REPUBLIC OF SERBIA

MORTGAGE LAW
This English translation has been generously provided by the Public Agency Yugoslav Survey

YUGOSLAV SURVEY / JUGOSLOVENSKI PREGLED www.yusurvey.co.yu

Belgrade, 2006

MORTGAGE LAW
Note: This is a true translation of the original Law, but it is not legally binding.

Original title:

ZAKON O HIPOTECI

Prepared by: Jugoslovenski pregled (Yugoslav Survey), Deanska 8/V, Beograd; Tel/Fax: + 381 11 / 32 33 610, 32 32 295; Tel: 32 41 953, 32 40 291; Po.Box 677 www.yusurvey.co.yu E-mail: info@yusurvey.co.yu

2006, Jugoslovenski pregled (Yugoslav Survey) Sva prava su zadrana. Nijedan deo ove broure ne moe biti reprodukovan niti smeten u sistem za pretraivanje ili emitovan u bilo kom obliku, elektronski, mehaniki, fotokopiranjem, snimanjem ili na drugi nain, bez prethodne pismene dozvole izdavaa. All rights reserved. No part of this work may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying and recording, or by any information storage or retrieval system, without permission in writing from the publishers.

CONTENTS

MORTGAGE LAW
Part One
BASIC PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Part Two
ORIGINATION OF MORTGAGE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Part Three
RIGHTS AND DUTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Part Four
SATISFACTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Part Five
CESSATION OF MORTGAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Part Six
CENTRAL MORTGAGE RECORDING FACILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Part Seven
TRANSITIONAL AND CONCLUDING PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

MORTGAGE LAW
Part One BASIC PROVISIONS

Scope of the Law

Article 1 The present Law shall govern the mortgage for the purpose of securing claims and provide for the establishment of the Central Mortgage Records.

Concept of Mortgage
Article 2 A mortgage shall mean a lien on real estate, which empowers the creditor in the event of the debtors failure to pay a debt due, to request the collection of debt-claim secured by the mortgage (hereinafter: the claim) from the real estate value before the ordinary creditors and before junior mortgage creditors (hereinafter: the mortgagee), regardless of the real estate actual possession.

Subject of Mortgage
Article 3 The following may be the subject of a mortgage (hereinafter: the subject or real estate): 1) an immovable property (title to land, building and the like); 2) a part of a real estate property, in accordance with the decision on partition; 3) a portion in a common immovable property; 4) a separate part of a building in tenure, and/or some other right containing the right of disposal (a dwelling, business premises, garage, parking space, etc.); 5) a right to land authorising the free legal disposition, including in particular the right of construction, right of priority construction or disposition in government and/or social ownership;

Published in the Slubeni glasnik RS, No. 115/05 of 27 December 2005 .

MORTGAGE LAW

6) a building under construction, as well as a separate part of a building under construction (a dwelling, business premises, garage, etc.), irrespective of whether completed or not, provided that a valid building permit has been issued in conformity with the law governing the building construction.

Joint Mortgage
Article 4 For the purpose of securing a claim, a mortgage may encumber several real estates, irrespectively of whether they belong to the same or different owners. In the case specified in paragraph 1 of this Article, the mortgagee may cash the claim by its own bona fide choice from the value of one or several real estates.

Scope of a Mortgage
Article 5 A mortgage shall include the following elements of a real estate: 1) all integral parts of a real estate, produce not separated from real estate, unless otherwise stipulated by the mortgage deed; 2) fixtures to a real estate stipulated by the mortgage deed, but not the objects of property owned by third parties; 3) all improvements in and accretions to the value of real estate occurred after setting up the mortgage.

Mortgage on Common and Joint Property

Article 6 The owner of an aliquot part of a common real estate may mortgage that aliquot part without the consent of other co-owners, unless the mortgage being based on an aliquot part of a building under construction, in which case the consent by all co-owners shall be necessary. A mortgage on a jointly owned real estate shall be instituted only on the real estate as a whole, with the consent of all joint owners. In the case of mortgage referred to in paragraphs 1 and 2 of this Article, the remaining co-owners or joint owners shall be entitled to pre-emption on the occasion of satisfaction.

Secured Claim
Article 7 Any claim, including a future or conditional claim, as well as a claim denominated in foreign currency, may be secured by a mortgage. The claim referred to in paragraph 1 of this Article shall cover the principal, interest and collection costs. The part of a claim not secured by mortgage may satisfied only from the mortgagors residual assets.

MORTGAGE LAW

Part Two ORIGINATION OF MORTGAGE

Mode of Origination and Kinds of Mortgage
Article 8 A mortgage shall originate on being entered in the appropriate real estate registry, on the basis of: 1) 2) 3) 4) a contract or a judicial settlement (contractual mortgage); a mortgage bond (unilateral mortgage); a statute (statutory mortgage); a court decision (judicial mortgage).

The contractual mortgage rules shall apply respectively to unilateral, statutory and judicial mortgages, unless otherwise provided by law.

