Cédule hypothécaire PrestaFlex

Developing business with mortgage note

The mortgage note allows you to borrow in second rank

It is common to observe that companies or individuals possess a certain number of real estate assets such as buildings, land, commercial buildings, artisanal buildings, or even several apartments. The advantage of the mortgage note is that these people will be able to borrow in the second rank to realize more business or real estates operations such as a promotion, a land purchase, or a building purchase.

Case study

Having three properties in three different regions

If you have a property in Geneva, the second one in Valais, and another one in the canton of Bern, you have to deal with three different banks. It is possible that one of them will not be able to lend you money because the properties are outside of their scope of operation. As a result, banks will not want to take on more exposure or will not offer second rank loans.

If you choose PrestaFlex, you will find tailor-made solutions to provide you with the necessary liquidity to realize your real estate projects.

What is our added value?

The solutions we offer through our financial partners such as family offices, private equity, finance company, or pension fund, provide great satisfaction to landowners, real estate promoters, and real estate companies.

Here are the different benefits:

  • Amount: from CHF 250’000 to CHF 10’000’000
  • Repayment at the end of the contract (between 6 and 36 months), therefore no amortization is required during the entire duration of the loan contract
  • Interest payable semi-annually or annually (interest rate depending on various parameters)
  • Flexible and advantageous contract
  • Setting up a subordinated loan takes about one month
  • Realize a real estate transaction with a significant margin

How does the mortgage note work?

A mortgage note is a debt secured by a pledge of real estate. In other words, when a bank grants a mortgage loan to a person or company wishing to acquire a property, the borrower will pledge the property to the bank, in exchange for the money he receives. The constitution of the mortgage note is mandatory when financing is done through a bank.

Thus, if the borrower does not respect his payment obligations, if he does not repay his loan, or if he does not pay the interest, the bank has the right to sell the property to recover the money. The notary will establish the mortgage note and will take care of the registration in the land register.

What are the different types of mortgage notes?

We distinguish two types of mortgage notes?

  • The paper mortgage note
  • The register mortgage note

The paper mortgage note

The paper mortgage note has many disadvantages:

  • It is inconvenient and costly because it must be presented each time to enforce it.
  • There are storage costs associated with keeping a paper mortgage in a bank.
  • In the case of a credit repurchase, the paper mortgage note must be transferred to the future bank that will own it, which creates additional costs and also a waste of time.
  • Since it is a paper-value, if you lose the paper mortgage note, a judicial cancellation procedure must be initiated which can take several months and cost a few hundred francs at least.

Distinction between registered and holder’s mortgage notes

Furthermore, within the paper mortgage note itself, we can distinguish between the registered mortgage note and the holder’s mortgage note.

The first one is a promissory bond. It is prepared in the name of the first entitled person or to his order. The transfer of the registered mortgage note is done by endorsement (by mentioning the name of the future beneficiary) and delivery of the title. Thus, the mortgage note belongs to the name of the landowner mentioned on the title.

The second one is a carrier bond, meaning that the person holding the mortgage is the owner. The transfer of a mortgage note to the carrier is done by the simple delivery of the title.

The constitution of a mortgage note is done in several steps

The pledge agreement, the application for entry in the land register and the entry in the land register

  • First of all, there is the pledge contract: A pledge contract, in the authentic form, is set up between the bank and the owner of the property. This contract informs that the building serves as a guarantee and the claim is materialized by a mortgage note.
  • Then, there is the application for registration in the land register: The landowner applies for the registration of the real estate pledge in the land register as well as the emission of the mortgage note.
  • The final step is the registration in the land register: The real estate pledge is registered in the land register and the mortgage note is established in the form of a registered or bearer mortgage note.

Summary of the transfer, denunciation, and extinguishment of a paper mortgage

Figure 1: Summary of the transfer, denunciation, and extinguishment of a paper mortgage (Financement 3 – Activité Hypothécaire. Anita Wymann et Thomas Hirt) p. 36

The paper mortgage note will not only secure the interest and the repayment of the debt, but also the current interest, the interest of the three years due, the costs of the lawsuit, and the interest on arrears.

The register mortgage note

Since January 1, 2012, the possibility of establishing a registered mortgage note has been implemented. The dematerialization is the main advantage, in addition to providing time and money savings. The registered mortgage note can be created, modified, and/or deleted electronically.

Unlike a paper mortgage note, which can be in registered or in bearer form, the identity of the creditor is always indicated.

The transfer of the register mortgage note is done by changing the entry in the land register. This guarantees legal certainty because the identity of the debtor and the creditor are always known.

As with the paper mortgage note, the registered mortgage note not only guarantees interest and repayment of the debt but also current interest, interest for three years past due, debt collection costs and arrears interest.

The creation of a register mortgage note

The pledge agreement, the application for entry in the land register and the entry in the land register

The creation of a registered mortgage is identical to the creation of a paper mortgage, the only difference is that the creation of the security paper is not required.

  • The pledge contract: A pledge contract, in authentic form, is established between the bank and the owner of the property. This contract informs that the building serves as a guarantee and the claim is materialized by a mortgage note.
  • Application for registration in the land register: The application for registration is made electronically via the Terravis platform.
  • Registration in the land register: The mortgage note in the land register is created by registration in the land register.

Summary of the transfer, denunciation and extinguishment of a registered mortgage

Figure 2: Summary of the transfer, denunciation, and extinguishment of a registered mortgage (Financement 3 – Activité Hypothécaire. Anita Wymann et Thomas Hirt) p. 36

Paper mortgage notes issued before January 1, 2012, can be easily converted to register mortgage notes. A simple written request to the owners and assignees is required.

Summary of mortgage notes and mortgage

Figure 3: Summary of mortgage notes and mortgage (Financement 3 – Activité Hypothécaire. Anita Wymann et Thomas Hirt) p.36

A mortgage covering the first mortgage will be paid when the property is sold. Therefore, if you have a mortgage covering a second mortgage, you will be repaid after the priority creditors.

However, there is one exception: The only exception is the state, which is guaranteed first and whose claim comes before a first mortgage (example: state tax).

PrestaFlex helps you develop your business

Working with PrestaFlex means choosing quality and customization. Our consultants will help you in your search for financing that will allow you to be successful in your activities. We deal with companies in several fields, such as real estate, medical, finance or construction.

Receive your financing quickly by contacting us via our website. We guarantee discretion and simplicity in all the administrative procedures.

Article written by Enver Kutlu and Ivan Popovic