The Hungarian Parliament recently adopted a significant amendment package to the Civil Code. The main body of the amendment entered into force on 1 October 2016. This amendment reintroduced the independent mortgage (önálló zálogjog) which used to be part of the Hungarian secured transactions regime under the former Civil Code, and refines the rules of the security deposit (óvadék). The primary aim of the amendment was to correct the Civil Code's legislative and conceptual shortcomings, and to simplify the operation of Hungarian financial institutions, as well as to ensure compliance with the Capital Requirements Regulation (CRR).

Independent mortgage

As of 1 October 2016 the independent mortgage replaced the unsuccessful and unpopular separated mortgage (különvált zálogjog), which proved insufficient for the needs of mortgage banks. The amendment not only reinstated the rules of the independent mortgage from the former Civil Code, but also significantly developed its regulation based on former practice and market standards. In turn, the amendment restricted the independent mortgage to real properties only, so that now only financial institutions may be the beneficiaries thereof. For this reason, the independent mortgage may be established over a real property in a way that it is not accessory to the underlying claim (ie the independent mortgage may be sold without the underlying claims).

The already existing separated mortgages will now be converted to independent mortgages upon the request of the mortgagor under a special process set out in the amendment act. The Hungarian government hopes that the benefits arising from the reinstitution of the independent mortgage will foster the market of mortgage bonds (jelzáloglevél) and promote the refinancing of the commercial banks.

Security trustee

The regulation of security trustees has also been amended. The earlier regulation provided that a security trustee (zálogjogosulti bizományos) may only be nominated at the conclusion of the mortgage agreement or thereafter. In practice, this caused problems because the security trustee was only in a position to act as a mortgagees' representative at the time of the conclusion of the mortgage agreement.

The amendment aims to satisfy practical needs and to establish a more effective framework for the security trustee. The new regulation will enable the nomination of a security trustee prior to the conclusion of mortgage agreement, which provides an opportunity for security trustees to conclude the contract in their own names, but, for the benefit of the other mortgagees.

Security deposit

The rules on security deposits have also been amended. According to the amendment, a security deposit may be put in place, not only on payment account balances, but also funds available through deposit account contracts. The amendment expands the scope of assets serving as collateral; furthermore it clarifies the wording of the rules in many instances.

Securities

From 1 January 2017 the regulation of securities will be simplified. Beside many technical changes (eg implementation of the specific capital market and procedural rules to the sectorial legislation because of consistency), the amendment simplifies the definition of securities and unifies the rules of transfer. It is expected that this change will enable the adaptation to international trends and will eliminate legal errors in accordance with the principle of an open market economy.

The new provisions of the amended Civil Code will apply to acts and contracts arising after the amendment entered into force.The Hungarian Parliament recently adopted a significant amendment package to the Civil Code. The main body of the amendment entered into force on 1 October 2016. This amendment reintroduced the independent mortgage (önálló zálogjog) which used to be part of the Hungarian secured transactions regime under the former Civil Code, and refines the rules of the security deposit (óvadék). The primary aim of the amendment was to correct the Civil Code's legislative and conceptual shortcomings, and to simplify the operation of Hungarian financial institutions, as well as to ensure compliance with the Capital Requirements Regulation (CRR).

Independent mortgage

As of 1 October 2016 the independent mortgage replaced the unsuccessful and unpopular separated mortgage (különvált zálogjog), which proved insufficient for the needs of mortgage banks. The amendment not only reinstated the rules of the independent mortgage from the former Civil Code, but also significantly developed its regulation based on former practice and market standards. In turn, the amendment restricted the independent mortgage to real properties only, so that now only financial institutions may be the beneficiaries thereof. For this reason, the independent mortgage may be established over a real property in a way that it is not accessory to the underlying claim (ie the independent mortgage may be sold without the underlying claims).

The already existing separated mortgages will now be converted to independent mortgages upon the request of the mortgagor under a special process set out in the amendment act. The Hungarian government hopes that the benefits arising from the reinstitution of the independent mortgage will foster the market of mortgage bonds (jelzáloglevél) and promote the refinancing of the commercial banks.

Security trustee

The regulation of security trustees has also been amended. The earlier regulation provided that a security trustee (zálogjogosulti bizományos) may only be nominated at the conclusion of the mortgage agreement or thereafter. In practice, this caused problems because the security trustee was only in a position to act as a mortgagees' representative at the time of the conclusion of the mortgage agreement.

The amendment aims to satisfy practical needs and to establish a more effective framework for the security trustee. The new regulation will enable the nomination of a security trustee prior to the conclusion of mortgage agreement, which provides an opportunity for security trustees to conclude the contract in their own names, but, for the benefit of the other mortgagees.

Security deposit

The rules on security deposits have also been amended. According to the amendment, a security deposit may be put in place, not only on payment account balances, but also funds available through deposit account contracts. The amendment expands the scope of assets serving as collateral; furthermore it clarifies the wording of the rules in many instances.

Securities

From 1 January 2017 the regulation of securities will be simplified. Beside many technical changes (eg implementation of the specific capital market and procedural rules to the sectorial legislation because of consistency), the amendment simplifies the definition of securities and unifies the rules of transfer. It is expected that this change will enable the adaptation to international trends and will eliminate legal errors in accordance with the principle of an open market economy.

The new provisions of the amended Civil Code will apply to acts and contracts arising after the amendment entered into force.