Legal Updates

Warning note recorded after a mortgage and without the pledging bank’s consent will be canceled should the bank realize the mortgage

December 16, 2018

A purchaser of a house wrote a warning note without receiving the bank's approval, the same bank that the house was mortgaged in his favor. The home seller went into insolvency and the house was sold by the bank as part of the mortgage realization proceedings.

The Court held that the buyer of the property is an ordinary creditor and not a secured creditor, which has a priority over the seller's other creditors. A secured creditor status is granted to a person who has the ability to pledge or hold on the debtor's assets or some of them, as a guarantee for the debt owed to him by the debtor. A warning note only prevents registration of conflicting transactions and therefore does not confer the status of a secured creditor even though it creates priority against later foreclosures for its registration. A warning note that is registered is subject to the right of the bank with the first degree mortgage and since the bank, which has the first degree mortgage, did not give its approval for the warning note and later exercised its right according to the mortgage, the actual realization of the mortgage causes the cancellation of the warning note and made the purchaser of asset an ordinary creditor.