Legal Updates

When an apartment is not recorded at the land registry there in no need for any recording for a pledge to obligate a receiver in bankruptcy

May 14, 2020

A person took out a loan and against it mortgaged his rights in an apartment. Because the apartment has not yet been recorded at the Land Registry, the mortgage was registered only with the Mortgage Registrar and not in the Land Registry and even a cautionary note on the future obligation to record a mortgage was not recorded. Almost two years after the date of recording, the person went into bankruptcy proceedings.
The court held that the pledge was recorded in bad faith and without consideration and is therefore void. A pledge is made by an agreement between a debtor and a creditor and on the level of the relationship between the two no further act is necessary to affect the pledge. However, in order affect the mortgage vis-a-vis other parties recording is required and when it comes to a mortgage on real estate, recording in the Land Registry is required. Here the debtor had no real estate rights but only a contractual right to receive the apartment and therefore recording with the Mortgage Registrar was sufficient and no recording of a cautionary note was required in the Land Registry on an undertaking to register a mortgage in the future. If a person has granted a property (including grant of a pledge) and became bankrupt before two years have elapsed from the date of the grant, the grant is void unless made in favor of a purchaser or pledgee in good faith and against a valuable consideration. Here, the pledge was not made in respect of funds transferred under it but to secure funds already transferred in the past, when the creditor knew of the debtor's financial difficulties and when the debtor went into bankruptcy in less than two years and therefore the pledge is void.