Changes to the Serbian Mortgage Act (“Act”) that have entered into force on 16 July, 17 July, and 11 October 2015, respectively, attempt to provide a more expedient framework for foreclosure proceedings by introducing novel solutions that should lead to a higher percentage of successful forced collections of creditors. The most important amendments are that any creditor may initiate foreclosure proceedings, all lower ranked mortgages are deleted after the sale of mortgaged real estate, and that direct sale of real estate is now possible prior to the announcement of a public auction if at least 90% of real estate’s estimated value is achieved.

Initiation of the proceedings. Any creditor, regardless of ranking and timeliness of its claim, may commence with foreclosure proceedings in order to enforce its claim from the mortgagor.

Less restrictive conditions for enforceability of a mortgage. Prior to the amendments of the Act, a mortgage agreement had to contain an express approval of the mortgage by the person who has factual possession over mortgaged real estate (and is not the owner – e.g. a lessee) in order to establish the mortgage agreement as an enforceable instrument within the meaning of Serbian law. This requirement was deleted from the Act, thus allowing a simplified procedure for mortgaging business premises or other objects that are leased to a larger number of persons.

Appointment of third persons. Mortgagee/s may appoint a third person to undertake all relevant legal actions necessary to preserve and protect the collection of its claim/s regarding the mortgaged real estate.

More favorable terms for sale of mortgaged real estate. One of the main changes, which significantly contribute to the effectiveness of the new Act, is the possibility of selling mortgaged real estate directly prior to the announcement of a public auction if 90% of real estate’s estimated value is achieved with the buyer. Additionally, if the first public auction fails, direct sale is possible at 60% of the mortgaged real estate’s estimated value. Out-of-court sale proceedings must be finished within 18 months from the moment that the decision on the annotation of mortgage sale becomes final; otherwise the said annotation shall be deleted from the register by the competent cadaster.

Deletion of mortgages after sale. The Act corrected previous deficiencies regarding to the persistence of lower ranked mortgages after the foreclosure on a higher ranked mortgage as it stipulates that all mortgages shall be deleted upon the sale of real estate in the foreclosure proceedings based on the first ranked mortgage.

Incorporation of the Constitutional Court decision. In April 2015, the Constitutional Court rendered one provision of the Act invalid since it explicitly did not allow any court proceedings or legal recourse against the second instance decision on registration of annotation on sale of mortgaged real estate. The second instance decision is now subject to administrative court proceedings.