Mortgages are defined as the debt instrument, loans in which obtained movable, or immovable is put up as collateral for the loan, wherein a debtor who defaults on a loan is subject to have his property pledged. The debtor is obliged to pay back with a predetermined set of payments.
There are different types of mortgages that guarantee the debtor’s rights such as the mortgage of movables, immovable and commercial pledge.
According to the Egyptian Civil Law No. 131 of the year 1948, the pledge guarantees that the debt will be fulfilled by the debtor in accordance with a contract of pledge on a movable or immovable to be delivered to the creditor. In case of non-fulfillment of the debtor’s obligations, the Pledge contract shall be notarized, which will determine the rights in rem of lenders, and the debtors rank of collecting their amounts due.
The debt may be guaranteed by a conditional or future debt, but the amount of the debt shall be fixed clearly in the mortgage contract.
The subject of the pledge may be a guarantee of a debt that depends on a condition of a debt of the future or a possible debt.
Movables, immovable (Real Estate) and assets cannot be pledged unless the subject of the pledge can be sold independently in a public auction.
Immovable (real estate immovable)
A contract shall be concluded over the immovable in order to be valid and effective between the parties and vis-à-vis third parties, such contract shall be written and legalized. The registration and notarization of the property is necessary for the mortgage to ensure its validation and enforceability against third party, and the time of the registration determines the priority between the secured creditors.
The debtors may carry any disposition on the pledged object (i.e. may sell or rent) without affecting the rights of the creditors or their interest.
The mortgagee is obligated to maintain and pay the necessary annual expenses and taxes regarding the pledged property and shall not undertake any action, which may diminish the value of the mortgaged property as he will be responsible for any damages occuring to the pledged property unless such damages occurred due to a cause other than his negligence or due to force majeure.
If the property appears to be damaged or diminishing in value, the mortgagor may apply for remedies equivalent to the amount of debt.
The mortgage shall be constituted through a written guarantee contract including the establishment date, the amount guaranteed and indicating the mortgaged movable.
Article 6 of the Movables Guarantee Law stipulated that the notarization of the security interest on the movables should be through the registration registry according to the electronic form, prescribed for that purpose.
The debtor is obliged to notify the creditor, in case of the occurrence of any external matter(s) that may prevent the creditor from collecting his collaterals.
If the object of mortgage has been threatened with loss or to be damaged and its amount may become insufficient to guarantee the mortgagee’s right the creditor may submit a request to the Judge to sell the object through a public auction or the Stock exchange or the Market.
The Movable guarantees also regulated by the Egyptian Movable Guarantee Law No. 115 of the year 2015.
There are Movables that cannot be mortgaged such as:
- Movables that are owned by the government, governmental authorities or owned by the foreign embassies with immunities;
- Privileges that are granted by the country, the public authorities, or the public juristic persons;
- Movables owned by banks (except for the financing of their purchase);
- Movables specialized for personal usage or home usage unless to finance its purchase; and
- Co-owned movables, unless all the owners agree on establishing the security interest.
Debts that are related to declaring bankruptcy and commercial matters are regulated in Chapter Three of the Egyptian Trade Law No.17 of the year 1999; the Chapter guarantees the reimbursement of debts and the rights of the creditors.
For the mortgage to be enforceable towards third parties, it requires that the mortgage transferred to the mortgagor and it doesn’t require the mortgage to be written or registered by date and may be easily proofed with its amount value.
The debtor shall proceed all the important procedures, which are necessary for ensuring the maintenance of the mortgaged object.
If the debtor failed to pay the debt guaranteed to the creditor at its maturity date, after a lapse of five days from the notification date of paying the debt by the creditor, the creditor has the right to submit a petition to the competent judge to sell whole or part of the mortgaged object. In case the mortgaged object value decreased in the market that it becomes inadequate to guarantee the debt, the creditor may apply for providing to the debtor an extension of time to complete the guarantee, if the debtor refuses that, or the defined date lapses without the guarantee being completed thereby, the creditor has the right to claim and collect his guarantees.
In case the mortgaged object appears to be in danger or its maintenance requires exorbitant expenses, and the debtor refuses to replace the object, the debtor may request to the competent judge to issue a court writ authorizing him to sell the object.
The security over collaterals are regulated by three laws which emphasize the guarantee of the rights of the creditors and prevent the non-reimbursement of their debts, also the laws regulated the obligations of the debtor towards the mortgaged object and the circumstances where the mortgagee fails to fulfill his obligations. Hence, the three laws in Egypt are in place for protecting the creditors and their investments.