A pledge is the actual provision of obligations taken. In case of non-fulfillment of financial obligations by the debtor, the pledge holder shall have the right to foreclose on the collateral property. A property pledge agreement may be concluded not only between a financial institution and a legal or natural person. Such a transaction is possible at the household level, that is, it can be concluded exclusively between individuals.
In some situations, you cannot go to the bank and get a loan, it is possible that the person has a damaged credit history or other problems. Then the person in need of money turns to relatives or private investors, who, in turn, want to have guarantees of repayment of the debt.
Possible conditions for obtaining a loan
Securing obligations of a private investor is no different from a bank pledge. However, interest rates are usually quite high and can vary from 14% to 25%. By terms, of course, it all depends on the amount and financial solvency of the borrower, but on average it is 5 years.
The property pledge agreement must be concluded after signing the loan agreement. In practice, this happens at the same time, that is, a loan, money transfer transaction and a pledge transfer transaction.
General contract requirements
Individuals have the right to independently determine the form of the agreement, but the property pledge agreement between individuals must nevertheless contain the obligatory clauses:
- Full personal data on both sides.
- It should be clear from the contract that the borrower agrees to the transfer of his property on bail.
- Full characteristics of collateral.
- Maturity dates of debt obligations.
- Obligations of the parties and liability for their violation.
Subject of the contract
Individuals have the right to transfer any property that may be alienated and which may be levied. This is not only residential and non-residential premises, but also land, rights to securities, vehicles, sea and river vessels, auxiliary buildings, garages and more. You can even pledge claims against the developer if there is an agreement on equity participation.
Only those rights that are personal in nature are not transferable.
If the property is in common or shared ownership, for example, an apartment purchased in a marriage, you will have to obtain the consent of the spouse for the transfer of real estate as a pledge. By the way, this situation is very dangerous, the borrower may end up being a fraud, for example, when signing a pledge agreement, hide the fact of marriage with the hope that in the future the spouse will challenge the deal. It is not possible to verify the fact of matrimony in an operational manner.
Real estate pledge agreement: sample paragraph "Subject of the agreement":
"1. Based on the contract ... date ..., the pledgor has obligations to repay the loan amount ... in the amount of ... and to pay interest ... in the amount of ... to the pledge holder.
2. In support of the obligations described in clause 1 of this agreement, the pledgor shall transfer ... the name of the property ...
3. At the end of the term of the contract, the pledge holder undertakes to return the subject of the contract, provided that the pledgor fulfills the conditions provided for by this contract. "
Do not forget that the subject of the pledge does not have to be transferred physically to the pledge holder, that is, the pledger can continue to use it, but with restrictions on disposal.
If we talk about real estate, then such transactions are generally subject to registration with Rosreestr. As soon as the encumbrance is entered in the register, the owner of the property will no longer have the right to carry out legally significant acts, it is no longer possible to sell, change, or donate the property.
Property Valuation
The parties have the right to independently determine the value of the collateral, but in some cases it is recommended to conduct an independent examination. The same car becomes cheaper over time, and a contract of pledge of property of individuals can be concluded for several years. The appraiser can calculate all the risks and determine the approximate value of the vehicle in a few years.
The situation may be the reverse, the subject of the pledge may, on the contrary, become more expensive, then certain conditions can be stipulated in the contract under which the pledger can claim only part of the property. For example, the rights to an apartment in a newly built house are transferred, it is natural that in a few years the housing will be renovated, all communications connected and the price will increase.
Rights and obligations of the parties
In this section of the property pledge agreement, the parties are entitled to stipulate special conditions. For example, the mortgagee may require the mortgagor to waive the right to transfer the subject of the agreement to a second mortgage, or the parties agree that this is possible, but only with the consent of the creditor.
In this paragraph, you can specify who will pay for the registration of the burden at the Federal Registration Service. It should be stipulated where the subject of the pledge will be located, which of the parties to the contract. If the property is transferred to the creditor, then it is necessary to stipulate the conditions for its storage.
Insurance
The obligations of one of the parties may impute insurance of the subject of pledge against the actions of third parties. This item will be relevant especially when a vehicle acts as a pledge, especially one that will not stand in the garage.
An accident can occur at any time, other troubles can happen that will render the car unusable, therefore, the subject of the pledge will be damaged. Therefore, insurance should not be a formality, but should fully cover all losses.
A responsibility
An extrajudicial procedure for the settlement of a dispute can be provided for in a contract, but in practice it usually does not go without a trial. To use out-of-court proceedings, a real estate pledge agreement must be notarized. Then you can do without a court and claim the property to pay off the debt, according to the notary's executive inscription.
In court, a judge can take the side of the debtor and give him a respite. However, this is not allowed if a bankruptcy procedure has been opened in relation to the borrower, which today is relevant even for individuals.
In addition, fines may be provided for late delivery of the subject of the property pledge agreement within the agreed period, for example: "In case of refusal to transfer the subject of the agreement within the time period stipulated by ... this agreement, the mortgagor shall pay a fine in the amount of ...% of the assessed value of the collateral property."
Damage to property can also be foreseen. If the holder is the mortgagor himself, then the clause may sound as follows: “The mortgagor, whose subject of the contract remains in use until the expiration of this contract, is obliged to pay a fine of ...% for damaging the property, bringing it back to its original form."
Other features
It is recommended to prescribe how the withdrawal will be made, the further implementation of the pledge. What will be initially repaid, interest or principal amount of the debt, penalties.
The form of the document can have 5 or 15 sections, it all depends on how the parties were able to agree among themselves.A sample of a property pledge agreement can always be found ready, although it is not recommended to blindly fill out the form with your details and sign, it is necessary to say and register all the agreements reached. Everything should be fixed on paper, and then the possible risks will be minimized.