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What are the typical providers of real estate financing in your jurisdiction? Are there any restrictions on who may provide financing?
The major local and Nordic banks (eg, Nordea Bank, Danske Bank and Skandinaviska Enskilda Banken AB) have been active real estate financiers. Debt finance is easily available for real estate investments and transactions. However, the volume of debt funds for real estate investments has been insignificant in Finland so far.
There has been an increasing interest in high yield bonds as an alternative to bank financing in the real estate market. Sale and leaseback arrangements are also occasionally used in relation to real estate.
To date, real estate securitisation has been uncommon in Finland.
What are the most common structures used to secure real estate financing and how are these security interests perfected?
Typically, lenders protect themselves by means of a security package which includes:
- a real estate mortgage;
- a pledge of rental income;
- a pledge of shares (in case of indirect real estate ownership);
- a pledge of the borrower's bank account; and
- a pledge of insurance receivables.
A real estate mortgage is the most common security interest in relation to real estate.
The owner can apply to the National Land Survey for registration of the mortgage if the owner's title has been registered with the Land Register. The application can also be submitted electronically.
The registration of a mortgage instrument does not in itself create a security interest. A security interest in favour of a creditor is created only by pledging mortgage instruments to secure the payment obligation under the creditor's receivable.
Written form is required to create a mortgage instrument. No notarial deed is needed.
A mortgage instrument can be pledged to secure the owner's debt or to secure the payment obligation of a third party.
A pledge of mortgage instruments is not registered with the Land Register. Therefore, the Land Register does not show whether:
- real estate is being used to secure payment of debt through a pledge of mortgage instruments;
- the owner still holds them; or
- they may be used in future to secure obligations.
The mortgage is perfected by the owner of the real estate pledging the mortgage instruments to the creditor under the receivable to be secured.
In addition, possession of the physical mortgage instruments (ie, if not issued in electronic form) must be transferred to the creditor or pledgee for the mortgage to be binding on third parties.
A pledge of mortgage instruments is created in a pledge agreement (declaration of will to pledge). There are no specific formal requirements for the pledge agreement, but written form is advisable for evidence purposes.
What covenants are typically made in financing agreements?
In addition to the security package referred to above, the lender typically requires the borrower to give various financial covenants. The main financial covenants are loan-to-value, interest cover covenant and debt service cover covenant.
Enforcement of security
How are security interests enforced in the event of default?
An enforcement outside bankruptcy or administration will require an enforceable court decision on the claim, followed by the sale of the mortgaged real estate by the public enforcement authorities. In some cases the public enforcement authorities may authorise the mortgagee, a third party or the debtor to sell the property.
What is the typical timeframe for the enforcement of security?
The enforcement of security is usually time consuming and may last for several months (or even longer) depending on the specific case.
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