Chapter One MORTGAGE DEED

Concept
Article 9 A mortgage deed shall mean a contract between a real estate owner and a creditor, by which the real estate owner undertakes the obligation, should the debt be not paid when due, entitling the creditor to collect his secured debt from the value of such real estate in the way set forth by law. The debt shall come due in conformity with the deed or some other legal ground it stems from. A mortgage deed may be an independent one or make an integral part of the contract covering the claim (loan or credit contract, etc.).

Closing a Deed
Article 10 A mortgage deed shall be closed in writing and the signatures affixed on it shall be authenticated by court or some other agency authorised to authenticate signatures on the deeds of real estate conveyance. A mortgage deed may be closed by the owner or some other person having the right of disposal, as well as the investor and buyer of a building under construction or a separate part of a building under construction as referred to in Article 3 of the present Law.

MORTGAGE LAW

Registration
Article 11 A contractual mortgage shall be registered at the request of: 1) an owner of the real estate or his/her guardian or legal representative; 2) a mortgagor; 3) a mortgagee. In a case specified in Article 3, item 3, of the present Law, the contractual mortgage shall be registered as follows: 1) on the construction site the mortgage is registered on the building under construction and once the building is entered in the real estate register, the mortgage is registered on the constructed building or a separate part of the building, ex officio; 2) if the owner has sold to the buyer a building under construction or a separate part of a building under construction, the buyers mortgagee as well may request that a mortgage be registered on the building under construction or on a separate part of the building, and once a building is entered in the real estate register, the mortgage on the constructed building or a separate part of the building shall be registered ex officio. If the owner of a building is changed in the course of construction, the new owner shall enter into all of the previous owners rights and duties regarding the persons in favour of whom the mortgage was registered. For the purposes of the present Law, a building under construction shall also include a physically completed building or a separate part thereof, which has not been entered in the real estate register, if the requirements for mortgage registration on a building under construction have been satisfied. The risk of demolition of an improperly constructed building on which a mortgage has been registered shall be borne by the real estate owner, mortgagor and mortgagee, in keeping with their internal relationships.

Mandatory Provisions
Article 12 A mortgage deed shall include the following in particular: 1) name, surname and permanent or temporary address or business name and head office of the mortgagee, pledger, as well as mortgagor, should these be different persons; 2) owners (pledgers) unconditional statement of consent to the mortgage on its real estate being registered by the mortgagee (clausula intabulandi); 3) precise data on the secured debt, currency of accounting and currency of payment, amount of each instalment and the maturity date, place and method of payment, and data on the principal claim, interest rate and other elements on the basis of which the interest rate can be fixed, place and method of payment of interest, as well as the amount of other costs if stipulated, maturity of claims and way of determining the maturity, if the term has not been fixed; 4) data on the mortgaged real estate and/or estates, including also the evidence of ownership and/or some other right referred to in Article 3 of the present Law; 5) data on the real estate elements referred to in Article 5 of the present Law, which are covered by the mortgage.

MORTGAGE LAW

Nullity of Provisions
Article 13 Any provision of a mortgage deed on the ground of which, should the debt be not satisfied on maturity, shall be null and void: 1) a mortgagee may sell the real estate contrary to the provisions of the present Law; 2) the real estate becomes the property of the mortgagee or a third party at an unspecified price or a price specified in advance. Any provision of a mortgage contract that accords the mortgagee the right to use the subject of mortgage or to usufruct from the mortgaged property shall be null and void. Any provision of a mortgage contract that prevents the owner from alienating the subject of mortgage or to encumber it by mortgage in favour of a subsequent mortgagee shall be null and void.

Chapter Two UNILATERAL MORTGAGE

Concept and Origination
Article 14 A unilateral mortgage shall originate on the basis of a mortgage bond. The mortgage bond shall mean a document drawn up by the owner committing himself unilaterally to allow the creditor, should the debt be not paid when due, to collect his/her secured claim from the value of the real estate in the way provided by law. In terms of form and content, a mortgage bond shall correspond to a mortgage deed. A mortgage based on mortgage bond shall be registered at the request of the owner or mortgagee.

Chapter Three ENFORCEABLE DOCUMENT

Characteristics and Registration
Article 15 A mortgage deed and/or a mortgage bond drawn up in conformity with the present Law shall be deemed an enforceable document, provided that it also includes the provisions referred to in paragraph 3 of this Article. A mortgage based on an enforceable contract or an enforceable mortgage bond shall be entered in the real estate registry as an enforceable extra-judicial mortgage, and the extrajudicial settlement proceedings shall be conducted in conformity with the provisions of the present Law. An enforceable mortgage deed or a mortgage bond shall also include the following: 1) a clearly indicated provision and/or statement whereby the real estate owner irrevocably empowers the mortgagee, should the debt be not paid when due, to collect the claim from the proceeds of the sale conducted in accordance with the extra-judicial sale procedure provided by the present Law, without instituting a lawsuit, as well as agrees that the real estate be vacated forcibly and put in the buyers possession within 15 days from the date of the sales contract, unless the mortgage is to be registered on a co-owned share.
MORTGAGE LAW

