Mortgage solution, what it is and how it works

Mortgage settlement: what is it

Il mutual solution it’s a particular kind of mortgage contract which, unlike the ordinary mortgagehas the function of paying off a pre-existing debt.

Consider the case in which a person borrows a sum of money to use it to pay a debt and undertakes to repay it later with or without interest.

Mortgage agreement – photo Getty Images

Let’s see better what it consists of and what the different jurisprudence positions are.

Mortgage resolution function

The mortgage loan is used when one party already has a debt towards another, and, instead of pay off the debt with the normal repayment of the sum due, which perhaps he does not yet have, he decides to stipulate a mortgage contract.

The contract is signed because the debtor does not have sufficient liquidity and wants to avoid defaulting.

In other words, whoever has the debt receives a sum of money through the mortgage loan to pay off that debt, committing to return the sum to the lender (the person who grants the loan, i.e. the bank) with the methods established in the contract.

In this way, the debtor extinguishes his obligation towards the original creditor, but at the same time undertakes to return the amount to the new creditor (the lender) with a new regulation of times, repayment methods and, possibly, interests.

What are the main characteristics of the mortgage loan

Below we illustrate the main characteristics of a mortgage loan:

• solution purpose: The mortgage is not aimed at financing new projects or expenses (such as the purchase of a house or its renovation), but exclusively at the payment of a pre-existing debt with another party;
• real contract: As in the ordinary mortgage, the solvatory mortgage is finalized with the delivery of the sum of money or fungible goods by the lender;
• obligation to return: The debtor (borrower) is obliged to return the sum received to the lender (the bank), according to the contractual conditions agreed in the loan;
• interests: Interest may be applied on the sum granted, but this depends on the agreements between the parties.

The mortgage solution is a tool used to manage previous debtsespecially when the debtor is in difficulty to meet the original deadlines or when the original creditor prefers the debt be extinguished with an immediate payment, while the debtor takes on a new payment commitment with more sustainable conditions.

In summary, the mortgage loan allows you to reorganize a debt, formally extinguishing it, but replacing it with a new payment commitment towards a third party (the lender).

Mutuo solutorio – foto Getty Images

The sum loaned can be delivered directly to creditor subject pre-existing without passing into the hands of the debtor.

This type of contract raises questions about its nature, in particular the legal availability of the sum by the borrower and the effects of this operation.

What are the jurisprudential guidelines

The legal qualification of the so-called mutual settlement has been at the center of a jurisprudential debate, following which two different orientations are seen opposing one another.

According to a jurisprudential orientation consolidatedthe mortgage loan is valid and constitutes a real mortgage, since the sum is still made available to the borrower, even if used to pay off a previous debt.
Consequently, the solvatory loan contract generates the obligation to refund by the borrower, just like a traditional mortgage.

The debt settlement loan, used to settle the previous debt situation, is not void, as it is not contrary to the law or public order and cannot be considered as a mere extension of the payment deadline for the previous debt. Yes you have a credit into the current account of the sums paid and, as stated by the Judges, this is sufficient to integrate the giving rei specific to the ordinary mortgage contract.

The completion of the contract with the consequent obligation to repay occurs when the sum is made available to the borrower.

Mortgage solver function – photo Getty Images

However, there is one minority vision which it is necessary to mention, which considers this type of operation as a mere accounting entry, without an actual transfer of money, reducing the mortgage settlement to a extension of the deadline of payment without creating a new obligation.

In this case we would be faced with a mere accounting operation of debit and credit on the current account which cannot be classified as part of the mortgage loan.

There is therefore only a change in the deadline for fulfillment without any novation of the original debt.

The solution to this debate is currently left to the United Sections of the Court of Cassation.