can be sold at lower price, if the Mortgagee holds at least two openthe Mortgagee holds at least two openauctions and can prove by documents thatauctions and can prove by documents thatneither auction produced a price more orneither auction produced a price more orequal to the amount of equal to the amount of 7575% of the% of theproperty value.property value.

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E ffects of Power of sale and its reportE ffects of Power of sale and its report

A Power of Sale over Mortgaged A Power of Sale over MortgagedProperty terminates the Mortgage, any Property terminates the Mortgage, any Mortgage or Lien with lower priority Mortgage or Lien with lower priority and the Mortgagors interest in theand the Mortgagors interest in theMortgaged Property.Mortgaged Property.

The Mortgagee shall present to the The Mortgagee shall present to the

mortgagor a written report of themortgagor a written report of thefollowing information within ( following information within (77) days ) daysafter exercising the power of sale;after exercising the power of sale;copy to other mortgagee and personscopy to other mortgagee and persons

who have right of lien registered in the who have right of lien registered in therelevant registry:relevant registry:

Received amounts.Received amounts.Paid amount for the incurred expenses.Paid amount for the incurred expenses.Paid expenses for the payment of the debt.Paid expenses for the payment of the debt.Paid amounts to the Junior mortgagees orPaid amounts to the Junior mortgagees orthe persons who have right of lien againstthe persons who have right of lien againstthe property.the property.Paid amount to the mortgagor.Paid amount to the mortgagor.

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Registration of Registration of Document of Title after Ex ecution of Power of SaleDocument of Title after Ex ecution of Power of Sale

The registration of The registration of Document of Title afterDocument of Title afterpower of sale, can be madepower of sale, can be madeby one of the following by one of the following persons:persons:

11. mortgagor. mortgagor22. mortgagee who is the. mortgagee who is thecompetent representative of competent representative of Mortgagor.Mortgagor.

The Registration office shall The Registration office shallaccept and register the saleaccept and register the saleand ownership documents,and ownership documents,

which are completed by which are completed by

aforementioned persons.aforementioned persons.

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Chapter Si x ,Chapter Si x , Miscellaneous ProvisionMiscellaneous Provision

Provisions of theProvisions of theMortgage Law does notMortgage Law does notapply to :apply to :

lease of Immovablelease of Immovableproperty.property.Mortgages that are existedMortgages that are existedbefore Mortgage law.before Mortgage law.

Authorized Court Authorized Court Creation of regulation, rulesCreation of regulation, rulesand procedures.and procedures.

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immovable presentation 23.6.09 (no notes)

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