In our country, there are many financial institutions that offer their clients the possibility of granting a loan, whether personal, for housing, debt unification and many others. People should be cautious and study well the requirements and conditions of each one of the institutions, so that they know the details in their totality and then they will not be affected.

Financial institutions offer credits backed by mortgage loan and pledge guarantees, for the most part; however, there are others that grant such credits backed by guarantee trusts.

The Common Mortgage:

The mortgage has always been used to establish a real right of guarantee over a real estate property, with the purpose of ensuring the payment of an obligation, and that, in case of default, the Creditor may auction the mortgaged property and thus obtain the payment of its credit.

The common mortgage is a contract by virtue of which a person, called debtor, encumbers a real estate property in favor of another, called Creditor, so that, in case the debtor is unable or unwilling to comply with the secured obligation, the payment of the principal amount, plus interest and expenses related to the judicial collection process, can be made.

Some characteristics of the common mortgage are:

● It is a real right since it is a security interest over property.
● It is considered an accessory because it depends on a principal obligation to which it serves as security.
● It is indivisible because the mortgage weighs on all the parts of the real estate.
● It is a right to pursue because the creditor has the right to pursue the mortgaged property.
● It has the right of preference since it protects the privilege enjoyed by the Creditor, for when the judicial sale of the mortgaged property is carried out.

The Guarantee Trust:

The purpose of the trust, like the mortgage, is to guarantee the fulfillment of a payment obligation by means of the subscription of a contract, composed of three parties: The Trustor, the obligor, delivers assets to a Trustee, who receives, safeguards and administers them during the term of the obligation; to guarantee the fulfillment in favor of the Trustee, who is the creditor of monetary obligations,

The trust assets are registered in favor of the Trustee, however, they will not be part of the Trustee’s patrimony, so they cannot be seized in case the Trustee has delinquent obligations. This is of utmost importance since it provides additional protection to the assets that are given in custody.

Advantages and Disadvantages of a Mortgage and a Trust

● It is important to mention that as far as terms, payments, interest rates and commissions are concerned, both figures are very similar, but we are going to explain some important differences to take into account:
● In one way or another due to the inefficiency of our Judicial Collection Courts, foreclosure is much more complicated and slower for the creditor than the execution of the fiduciary guarantee. A foreclosure process can take years from the time it is initiated until the Creditor receives the proceeds of the auction or final possession of the property.
● A disadvantage of the trust is that it normally generates additional expenses for the debtor/settlor, such as the payment of fees for the administration and custody management performed by the Trustee.
● A great advantage of the Trust is that when the Trustee and the Beneficiary are duly registered before SUGEF, the transfer of the Trust property will be exempt from the payment of the Transfer Tax, making the constitution of the Guarantee less onerous.
● When a mortgage loan is constituted, the Tax Value of the property increases to equal the guaranteed amount, in the trust this does not happen.
● In the Trust it is easier and less onerous to extend or cancel the loan.

If you require advice regarding credit obligations, financing or banking issues, ERP Lawyers has a specialized team at your disposal. Do not hesitate to contact us at info@erplawyers.com !