- Absence of the Right to Bring Proceedings before the Court to Claim Redress for Damage That Decreases the Value of a Mortgage
- September 15, 2014
- Law Firm: BSJP Brockhuis Jurczak Prusak Sp.k. - Warsaw Office
Absence of the right to bring proceedings before the court to claim redress for damage that decreases the value of a mortgage
Pursuant to Art. 93 of the act on land and mortgage register and mortgage: “in the event that the decrease in value of a real property that breaches the security of a mortgage results from circumstances that the owner is not responsible for, the mortgage covers the claim of the owner for redress for damage.” There are conflicting views expressed among legal academics and commentators in the context of the above regulation as to whether in the event of occurrence of a damage that breaches the security of a mortgage the mortgage creditor has the right to bring proceedings before the court to claim compensation from the person responsible for the occurrence of the damage, and when an affirmative answer is given, then as to whether the creditor could in such a case demand payment of compensation directly for his own account and benefit or should instead the claim be restricted to only demanding that an obligation be imposed on the perpetrator of the damage to deposit the payment (compensation amount) with the court. Therefore, it has to be decided in the first place whether, in the event that the criteria referred to in Art. 93 of the act on land and mortgage register and mortgage are met, there arises the right to bring proceedings before the court to claim compensation.
There are different views presented in literature in respect of this issue, including one that postulates that it is only the owner of the real property that has the right to make compensatory claims covered by a mortgage. Under Art. 93 of the act on land and mortgage register and mortgage, a mortgage creditor neither assumes the rights of the owner nor obtains the right to claim payment of compensation. Furthermore, a mortgage creditor is not able to demand that a payment be deposited with the court (cf. T. Czech, Hipoteka. Komentarz, p. 481). For some, this particular standpoint does not seem to be entirely valid as it would deprive the mortgage creditor of the ability to make use of the court security established for his mortgage, the scope of which covers, as per the aforementioned regulation, the claim for redress for damage. Accepting the view that the mortgage creditor has no influence on the fate of such a claim, including as to whether the owner will at all pursue the claim against the perpetrator of the damage, is difficult for many. However, it is no less difficult to accept quite a contrary view, pursuant to which the creditor would assume the rights vested in the owner of the real property and would be able to pursue them directly for his own account and benefit, in particular when we take into consideration the fact that the owner of the real property does not lose his own compensatory claims against the perpetrator.
In such a case the suggestion that the relevant provisions of the code relating to the pledge, including those regulating the legal situation of the pledgee, be applied to such circumstances seems to offer a viable compromise. This would mean that the owner has the right to claim compensation, to which the provisions on pledge on rights (Art. 327-335 of the civil code) would apply by analogy. Pursuant to Art. 330 of the civil code, the pledgee has the right to perform all acts and pursue all claims which are intended to preserve the right encumbered by the pledge. In turn, pursuant to Art. 333 of the civil code, the pledger of the receivable debt and the pledgee shall be jointly entitled to receive the payment, and each of them has the right to demand that the payment be made to both of them jointly or that it be deposited with the court. However, due to the fact that the pledge and the mortgage are regulated under two separate legal acts, excluding the application of a mutual analogy to the two separately regulated tangible collaterals is not without legal merit.
In the latest resolution of the Supreme Court of 10th July 2014 (III CZP 37/14), in response to a legal issue presented to it, the Supreme Court spoke in favour of the position that denies the mortgage creditor the right to bring proceedings before the court to claim compensatory damages from the perpetrator of the damage such as is vested in the owner of the real property under Art. 93 of the act of 6th July 1982 on land and mortgage register and mortgage.
In light of the resolution, the mortgage creditor, when wishing to secure himself the right to pursue the given claims against the perpetrator of the damage before the court, should think in advance of securing his legal interest by, for example, entering with the mortgage debtor into a separate agreement on security assignment of all claims resulting from insurance agreements concluded with an insurer in respect of the real property subject to the encumbrance. The practice consisting in the conclusion of this type of agreements is commonly applied on the real property financing market.