Conditions and Legal Consequences
A mortgage is the encumbrance of immovable property to secure the fulfillment of an existing or future financial obligation, where the pledged property is not transferred to the creditor. A mortgage does not deprive the owner of the right to possess, use, or dispose of the pledged property, subject to the rights of the mortgage creditor. Subsequent encumbrance of the pledged property is permitted unless otherwise specified in the mortgage agreement (deed).
The object of a mortgage may be individual immovable property registered in a public register, not excluded from civil circulation, and capable of being sold at public auction. A mortgage of immovable property does not cover the income derived from such property.
When the main property is mortgaged, it is deemed that the existing and future accessories attached to the main property, either by the will of the owner or due to natural events, are also mortgaged.
If immovable property is mortgaged which requires movable items for its intended use, it is deemed that such movable items also become part of the mortgage – including those that will become the mortgagor’s property in the future – unless otherwise stipulated in the mortgage agreement or in the unilateral declaration of the property owner. Only insured property may be mortgaged, except for land.
A mortgage of immovable property also covers insurance compensation for that property.
If a part of a property owned by the same person is to be mortgaged, that part must be precisely defined and registered in the public register as a separate object.
When buildings are mortgaged, the land plot on which they stand must also be mortgaged, or the right of lease (use) of such land.
Property held in joint ownership may be mortgaged only with the consent of all co-owners. When mortgaging a share in fractional co-ownership, the consent of the other co-owners is not required; however, the mortgaged share must be precisely determined by an agreement on the use of the property concluded by the co-owners and notarized.
The mortgage of a property does not prevent its transfer to another person. When the ownership of mortgaged property is transferred, the mortgage follows the property.
The owner of the mortgaged property has no right to destroy, damage, or otherwise reduce its value, except in cases of normal wear and tear or necessary reduction in value due to use. If these obligations are violated, the mortgage creditor may demand the initiation of enforcement proceedings against the mortgaged property before the due date.
Object of Compulsory Mortgage
The object of a compulsory mortgage must be such property that, when sold, would fully satisfy the creditor’s claims while causing the debtor as little harm as possible.
When land is mortgaged, the buildings situated on it are also considered mortgaged as accessories, unless otherwise specified in the mortgage agreement. If, when mortgaging land, the buildings are not included, then upon the sale of the mortgaged land at auction, the owner of the buildings acquires a right of servitude over the land. If mortgaged land is sold at auction and there are buildings on it belonging to another person (not the landowner), the purchaser of the land acquires the rights and obligations of the former landowner towards the building owner.
A mortgage secures the performance of the principal obligation, as well as the collection of interest, penalties, and court costs related to its enforcement. The principal claim secured by a mortgage, including interest and penalties, may be increased, and the term of the obligation may be shortened or extended – but only with the written consent of lower-ranking creditors.
Both compulsory and contractual mortgages may be registered. A compulsory mortgage arises under law or a court decision in the following cases:
- To secure state claims arising from tax and state social insurance legal relations;
- To secure claims related to the construction or reconstruction of buildings;
- To secure property claims satisfied by a court decision;
- In other cases provided for by the Civil Code (in Lithuania).
A contractual mortgage may take the following forms:
- Ordinary – mortgaging one specific immovable property to secure one obligation;
- Joint – mortgaging several immovable properties simultaneously to secure one obligation;
- Third-party property – mortgaging immovable property to secure another person’s obligation;
- Maximum – mortgaging immovable property when only the maximum sum of obligations and the scope of the loan’s use are agreed upon; registered for no longer than five years;
- Common – mortgaging several immovable properties belonging to different owners to secure one obligation;
- Conditional – mortgaging property to secure an obligation, where the mortgage takes effect only upon the fulfillment of a specified condition or remains valid only while that condition is being met. The condition may be imposed on either the creditor or the debtor.
A mortgage becomes effective from the moment it is registered in the mortgage register (in the Republic of Lithuania), through the corresponding entry in the public register. A mortgage not registered in the mortgage register is invalid.