2) an express provision and/or statement of the owner that he has been cautioned about the consequences of the failure to satisfy the debt on maturity and that in the awareness of such consequences, he is agreeable to the possibility of the mortgage deed being executed by selling his real estate in conformity with the provisions of the present Law governing the extra-judicial settlement, without the right to litigation, as well as that his real estate shall be vacated forcibly and put in the buyers possession within 15 days from the date of the sales contract, if the owner fails to hand it over voluntarily, unless the mortgage is to be registered on a co-owned interest; 3) a clear provision and/or statement made by the owner that he is agreeable to the mortgagee having access to the real estate, including the right to enter it, irrespectively of who might be in it (owner, lessee, etc.) for the purpose of checking on its maintenance or for other valid reasons, as well as that he is bound to cooperate with the mortgagee in the sales procedure, and particularly to allow access to the mortgaged real estate (entry in a dwelling and the like); 4) an express statement of a third party, if existent, being in direct possession, but not the owner of the mortgaged real estate (a lessee, etc.) that it is aware of the consequence the mortgage deed can produce, including the ejection from real estate and loss of actual possession of it, as well as that he/she is agreeable to the rights and duties referred to in item 3 of this paragraph. Should a mortgage deed or mortgage bond fail to include the provisions referred to in paragraph 3 of this Article, satsfaction shall be carried out in conformity with the law governing the enforcement procedure.

Part Three RIGHTS AND DUTIES Chapter One RIGHTS AND DUTIES OF THE REAL ESTATE OWNER
Rights of the Real Estate Owner
Article 16 The owner shall have the following rights even after the mortgage has been placed: 1) to keep the subject of mortgage in his/her possession; 2) to use the subject of mortgage for its usual purpose; 3) to reap the produce or take the income yielded by the subject of mortgage; 4) to dispose of the subject of mortgage and transfer the right to the acquirer, in which case no changes are made in the mortgagors duty and in the secured claim.

Duties of the Real Estate Owner

Article 17 The owner shall not make any physical changes in the subject of mortgage (making partition-walls, making additions, demolition, joining, partition etc.) without the mortgagees consent in writing, which the mortgagee may not withhold without a valid reason. 8
MORTGAGE LAW

The owner shall look after and maintain the subject of mortgage as expected of a good housekeeper or a good businessman, so that his/her acts or mistakes will not depreciate the real estate. The owner shall insure the subject of mortgage against all of the usual risks prior to closing the mortgage deed. The mortgagee shall have the right of access to the real estate, including the entry in the real estate regardless of who is in it (owner, lessee, etc.), for the purpose of checking on its maintenance or for other valid reasons, if the mortgage has been taken out in conformity with the provisions of Article 15 of the present Law or if so is expressly stipulated by the mortgage deed or mortgage bond. The owner, lessee and any other actual possessor of the real estate shall cooperate with the mortgagee in the sale procedure and particularly allow access to the subject of mortgage (entry in a dwelling and the like), if the mortgage has been placed in conformity with the provisions of Article 15 of the present Law or if that right is expressly stipulated by the mortgage deed or mortgage bond. Where the consent of the person being in actual legal possession of the real estate is not included in the authentic or enforceable document referred to in Article 15 of the present Law and/or in the mortgage deed or mortgage bond, the rights and duties specified in paragraphs 3 and 4 of the present Article shall not be exercised without that persons consent.

Chapter Two RIGHTS AND DUTIES OF THE MORTGAGEE

Supplementary Security
Article 18 A mortgagee shall have the right to demand supplementary security of a similar degree of security from the mortgagor in the following cases: 1) If the subject of mortgage has been depreciated by the conduct or acts of the owner or actual possessor; or 2) If the there is a threat of depreciation of the subject of mortgage because of the actions intended to be taken by its owner. The following shall apply in the cases referred to in paragraph 1 of this Article: 1) if the mortgagor fails to provide supplementary security, the mortgagee shall have the right to demand full payment of the debt from the value of the real estate without any delay; 2) the depreciation of the real estate subject shall be determined by a court-appointed expert, at the mortgagees request.

Court Prohibition against Damage

Article 19 The mortgagee shall have the right to request of a court to order the owner or actual possessor to stop acting in a certain way in the following cases: 1) if the subject of mortgage has been depreciated because of such conduct; or 2) if there is hazard of the mortgaged real estate being depreciated because of the acts he/she intends to perform. In the cases referred to in paragraph 1 of this Article, the following shall apply: 1) the court may permit the mortgagee to take necessary steps towards preventing the mortgaged real estate from being depreciated;
MORTGAGE LAW

2) if no delay is permissible under the circumstances, the mortgagee may take the necessary steps even before being permitted to do so by the court, if the mortgage has been placed out in conformity with the provisions of Article 15 of the present Law, or if so has been expressly stipulated by the mortgage deed or mortgage bond; 3) The mortgagee shall be entitled to request of a court to issue an order for the owner to reimburse the costs incurred. The claim for reimbursement of the costs incurred pursuant to this Article shall be secured without registration and shall enjoy priority in relation to all other registered encumbrances.

