Apply for a second Mortgage Loan

Application for a second mortgage loan

Update of financial services: respect for lenders - validity of cross-security agreement maintained Recently, in a Court of Appeal case[1] in Ireland, two brethren tried without success to trust the fair consolidating Doctrine to refute the applicability of a Kreuzsicherheit agreement with their banks. The AIB Hypothekenbank granted an original loan to two brethren and later a second loan to the borrower and a second to a third one.

In both cases, the loan was backed by a mortgage on certain properties. Hypothecaries guaranteed all sums due by the borrower to the borrower both through credits and through any other agreement, i.e. 'all funds' were provided as collateral. While the first loan was granted, the second was non-performing.

In the aftermath of fruitless discussions with the borrower on the second loan, the banks requested repayments of both credits in the form of discrete reminders. It used the failure of the second loan as a ground to make a claim for reimbursement of the first loan. Borrower sold the collateralized objects that had been funded by the first loan.

In the context of the divestiture, the EIB wrote a take-back notice which did not relate to the cruise collateral agreement, i.e. there was no indication of the collateralised plots of land which would also secure the second loan. Revenue from the sales exceeded the amount needed to pay back the first loan.

Only when the EBRD passed the excess sales revenue on to the borrower did it realise that the excess should have been repaid to the EBRD as the second loan. High Court confirmed the effectiveness of the bank's cross-security agreement. The Commission noted that it could not be more clear that both the loan agreements and the mortgage and land charges were linked to all current and prospective obligations to the State.

Borrower representatives in the WEG reasoned that despite the clear conditions of the loan and mortgage documentation they were signing, the mortgage was governed by the fair consolidating principle. WEG was asked to annul the bank's excess receivable on the grounds that the institution did not follow the Doctrine.

If the same individual pawns two different characteristics to a creditor and tries to repay only one of the loans, the creditor may ask the individual to repurchase both the loans or none of them.

Otherwise, the creditor could be burdened with insufficient collateral for the remainder of the mortgage. There is no theory if there is a statutory right to repayment of a certain mortgage, e.g. a permissible sale within the framework of a loan-contract. WEG stated that the doctrine should not be merged with the principles of a cruise safety regime, which is a "separate and completely discrete process".

WEG also stated that the creditor cannot rely on the document, i.e. it is the creditor's right to rely on it. Ireland legislation precludes the right of a creditor to consolidation of a mortgage, although the contracting partners may stipulate that this preclusion should not apply to a particular collateral covenant. Both the High Court and the Court's judgment on CoA took particular note of the explicit conditions of the mortgage contracts which had been concluded by the lenders.

WEG found that there was sufficient proof on the basis of the draft that the borrower had'explicitly and unequivocally' concluded a transverse collateral agreement. In particular, the judgement took note of the concept of "secured funds". It is a useful revision of a lender's right to base itself on a clearly established agreement on collateralisation.

When determining whether or not a collateral policy has been restricted in a particular way, the court shall apply the normal contract drafting provisions when reviewing the collateral policy and any arrangements that alter the parties' understanding.

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