New law to simplify procedure for recording land rights
Land is a touchy subject in Poland. The upheavals of the 20th century have hit land rights, and the system of evidencing rights, particularly hard. While I will leave the issue of unresolved real estate claims to the government, the everyday work of a lawyer involves reviewing evidence of rights and the creation of various rights and mortgages.
Although perhaps difficult to believe in this age of information, Poland's current system of evidencing rights in real estate is recorded by hand. Without a doubt, this system is not effective enough to meet market requirements. For example, it is estimated that there were more than 2 million applications for recording entries in the title and mortgage books in 2000. The average waiting period to record an entry was more than three months. In bigger cities such as Warsaw, the wait averaged more than eight months.
Having computerized the company registry and the registered pledge system, the government has finally turned its attention to the thorny issues of an electronic system to establish and maintain title and mortgage registers and the simplification of the procedures for establishing a mortgage.
The first significant attempt to create a modern system for evidencing rights in real estate is the Act of May 11, 2001 on Amendments to the Act on Title and Mortgage Registers and Mortgages, the Code of Civil Procedure, the Act on Costs in Civil Proceedings and the Act on Notaries (the "act"). This act, which will go into effect Sept. 23, has introduced a plethora of changes, all of which are intended to simplify the procedures for recording rights in land.
One of the most significant amendments allows the Justice Ministry to ordain the creation of an electronic system in which the courts will establish and maintain title and mortgage registers. The amendment also designates which courts will be responsible for maintaining this system. Although the amendment does not create a new system itself, it constitutes a first step. The next step will be to integrate the title and mortgage registration system with those of other registers, such as the register of registered pledges and the national court register, to ensure complete information about a legal entity and its assets. As is frequently and painfully seen, however, it can be a long and winding road from the initial call for computerization to the actual implementation of the technology. Estimates suggest that the whole project would take about 10 years.
Coming back to the act, another important amendment is the unification of the procedures for the recording of rights in land with those of other civil matters. Previously, an archaic procedure existed for setting up a title and mortgage register for a parcel of land. Under the act, for real estate for which no title and mortgage register have been established, an owner would need only to submit an application for recording an ownership title. This application, at the same time, would contain the request to establish a register.
The other practical effect of the amendment is that it should help resolve close calls on the race to record. The amendment states that the courts would record not only the day but also the moment of submitting an application for an entry in the title and mortgage register. The priorities of rights would be determined on the basis of the day, hour and minute of submission.
Under the act, a new owner of real estate must file an application for recording a change of ownership in the title and mortgage register. If someone suffers damage because of a failure to file this motion, the new owner would be liable to compensate that person for the loss. This may sound far-fetched, but even in the United States there are cases of the unscrupulous seller selling a prime parcel of land to more than one buyer. To motivate owners to do what is ultimately in their own best interest, the court may impose fines of zl. 500 to zl. 10,000 on owners who delay in submitting an application.
The act also introduced a few amendments to the procedures for establishing mortgages on real estate. In particular, banks and other financial institutions that rely on mortgages as security for loans may find these amendments to be quite interesting.
The act provides that if a claim secured by a mortgage is expressed in currency other than zlotys (e.g., a U.S. dollar-based loan), the mortgage may be recorded in the title and mortgage register in the same currency, without necessity of converting the amount of debt into zlotys. Prior to the enactment of this amendment, this issue was unclear and some courts refused to record mortgages expressed in foreign currencies.
Finally, bankers should sleep a little easier knowing that a tax lien is not going to take priority over their mortgage. An amendment introduced by the Act of April 11, on Amendments to the Tax Code Act replaces the concept of a "statutory mortgage" with that of a "compulsory mortgage." However, the purpose of the compulsory mortgage is the same. It is established in favor of the treasury to secure tax liabilities. The difference lies in the priority. A compulsory mortgage becomes effective once it is recorded in the title and mortgage register. Previously, a statutory mortgage was effective even if not recorded. Once recorded, a compulsory mortgage enjoys priority over all other mortgages, irrespective of when it was recorded. However, there is one exception. If real estate is already encumbered by a mortgage created for the benefit of a bank as a security for any kind of bank credit, a compulsory mortgage does not benefit from any special priority.
With a combination of making title and mortgage registers more accessible and streamlining the process for recording ownership rights in and mortgages on real estate in Poland, the government should provide a firm basis for land transactions in the future. Now, if the government could just decide what to do about land claims from 50 years ago.
This article was prepared by Lejb Fogelman, the managing partner of Hunton & Williams Poland with the assistance of Justyna Chabocka, an associate attorney.