Chapter Three TRANSFER OF CERTAIN RIGHTS AND DUTIES

Assignment of Claims
Article 20 A claim secured by a mortgage may be assigned under a contract between the mortgagee and the person to which the claim is being assigned. A mortgage assignment contract concluded separately from the assignment of claim shall produce no legal effect. A contract referred to in paragraph 1 of this Article: 1) shall be concluded in writing and the signatures affixed on it shall be authenticated by a court or some other duly authorised agency; 2) shall transfer the mortgage to the person to which the claim is being relinquished; 3) shall produce legal effect regarding third parties on the ground of entry in the real estate register.

Super Mortgage
Article 21 A claim secured by a mortgage may be pledged on the ground of a contract between the mortgagee and a super mortgagee. A contract referred to in paragraph 1 of this Article: 1) shall be concluded in writing and the signatures affixed on it shall be authenticated by a court or some other duly authorised agency; 2) shall include the mortgagees express and unconditional statement that the super mortgagee may be entered in the real estate registry in that capacity; 3) shall produce legal effect regarding the mortgagor as of the date of his being notified in writing of the claim being pledged, from which date the mortgagor may perform his duty only to the super mortgagee or on his written instructions; 4) shall produce legal effect regarding third parties as of the date of entry in the real estate register.

10

MORTGAGE LAW

Assumption of Debt
Article 22 A debt to a mortgagee may be transferred under a contract of assumption of debt secured by a mortgage between the owner and acquirer of the subject of mortgage and/or a contract between the owner, acquirer of the subject of mortgage and the debtor, if the owner is not a mortgagor. The contract referred to in paragraph 1 of this Article: 1) shall be concluded on the occasion of disposal of the subject of mortgage, in the form of a separate contract or a provision or part of the contract of alienation of the subject of mortgage; 2) shall produce legal effects subject to the mortgagees consent given in writing.

Alienation of a Part of Real Estate

Article 23 If the owner partitions or merges the subject of mortgage with some other real estate with the mortgagees consent, a mortgage shall be placed ex officio on such real estates and each mortgage shall secure the entire claim, unless otherwise stipulated with the mortgagee.

Part Four SATISFACTION Chapter One GENERAL RULES

Right of Satisfaction
Article 24 In the event of a mortgagors failure to pay out the debt on maturity, the mortgagee may satisfy his/her debt-claim from the value of the mortgaged real estate, regardless of who is the owner or actual possessor at that moment. The satisfaction referred to in paragraph 1 of this Article shall be carried out in conformity with the present Law and/or the law governing the execution procedure, as well as the law governing the coercive collection of real estate tax debts. Where a contract drawn up in the form of a credible document or of an enforcement document referred to in Article 15 of the present Law, the rules of extra-judicial settlement provided by the present Law shall apply.

Choice of Satisfaction
Article 25 A mortgagee may request that its mature claim be satisfied as follows: 1) Firstly from the value of the mortgaged real estate and then from the mortgagors other property;
MORTGAGE LAW

11

2) from the value of mortgaged real estate and the mortgagors property at the same time; or 3) Firstly from the mortgagors property and then from the value of mortgaged real estate.

Time-barred Claim
Article 26 A mortgagee may be satisfied from the value of mortgaged real estate even after the secured claim was barred due to statute of limitation. In the case referred to in paragraph 1 of the present Law, interest and other periodical dues may not be satisfied from the subject of mortgage.

Subsequent Contract
Article 27 A subsequent contract shall mean a separate contract concluded by a mortgagee and a real estate owner in writing on the maturity of a secured claim, the signatures affixed on it being subject to authentication by a court or some other duly authorised authority, which may stipulate the following: 1) a partial or full transfer to the mortgagee, in lieu of the satisfaction of debt, of the right of ownership or some other law of property right relating to the subject of mortgage; 2) any other transaction conducive to the entry of satisfaction of mortgage on real estate. The mortgagee shall notify the mortgagor of the subsequent contract without any delay.

Personal Subrogation
Article 28 If the mortgage debt is paid by a person who is not the mortgagor, that person shall act in the capacity of a mortgagee in relation to the mortgagor and third parties.

Chapter Two FORECLOSURE

First Warning
Article 29 In the event of a mortgagors failure to pay the debt on maturity, the mortgagee referred to in the credible document or enforcement document referred to in Article 15 of the present Law shall serve a notice in writing at the same time to the mortgagor and owner of the subject of mortgage (if they are different persons), whereby the foreclosure procedure pursuant to the present Law shall be instituted. 12
MORTGAGE LAW

The notice shall include the following: 1) data on the mortgage deed and mortgaged real estate; 2) description of the breach of mortgage deed on the basis of which the foreclosure is requested; 3) steps the mortgagor must take towards paying the debt and avoiding the sale of real estate; 4) deadline for the payment of debt the mortgager has to meet in order to avoid the sale of real estate; 5) warning that, should the mortgagor fail to take the mentioned steps and thus pay the debt, the mortgagee will claim the full amount owed and that with the sale of mortgaged property, he/she shall lose possession of the real estate involved; 6) name of and necessary particulars on the mortgagees representative, to whom the mortgagor may address for more information; 7) other information the mortgagee might deem important.

