What is a mortgage loan?
A mortgage loan, in practice often simply called mortgage, is a loan for which a property (e.g. a house) serves as collateral by notarial deed. Accordingly the basis for a mortgage loan is the collateral, the security which the lender has to claim repayment of the loan. This claim is privileged by the right of mortgage, which is established by notarial deed, and empowers the lender to recover his loan from the proceeds of the sale of the property by priority, therefore before other creditors. The owner of a property that confers the right of mortgage is called the mortgagor. His lender, e.g. CHB, who is granted the right of mortgage, is called mortgage holder.
The right of mortgage may only be established by an owner or the person who has the right of long lease, not by a tenant or a lessee of rented or leased property. The property, on which the mortgage was granted, is called the collateral. The collateral is therefore intended to provide CHB the assurance that the borrower fulfills his obligations to the bank. It is of course always possible that the collateral is lost, e.g. by fire, making it virtually useless for the bank. The mortgagor therefore is to insure the property and keep same insured against the perils of fire and other hazards, with CHB as beneficiary of the insured capital. In this case the insured capital is the reconstruction value of the property as stated in the appraisal report.
In general, the amount of a mortgage loan does not exceed a certain percentage of the market value or the execution value at a forced public sale (auction). The market value is the price that the property could make in a private sale, free of rent and use. The execution value and market and reconstruction values of the collateral are stated in an appraisal report by an independent expert, the appraiser.
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