If you want a loan, you first have to prove that you don’t actually need one. Many people think like this when it comes to credit protection rights. Yet there is probably no one (whether as an entrepreneur or as a consumer) who does not have to deal with credit protection. Credit is therefore an essential factor without which the economic engine would immediately stall. The collateral serves to cushion – ideally compensate – for the event that the debtor can no longer meet his obligations.
In credit security law, a distinction is made between personal securities on the one hand and real securities on the other. In the case of real securities, we subdivide the security based on movable objects (property and rights) and the security that can arise on immovable objects (real estate).
In the case of personal securities, the creditworthiness of the collateral provider is sufficient for the creditor. Personal securities therefore always involves a claim for payment by the creditor against the collateral provider.
Real securities, on the other hand, gives the creditor the right, in the case of collateralisation, to turn the object (article of property, right, property) in which the right has been created into money.
The most common types of security interests are explained below.
By far the most important personal security is the surety. It is characterised by the fact that the guarantor undertakes to guarantee the fulfilment of the debtor’s debt to the creditor “just in case”. The guarantor is liable only to the extent of the debt.
A distinction is made here between two forms of surety in particular:
In the case of an ordinary surety, the creditor must first approach his principal debtor. In technical jargon, this is called “benefit of discussion“. This means that the guarantor can first refer the creditor to the principal debtor. The creditor must then first pursue enforcement against the principal debtor.
Only if this fails or if the main debtor’s assets are not sufficient to cover the entire debt, the guarantor must stand in for the remaining debt.
This is where the name of this type of guarantee comes from: only if the principal debtor defaults is the guarantor liable for the amount of the remaining principal debt.
– directly enforceable guarantee
With this form of guarantee, the creditor can immediately turn to the guarantor. The “benefit of discussion“” already mentioned does not apply here. Instead, the guarantor is liable immediately if the debtor defaults, i.e. does not pay on time.
The creditor does not even have to send the debtor a reminder or demand payment, but can take direct action against the guarantor. However, the guarantor has a possibility to protect himself to a certain extent: For this he limits the contract to a fixed maximum amount (maximum amount guarantee). Another possibility is to limit the liability to a certain period of time.
A typical case of application is the directly enforceable guarantee for rental contracts, which is usually limited to rental debts of up to three cold rents. However, a directly enforceable bank guarantee for credit debts is also conceivable.
(2) Right of Lien
In the case of a lien, the so-called pledgee is granted the right to secure a claim with an object. A lien can be established on movable property as well as on rights.
On the basis of the lien, the creditor is entitled, in the event of non-fulfilment of the claim secured by the lien, to use the pledged object to satisfy his claim by way of pledge realisation when the secured claim falls due. The creation of a lien also has the advantage that the pledgee can demand separate satisfaction in the insolvency proceedings. (Separation).
The creation of a lien requires the existence of a claim. The creditor of the claim and the pledgee must be identical. The lien can also be created for future or conditional claims. However, the lien is always dependent on the claim (called accessoriness): If the claim expires, the lien also expires.
A further prerequisite for the creation of a lien is the actual livery of the pledged object, which represents a decisive disadvantage for the pledgor, as he can no longer freely dispose of the object.
In the case of a chattel mortgage, the guarantor (debtor) transfers full ownership of the (movable) object to the creditor. The great advantage of this is that – in contrast to the lien – a possession arrangement can be agreed, so that, for example, the owner of a car can transfer it by way of security and still remain the owner. The secured party is obliged under the security agreement not to dispose of the collateral in order not to jeopardise the repossession of the collateral provider. However, this prohibition is only of a contractual nature and therefore has no effect on the right of disposal in rem. If there is no power of disposition or other entitlement of the debtor, there is the possibility of overcoming this deficiency by a bona fide purchase.
A mortgage is an accessory real security. This sounds complicated, but it is easy to understand by comparing it with a surety: The guarantor is also only liable as long as the claim exists. If the claim expires or never arises in the first place, there are no rights from the guarantee. The same applies to the mortgage: the creditor is not entitled to it if the secured claim does not arise or has lapsed again.
The mortgage also moves with the transfer of the claim in the same way as the guarantee. An isolated transfer of the claim is therefore excluded by construction. Or, to put it precisely: A mortgage cannot be assigned at all. Only the claim to which the mortgage is “attached” is assigned.
In contrast to a guarantee, the guarantor of a mortgage (= owner of the encumbered property) cannot be sued for payment, but “only” for toleration of enforcement. Of course, the owner can pay to avoid this. In this way he acquires the claim. The guarantor (= owner of the property) does not pay the debtor’s liability. Rather, the debt remains and is available to the owner as a means of recourse.
(5) Land charge
In contrast to the accessory mortgage, the land charge is not “coupled” with the secured claim. It is therefore not accessory. The land charge is only linked to the secured claim by the so-called security agreement. If the purpose of the security agreement is to secure a claim, the land charge is referred to as a security land charge.
The security agreement prevents enforcement against the property as long as the loan amount is repaid as agreed. To ensure that the creditor (e.g. a bank) does not assert more rights from the registered land charge than he is entitled to, there is the so-called “declaration of purpose” in the security agreement. In this, it is agreed that the creditor will only use the land charge within the scope of the security purpose. The security purpose is to secure a specific claim with the land charge. If the specific claim expires, the land charge holder may no longer assert the rights from the registered land charge.
The security agreement alone ultimately creates an accessoriness between the land charge and the claim. If there is no security agreement, the land charge would be non-accessory.
In practice, land charges are almost exclusively used to secure claims and has almost replaced the mortgage.