Warning on the Sale of Real Estate

Article 30 Should a mortgagor fail to pay the debt within 30 days from receipt of the first warning, the mortgagee shall send to the mortgagor and the real estate owner a warning on sale of the real estate, its contents being as follows: 1) data on the mortgage deed and mortgaged real estate; 2) description of the breach of the mortgage deed on the basis of which the foreclosure is requested; 3) information that the whole debt has fallen due for collection; 4) amount of debt due for collection; 5) steps that the mortgagor or owner must take towards paying the debt and avoiding the foreclosure on the real estate; 6) deadline for the performance of duties by the mortgagor or owner in order to avoid the foreclosure on the real estate; 7) warning that in the event of the mortgagors or owners failure to take the mentioned steps and thereby pay the debt, the mortgagee shall suspend the possession of the real estate by having the mortgaged real estate sold; 8) information about the selected mode of having the real estate sold; 9) name and the necessary data on the mortgagees representative whom the mortgagor may address for the purpose of having a meeting; 10) other information the mortgagee might deem important.

Adnotation of Foreclosure
Article 31 The mortgagee shall file with the real estate registry at the same time a request for the adnotation of foreclosure in favour of the mortgagee, together with the following: 1) a copy of the warning of foreclosure of the real estate; 2) a copy of the mortgage deed; 3) a statement that the mortgagor has failed to satisfy the debt to date; 4) evidence that the first warnining and the foreclosure warning have been sent to the mortgagor and owner. The real estate registry shall adnotate the foreclosure warning in favour of the mortgagee within seven days from receipt of the adnotation request, and send to the mortgagee, mortgagor and the real estate owner the decision on the adnotation of foreclosure. The adnotation of foreclosure and the decision on foreclosure shall include the following:
MORTGAGE LAW

13

1) an express authorisation of the mortgagee to sell the real estate in the capacity of mortgagee and on his own behalf, in conformity with the provisions of the present Law, as of the effective date of the decision, but not within less than 30 days from the date of the decision; 2) prohibition against the mortgaged real estate being sold by its owner. The owner, mortgagor and mortgagee shall be entitled to file a complaint with the competent authority against the decision on the adnotation of foreclosure, within 15 days from receipt of the decision. The competent authority shall render a second-instance decision within 15 days from the complaint filing date. The complaint shall be accepted should the mortgagor or owner present to the real estate registry indisputable evidence in writing of the following: 1) that the claim is non-existent; 2) that the mortgage is non-existent; 3) that the claim has not fallen due; 4) that the debt has been paid. The second-instance decision referred to in paragraph 5 of this Article shall be final and enforceable and no lawsuit or legal remedy may apply to it.

Right to a Meeting
Article 32 The mortgagor and/or the real estate owner may demand a meeting with the mortgagee or his/her representative within 10 days from receipt of the warning of foreclosure of the real estate, and either of the latter shall see it on its premises during working hours. The mortgagees right to proceed with the sale of mortgaged real estate may not be restricted or postponed if the parties fail to reach an agreement in the way proposed by the mortgagor at that meeting.

Communications
Article 33 For the purposes of the present Law, communications (reminders, notices, etc.) shall be deemed delivered to the mortgagor if they have been sent by registered mail to the address of the following: 1) mortgaged real estate; 2) mortgagor, as stated in the mortgage deed, if the mortgagors address differs from that of the mortgaged real estate; 3) real estate owner, if the owner is not the mortgagor. For the purposes of the present Law, a communication shall be deemed delivered to the mortgagee if it has been sent by registered mail to the mortgagees address as stated in the mortgage deed or to the address stated in the mortgagees note requesting the mortgagors reply.

Mortgagees Right to Sell

Article 34 Should the mortgager fail to pay the debt by the effective date of the decision on the warning of foreclosure and 30 days have elapsed from the date of that decision, the mortgagee may proceed with the sale of the mortgaged property on the basis of that decision, by auction or direct arrangement. The selection of either mode of sale shall not preclude the possibility of the other one being applied, in case the real estate involved remains unsold. 14
MORTGAGE LAW

Before proceeding with sale, the mortgagee shall set an approximate market price of the real estate fixed by an authorised court-appointed expert.

Sale by Auction
Article 35 The mortgagee may stage the sale by auction of the real estate by himself or entrust it to a person professionally engaged in these matters. The announcement of the sale by auction shall be prominently published in a daily newspaper that is on sale in the region in which the mortgaged property is situated, at least 45 days before the scheduled date of sale. The announcement shall include the following: 1) description of the real estate; 2) mortgagees name and surname or registered name; 3) mode of communication with the mortgagee; 4) opening price at auction; 5) time and place of auction; 6) other information that the mortgagee might deem important. The mortgagee shall also send to the mortgagor, the real estate owner and third parties having rights to the mortgaged real estate, the information about the announcement covering the following: 1) all elements of the announcement; 2) statement indicating the term within which the whole debt may be paid in order to avoid the sale. The opening price at auction may not be less than 75% of the estimated value. If the first auction fails, the opening price at the second auction may not be less than 60% of the estimated value. Notwithstanding the provisions of paragraphs 5 and 6 of this Article, the mortgagee and the owner or mortgagor may make an agreement in making arrangements for the staging of auction, whereby the real estate involved may be sold for less than 75% and 60% of the estimated price respectively. The mortgagee may make his/her own bid at the auction.

