The usefulness of mortgage collateral

Posted on 25-10-2022 by F. Geurtsen

At Crowdrealestate you can only invest in real estate projects with mortgage collateral. A mortgage right is the most important security right you can have as an investor. At Crowdrealestate, this can be a first or a second right of mortgage. Besides the rank in mortgage, the underlying value of the mortgage right is very important here. This article explains the usefulness of mortgage collateral.

The usefulness of mortgage collateral

A mortgage lien is a security interest in a registered property. A registered property can be either movable or immovable and is registered in the public registers, such as the land register in the Netherlands and the Grundbuchamt in Germany.

A mortgage right is established as security for granting a loan. For this purpose, the mortgagor (owner) gives a mortgage right to the mortgagee (lender). With a mortgage right, the mortgagee is given priority over all other creditors at the time the money owed is not paid.

Mortgage rights can only be established via a notarial deed. The mortgage deed states the rank of the mortgage right and the amount for which the security is registered.

Enforcing a mortgage right

In most cases, the owner of the registered property (the mortgagor) will notice little of the mortgage right. But that becomes different when the obligations towards the mortgagor are not met. At that point, the possibility arises for the mortgagee to proceed to so-called foreclosure. The final proceeds are paid first to the first mortgage holder and then to any second and third mortgage holders. The remainder is distributed to creditors without mortgage rights.

Besides an enforced sale, it is also possible to sell the registered property privately with the court's permission. In many cases, a private sale yields more than a foreclosure sale.

The loan-to-value

The underlying value in relation to the loan amount is very important when enforcing a mortgage right. This can be expressed as a percentage and is called the loan-to-value. The lower the loan-to-value, the lower the risk for the mortgagee. This is because the excess value is then greater.

To determine the underlying value of the mortgage right, an appraisal report is therefore drawn up by an independent appraiser for each Crowdrealestate proposition. This appraisal report includes the market value and foreclosure value of the property.

Additional securities

Besides the mortgage on the real estate, additional collateral can also be provided. The most common is a pledge of rent payments. If the interest or principal is not paid, the lender can claim the rent directly from the tenant and does not have to go to court first. To strengthen the underlying value, mortgage rights can also be established on additional registered property or any security deposits.

Foundation Collateral Agent Crowdrealestate

To safeguard the interests of all investors in a proposition, the Foundation Collateral Agent Crowdrealestate has been established. This independent foundation aims to guarantee the mortgage collateral of a proposition for investors. The mortgage right is registered in the name of this foundation and therefore does not need to be registered separately for all investors.