Mortgage agreements

A mortgage loan is a contract by which one party, the lender (usually a bank) transfers a fixed sum of money to the other party, the borrower, so that the latter can use it for a fixed period of time subject to payment of a fee represented by the interest.

This outlines the essential structure and function of the agreement, but it must immediately be pointed out that the contract is supplemented by diverse clauses whose meaning may not immediately be clear, but which are necessary to regulate all relations between the parties for the duration of the contract: granting of the loan, methods of determining conditions of repayment of the capital and payment of interest, other costs for administration fees payable for the contract, procedures and costs of early repayment, the giving and maintaining of guarantees, consequences of relative non-fulfillment (late payment) and absolute non-fulfillment (non payment). Each of these aspects in its turn can contain a wealth of possible nuances, which may be the result of contemporary rules and protocols, or doctrinal principles which are perhaps thousands of years old (the mortgage loan was provided for in classical Roman law and has been studied by Byzantine jurists and medieval experts in common law as well as modern-day students of law-making). The field is further complicated today by new practices and suggestions coming from foreign countries and the procedures of the European Union. All this gives an idea of the effective complexity of the document: a loan agreement, the result of intellectual exercise, could be seen as a composite of juridical engineering in which the construction, balance and coordination of the various clauses give shape to the overall result and allow its evaluation in terms of better (or worse) quality and convenience.

Loan agreements are generally provided by banks; the notary, if charged to do so by the borrower, can carry out a process of verification with the aim of making the document clearer and more comprehensible, identifying and suggesting solutions which may be better suited to the parties and eliminating clauses which may give rise to an unjustifiable contractual imbalance.

If the basic structure of the contract is as mentioned, it happens fairly frequently that the loan is drawn up in a particular form, known as "credito fondiario". This particular type of mortgage loan differs little from the "ordinary" type, and even the experts often disagree about which kind of agreement is under

discussion; however, there are some significant differences, several of which will be outlined in the following examples. However, the so-called mortgage bond, or unilateral mortgage, common in recent procedures, does not constitute a special type. The sole difference is that in this case only the borrower has recourse to the notary (indispensable for arranging the mortgage guarantee): this scenario may have the effect, depending on the particular case, of reducing the notary's ability to carry out his task of advising and guiding.

Attention needs to be drawn to one essential point. Money is not always made available immediately following the signing of the loan agreement: banks sometimes retain the sum until the actual acquisition of the mortgage guarantee; this can technically be (depending on the model used) up to two weeks (or more) after signature. This is an important point in that the borrower often needs the money immediately in order to pay the seller for the house which is needed to guarantee the mortgage! A possible solution in this situation is to obtain from the bank a "bridging" loan or "pre-finance" arrangement, which covers the period between the signing of the loan agreement and the consolidation of the guarantee; but not all banks are prepared to grant this. With the assistance of a notary it is feasible in most cases to balance the conflicting demands as far as possible.

Another possible scenario should be mentioned: it may be that the borrower expects that the property acquired and mortgaged needs to be sold on for whatever reason (moving to another area, extra family members necessitating a bigger house, etc); in this case allowance must be made for the possibility of passing on to the new purchaser the portion of the loan which remains to be paid. Now, apart from the fact that 1) the new purchaser must agree to the assumption of the debt and that 2) banks often put hindrances in the way of the transaction, it should be remembered that as a general rule, 3) assumption is not novation or substitution but cumulative; this means that when a residual loan is assumed by a third party, the bank does not change debtor, but rather acquires an extra one, and thus if the new debtor is unable to pay the bank, it is likely to have recourse to the original borrower. For these reasons, in current practice the assumption of debt is decreasing: in essence the seller terminates his loan agreement, while the buyer, if necessary, sets up a new contract in his own name. Here too the notary can be of assistance, outlining the alternative options and their associated costs.