Sale by Direct Deal

Article 36 Based on the effective decision on the adnotation of foreclosure and after 30 days from the date of rendering that decision, the mortgagee may sell on his own behalf the real estate by direct deal for a price that approximately corresponds to the market one. For the purposes of the present Law, market price shall mean the usual price that can be fetched in good faith for that real estate at the time of foreclosure. The mortgagee may sell the real estate independently or by using the services of a practicing lawyer or a real estate agency. If the sale is made by a practicing lawyer or a real estate agency, the usual commission or fee may be included in the sales price. At least 15 days before closing the real estate sales contract, the mortgagee shall notify the sale to the mortgagor, the real estate owner and persons holding other rights to that real estate, which notification shall include the following: 1) amount of the whole debt; 2) estimated value of the real estate; 3) essential terms and conditions of the real estate sales contract; 4) expected date of conclusion of the sales contract;
MORTGAGE LAW

15

5) mode of distribution of the sales proceeds; 6) date on which the real estate is to be vacated; 7) statement concerning the term within which the whole debt can be paid in order to avoid the sale of the real estate involved.

Obstruction of the Extra-judicial Settlement

Article 37 In the course of the extra-judicial settlement procedure, the competent interior affairs authority shall give the mortgagee or his/her representative all assistance necessary for the conduct of the extra-judicial settlement procedure, should the owner or some other actual possessor of the real estate fail to allow the access to the real estate in the procedure for its sale or refuse to vacate the real estate voluntarily, within the term specified in Article 15, paragraph 3, item 1, of the present Law, unless a longer term is stipulated by the sales contract. The competent interior affairs authority shall render the assistance referred to in paragraph 1 of this Article after having an insight in the decision on the entry of the adnotation of foreclosure or the real estate sales contract.

Sales Price Falling Short of the Debt

Article 38 If the price fetched at auction or by direct deal falls short of the mortgagees total claim, the mortgagor shall remain in debt to the mortgagee for the difference between the total claim and the price fetched. The residual debt referred to in paragraph 1 of this Article shall be reduced by the difference between 75% of the estimated price of real estate and the price fetched, if the price fetched is less than 75% of the estimated price, in the both modes of sale. If the mortgagee is settled by acquiring the title to the mortgaged real estate, the claim shall be deemed settled at the moment of acquisition of that title. If the price fetched for the mortgaged real estate at auction or by direct deal is higher than the claim made, the mortgagee shall pay the balance to the mortgagor.

Chapter Three SATISFACTION WHEN THE SUBJECT OF MORTGAGE IS A BUILDING UNDER CONSTRUCTION
Assignment of a Building Permit
Article 39 If the subject of mortgage is a building under construction, its sale for the sake of settlement shall be effected by assigning the right to build provided by an effective building permit against a charge, and selling the things incorporated in the building under construction. At the request by the buyer of a building under construction, the authority that has issued the building permit shall issue to the buyer, without any delay, an identical building permit in his/her name and cancel the old building permit. In the case referred to in paragraph 2 of this Article, the buyer shall acquire by the operation of law all of the sellers rights and duties based on the permit even before the permit is issued to the buyer. 16
MORTGAGE LAW

Chapter Four ORDER OF SATISFACTION

Order of Satisfaction of Mortgagees
Article 40 Should a single subject of mortgage be pledged to several mortgagees, the order in which their claims are to be satisfied out of the proceeds of sale of the subject of mortgage shall be determined in accordance with the day, hour and minute of the origin of mortgage, counting from the first registered mortgage.

Distribution of Funds Obtained by Extra-judicial Sale of Real Estate

Article 41 The mortgagee shall cover the following in the following order within seven days from collecting the sales price: 1) sale costs, including the costs and fees of third parties; 2) mortgagees claim; 3) claims of a junior mortgagee or some other creditor in the same security order; 4) anything left over shall belong to the mortgagor. The mortgagee shall present the final account of the distribution of funds to the mortgagor and all third parties holding a right to the real estate involved, within seven days from the date of distribution of funds.

Bankruptcy
Article 42 If the subject of a mortgage is subjected to bankruptcy proceedings, the mortgagee shall have the right to separate satisfaction out of the proceeds of the real estate.

Part Five CESSATION OF MORTGAGE

Chapter One WIPING OUT
Article 43 A mortgage shall cease to exist with its being wiped out of the real estate registry it was entered into in conformity with law (hereinafter: the mortgage wiping out). The mortgage wiping out may be carried out at the request of the mortgagor, owner or mortgagee, if the secured claim ceases to exist in the way permitted by law.
MORTGAGE LAW

17

Wiping Out at Owners Request

Article 44 The mortgage wiping out at the owners request may be carried out only if the debt has been satisfied fully. The request referred to in paragraph 1 of this Article shall include the following: 1) mortgagees written statement of agreement with the mortgage being wiped out; or 2) enforceable court decision establishing that the mortgagees claim has been terminated. The mortgagee shall allow the mortgage to be wiped out if his/her claim has been paid in full. The mortgagee shall issue to the mortgagor and the owner of mortgaged real estate a certificate of satisfaction of debt, without any delay upon the payment of debt and agree to the mortgage being wiped out.

