The Official Mortgage

The official mortgage is a contract whereby the creditor acquires a property dedicated to the fulfillment of his or her debt in kind, whereby he or she may apply to ordinary creditors and the following creditors in order to obtain the right of the price of that property in any hand.

The mortgage is a contract concluded between the mortgagor and the mortgagee creditor which grants the mortgagee right in rem in the property, with all advantages and real security over the mortgage item. Additionally, the mortgagor has the right to follow the mortgaged property if it is transferred to a third party. The mortgagor retains ownership and possession of the mortgaged property but is limited in their disposal rights to ensure the mortgagee’s interests are protected.

The difference between the official mortgage and the possessory mortgage

The official mortgage is created through an official contract, that must be notarized in a notary public office.

While the right of possessory mortgage is created through unofficial contract. Whereas the ownership and possession of the mortgaged property in the official mortgage right remains in the hand of the owner (debtor), and the possession in the possessory mortgage is transferred to the creditor.

The official mortgage is restricted to real estate, while the possessory mortgage can cover both real estates and movable properties.

The obligations of the mortgagor and the mortgagee creditor in the official mortgage

The Egyptian Civil Law No. 131 of 1948 and its amendments regulate the obligations of the mortgagor and mortgagee in Chapter Two as follows:

The Mortgager’s obligations:

The mortgagor is obligated to deliver the mortgaged property to the creditor or to a designated representative chosen by both Parties in the contract.

The legal requirement for a seller to deliver a sold item will be applied to the mortgagor’s responsibility to deliver the mortgage item to the mortgagee.
If the mortgaged property is returned to the mortgager’s possession, the mortgage shall be expired, unless the mortgagee proves that the property has been returned for a reason not intended to expire the mortgage.

The mortgagor guarantees the integrity and enforceability of the mortgage, and the mortgagor shall not take any action that diminishes the value of the mortgage or impedes the creditor’s exercise of his rights under the contract. In case of urgency, the mortgagee creditor may take all necessary measures at the mortgager’s expense, to preserve the mortgage item. The mortgagor shall be liable for the loss or damage of the mortgage item if such loss or damage is due to his fault or arises from force majeure act.

The provisions of Articles No. 1048 and No. 1049 regarding the loss or damage of the mortgaged property under an official mortgage, and the transfer of the creditor’s right from the mortgage item to any substituted rights shall apply to the possessory mortgage.

The Mortgagee’s obligation:

Upon receiving the mortgaged property, the mortgagee is obligated to exercise the same level of care and maintenance in its preservation as would a prudent person. and he is liable for the loss or damage of the mortgage item unless it is proven that such loss or damage was caused by an external factor beyond his control.

The mortgagee is not permitted to derive any benefit from the mortgage item without compensation , he must invest it fully unless otherwise agreed Any net revenue or benefit derived by the creditor from the use of the mortgage item shall be deducted from the amount secured by the mortgage, even if the due date has not yet come, provided that the deduction shall be made from the cost of preserving and repairing the property and its repairs, then from expenses and interest, and then from the principal of the debt.

If the mortgage item produces revenue and the parties agree that all or part of the revenue will be used to offset the interest, in, this agreement shall be valid within the maximum limits of legally permissible contractual interest.

The mortgagee shall assume the management of the mortgaged property , and he must exercise in that the care of a prudent person . The mortgagee cannot modify the mortgage item’s use without the mortgager’s approval . He must promptly notify the mortgagor of any matter requiring his intervention.

If the mortgagee abuses this right, mis-manages the property, or commits gross negligence, the mortgagor has the right to request that the item be placed under custody or to reclaim it upon payment of the outstanding debt. if the amount secured by the mortgage does not bear interest and has not yet become due, the mortgagee is entitled only to remaining amount after deducting the value of interest calculated at the legal rate for the period between the day of payment and the due date of the debt.

The mortgagee shall return the mortgaged item to the mortgagor after the mortgagor has fully discharged their obligation including all expenses and compensation related to the right.

Effects of the official mortgage in the Egyptian law

The effect of the mortgage between the contracting parties:

Firstly: The mortgager:

The mortgagor may dispose of the mortgaged property as long as such actions do not impair the mortgagee’s right.

The mortgagor retains the right to manage the mortgaged property and to collect its returns and leases granted by the mortgagor are not enforceable against the mortgagee unless it was notarized before the registration of the expropriation notice.

However, if the lease was not notarized in this way, or it was concluded after notarizing the notice and the rent was not paid in advance, so it will not be effective unless it can be considered part of the good management work. If the lease term prior to notarizing the mortgage notice exceeds nine years, it will not be effective against the mortgagee creditor except for a period of nine years only unless it was registered before the mortgage was registered.

The mortgagor is responsible for ensuring the safety of the mortgage property. The mortgagee creditor has the right to object to any actions or negligence by the mortgagor that could significantly diminish the value or safety of the property, and in urgent cases the mortgagee may take necessary protective measures and seek reimbursement from \the mortgagor , from any expenses incurred.

If the mortgagor negligently causes the destruction or damage of the mortgaged property, the mortgagee creditor has the option to demand adequate insurance to cover the loss or to immediately collect the full outstanding debt.

When the destruction or damage to the mortgaged property is caused by an external factor and the mortgagee refuses to accept the debt without insurance, the mortgagor has the option to provide adequate insurance or pay off the debt immediately before the due date. If the debt has no interest, the mortgagee is only entitled to the principal amount without legal interest for the period between the actual payment date and the original due date.

Secondly: The mortgagee creditor:

A third-party mortgagor’s personal assets are exempt from seizure for the debtor’s debt. The mortgagor cannot substitute payments for the debtor unless agreed upon.

Upon notifying the debtor of the outstanding debt , the mortgagee has the right to foreclose on the mortgaged property and requests its sale in accordance with the procedures and timelines stipulated in code of Civil Procedures. If the mortgagor is a third party other than the debtor, he can avoid any foreclosure proceedings by voluntarily surrendering the mortgaged property according to the procedures and rules governing property surrender.

Any agreement that grants the mortgagee the right to take ownership of the mortgaged property at a predetermined price upon debt default or to sell it without following the legally mandated procedures is invalid, even if entered into after the mortgage agreement. However, after the debt or a portion of it has matured, the debtor and mortgagee can agree that the debtor will transfer the mortgaged property to the mortgagee in fulfillment of his debt.

The official mortgage and its effect to the third party:

An official mortgage is only enforceable against third parties if the mortgage contract or judgment establishing the mortgage is registered before the third party acquires a right in rem in the property. This is without prejudice to the provisions of bankruptcy laws.

Additionally, third parties cannot assert claims based on an unregistered secured right, the substitution of one creditor for another in this right, or the assignment of registration priority to another creditor unless such actions are noted in the margin of the original registration.

The procedures for registration, renewal, cancellation, and cancellation an official mortgage, as well as the effects thereof, are governed by the provisions of the Real Estate Registration Law. The costs of registration, renewal, and cancellation of an official mortgage are borne by the mortgagor unless otherwise agreed upon.

The termination of the official mortgage:

An official mortgage terminates upon the fulfillment of the secured debt or the nullification of the underlying cause for the debt. However, any bona fide rights acquired by third parties during the period between the mortgage’s expiration and its potential reinstatement remain unaffected.

If foreclosure proceedings are completed, the official mortgage is definitively extinguished, even if the property ownership changes hands. When the mortgaged property is sold through a forced auction, the mortgage rights expire upon the deposit of the auction proceeds or their payment to eligible registered creditors.