Ruination of Real Estate

Article 45 A mortgage shall also cease to exist if the subject of mortgage gets ruined completely and the owner may request the mortgage to be wiped out. A mortgage may be renewed if the owner restores the subject of mortgage and its reregistration may be carried out pursuant to law. A mortgage shall be limited to the residual part, if the subject of mortgage has been ruined partly and the correction shall be registered by virtue of law. Article 46 In the case of complete or partial ruination of a subject of mortgage, the mortgagee shall acquire by virtue of law a lien on the claim for insurance indemnity or on the paid out indemnity. The funds obtained pursuant to paragraph 1 of this Article shall be distributed among the mortgagees in the order of registration of their mortgage rights.

Public Interest
Article 47 A mortgage shall also cease to exist when the title to the subject of mortgage is transferred to a third party in public interest (expropriation and the like), in conformity with law and by decision of a competent authority. In the case referred to in paragraph 1 of this Article, the following shall apply: 1) the wiping out shall be carried out at the request of the new real estate owner; 2) the mortgagee shall acquire a lien on the claimed indemnity or the indemnity paid out and shall register the mortgage on the real estate the title to which was transferred to the owner instead of the real estate that was expropriated in public interest. The indemnity referred to in paragraph 2, item 2), of this Article shall be distributed among the mortgagees in the order of registration of their mortgage rights.

18

MORTGAGE LAW

Executory Public Sale

Article 48 A mortgage shall also cease to exist in the event of an executiry public sale of the subject of mortgage. In the case referred to in paragraph 1 of this Article, the wiping out shall be carried out on the basis of an enforceable court decision on the satisfaction of mortgages.

Extra-judiciary Sale and Subsequent Contract

Article 49 A mortgage shall also cease to exist if the subject of mortgage has been sold in the extra-judiciary mode on the basis of a duly authenticated document or enforcement document and in conformity with the present Law, and when the mortgagee has been satisfied, or when the mortgagee has been satisfied on the basis of a subsequent contract pursuant to the present Law. In the case referred to in paragraph 1 of this Article, the following shall apply: 1) the wiping out shall be carried out at the request of buyer of the subject of mortgage; 2) the rights of subsequent mortgagees shall remain reserved.

Confusion and Consolidation

Article 50 A mortgage shall cease to exist by being wiped out also in the following cases: 1) should one and the same person become both a mortgagee and a mortgagor; or 2) should a mortgagee acquire the title to mortgaged real estate. In the case referred to in paragraph 1 of this Article, the wiping out shall be carried out at the request of the owner, mortgagor or mortgagee.

Renunciation of Mortgage
Article 51 A mortgage may also cease to exist on the basis of a unilateral declaration of intention made by a mortgagee in writing, where the latters signature is authenticated by a court or some other duly authorised agency. In the case referred to in paragraph 1 of this Article, the wiping out shall be effeced at the owners request to which the declaration referred to in paragraph 1 of this Article is attached.

Amortisation of Secured Claims

Article 52 A mortgage may also cease to exist on the basis of an enforceable court decision establishing the amortisation in conformity with law, at the proposal of the owner, co-owner or holder of title to joint property in the following cases: 1) if twenty years have elapsed from maturity of the secured claim (old mortgage);
MORTGAGE LAW

19

2) if the registered mortgagee is no longer existent or cannot be found, or if that is the case with his/her heirs (universal successors) or the persons who were subsequently registered as transferees of the claim secured by mortgage; 3) if the registered mortgagee has not requested or received in the past either the principal claim or interest, or if that has not been requested by any authorised person which is entered in the real estate registry. In the case referred to in paragraph 1 of this Article, the wiping out shall be carried out at the request of the owners, co-owners or joint owners.

Chapter Two PLACING A NEW MORTGAGE

Disposition of an Unwiped Out Mortgage
Article 53 If a secured claim has ceased to exist, an unwiped out mortgage may be transferred to a new mortgagee within 3 years from the date of cessation of the claim or, for the purpose of securing another claim, to the old mortgagee, up to the amount of the claim that is secured by the unwiped out mortgage. In the case specified in paragraph 1 of this Article, the transfer may be carried out at the owners request, which is to be filed together with evidence of cessation of the claim. Article 54 The owners renunciation of the right of disposition of an unwiped out mortgage shall produce no legal effect, unless: 1) the owner gives a contractual undertaking to a third party, particularly a mortgagee holding a junior mortgage, to request in the latters favour the wiping out of a mortgage; 2) the duty in connection with that mortgage is adnoted in the real estate register. The following shall apply to junior mortgagees: 1) they may not object to a new mortgagee being registered in the vacated position of an unwiped out mortgage; 2) retain the position in which their mortgages exist.

Adnotation of the Priority Order

Article 55 The owner of the mortgage involved may request together with the request for wiping out also the adnotation of the order of priority with regard to the entry of a new mortgage: 1) up to the amount of claim secured by the old (earlier) mortgage; 2) at the position held by the old (earlier) mortgage; 3) within three years from the date on which the adnotation was permitted. In the case of transfer of title to the subject of mortgage, the adnotation of reservation of the right of priority order shall produce legal effect in favour of the new title holder. This Article shall also apply mutatis mutandis when a new mortgage is intended to replace two or more mortgages running one after another in the order of priority.

20

MORTGAGE LAW

Prenotation of a New Mortgage

Article 56 At the owners request, a new mortgage may be registered in the place of an already registered mortgage, in the same order of priority and up to the amount of the claim that is secured by the already registered mortgage. In the case referred to in paragraph 1 of this Article, the following shall apply: 1) the registration shall produce legal effect if the old mortgage gets wiped out within a year from the date on which the registration of the new mortgage was permitted; 2) the old mortgage shall be wiped out at the request of the owner or creditor in whose favour the new mortgage is registered. A new mortgage shall be registered by virtue of law if the old mortgage is not wiped out within the term referred to in paragraph 2, item 1), of this Article. If a senior mortgage is based on an old mortgage, the new mortgage shall produce legal effect in the following cases: 1) if the senior mortgage is also wiped out; or 2) should the senior mortgagee and the mortgagee in whose favour the new mortgage is to be registered agree to the senior mortgage being transferred to the new mortgage. If an old mortgage is based on several real estates (simultaneous mortgage), the new mortgage shall produce legal effect only if the old one is wiped out from all of the real estate registries. The provisions of this Article shall also apply mutatis mutandis when a new mortgage is intended to replace two or more mortgages running one after another in the order of priority.

Part Six CENTRAL MORTGAGE RECORDING FACILITY

General Provisions
Article 57 The central mortgage recording facility (hereinafter: the Central Mortgage Recording Facility) shall mean a central public electronic database in which the mortgages entered in the corresponding registers of real estate have to be entered, for searching and collection of information on mortgages. The Republic Institute of Geodesy Real estate Registry shall not be answerable for the correctness and completeness of the data entered in the Central Mortgage Recording Facility.

Competence
Article 58 The Central Mortgage Recording Facility shall be kept by the Republic Institute of Geodesy Real estate Registry (hereinafter: the Real Estate Registry) in compliance with law. The duties of the Real Estate Registry shall be as follows: 1) seeing to the Central Mortgage Recording Facility being kept lawfully, systematically and promptly;
MORTGAGE LAW

21

2) prescribing the form of the reports that the competent registries have to present to the Real Estate Registry without delay; 3) taking such other action and steps as are necessary for trouble-free and proper operation of the Central Mortgage Recording Facility, in conformity with law.

Data to be Entered
Article 59 The Real Estate Registry shall do the following ex officio: 1) enter the mortgages that have been entered in the corresponding real estate registry; 2) enter other data on the mortgages entered in the corresponding real estate registry; 3) enter any change in or deletion of the data referred to in items 1) and 2) of this paragraphs made in the corresponding real estate registry. The Real Estate Registry may regulate the details of the entry of data referred to in paragraph 1 of this Article. In entering the data, the Real Estate Registry shall act directly on the ground of information and it shall not issue special documents.

Accessibility and Transparency

Article 60 The Central Mortgage Recording Facility shall be accessible to everybody, without any limitations, for the purpose of searching or collecting information, at any time during the Real Estate Registry working hours or by Internet outside the working hours, without any charge. Anyone shall have the right of access to the data entered in the Central Mortgage Recording facility.

The Fee
Article 61 A fee shall be payable for the entry of data in the Central Mortgage Recording Facility. The fee referred to in paragraph 1 of this Article shall be paid on filing the application for entry in or deletion from the appropriate real estate registry. The amount of the fee referred to in paragraph 1 of this Article shall be fixed by the Real Estate Registry, subject to the Governments approval.

Funding
Article 62 The funds required for the establishment and start up of the Central Mortgage Recording Facility shall be provided from the Republic of Serbia Budget. The funds required for the maintenance of the Central Mortgage Recording Facility shall come from the collected mortgage registration fees and other income of the Real Estate Registry, in conformity with law.

22

MORTGAGE LAW

Part Seven TRANSITIONAL AND CONCLUDING PROVISIONS

Cessation of Other Regulations
Article 63 The validity of the provisions of Articles 63 through 69 of the Law on Elements of Property Right Relations (Official Gazette of the SFRY, Nos. 6/80 and 36/90 and Official Gazette of the FRY, No. 29/96) shall cease as of the starting date of application of the present Law.

Application of the Law

Article 64 The present Law shall not apply to the mortgages placed prior to its effective date, unless otherwise agreed on by contracting parties. The appropriate registries shall present to the Real Estate Registry, within three months from the starting date of application of the present Law, all data on the mortgages placed prior to the starting date of application of the present Law, which are to be entered in the Central Mortgage Recording facility pursuant to the present Law. The Real Estate Registry shall enter the data presented pursuant to paragraph 2 of this Article, within four months from receipt thereof.

Coming into Force

Article 65 The present Law shall come into force on the eighth day upon its publication in the Slubeni glasnik Republike Srbije and shall apply as of the sixtieth day upon its publication.

MORTGAGE LAW

23