Mortgage issues are regulated by Civil and Commercial Codes (both effective as of 1 January, 2004), Law on Mortgage of 1992, Law on Hypothec of 2003 and corresponding normative acts.

In accordance with the Law on Mortgage of Ukraine, a mortgage can arise on the basis of an agreement, an act or a court judgment.

Under the law of Ukraine any mortgage agreement must be concluded in writing and certified by a notary. Real estate mortgages may also be registered in State Notary registries. Upon performance of the secured obligations, the mortgagee is required to cancel the registration. However, the state registration is not obligatory by Ukrainian law and does not affect the validity of mortgage agreement. However, in case of absence of registration of a mortgage, a mortgagee does not receive a priority right over the rights and claims of others to the mortgaged property.

Thus, the mutual rights and duties of the parties of mortgage agreement arise only after its notarization.

Under the law a real property can be a subject of mortgage if:

• real property is under ownership of a mortgagor;
• real property can be alienated by a mortgagor and foreclosed;
• real property is registered per the procedure established by law.

If a real property is under joint ownership, a notarized consent of all co-owners is required.

Unfinished buildings may also be a subject of mortgage. In this case a mortgagor has to prove that this real estate will become his property after the conclusion of a mortgage agreement. The right to purchase the real estate in future is to be documentary confirmed by a mortgagor. Mortgage of unfinished buildings can be carried out either by mortgaging a land plot of this construction or by mortgaging a real estate, which will be under mortgagor’s ownership in future.

It’s important to note that in case of mortgage on buildings or any other capital structure, a land plot underneath this structure is considered to be mortgaged too. And if a land plot is mortgaged, it also concerns construction on this land plot.

If the essential conditions of a mortgage agreement stipulated by the law are not executed, a mortgage agreement is invalid. The essential conditions of a mortgage agreement are the following: names of the parties; an obligation, its term and procedure of its execution; subject of mortgage (for a land plot – its purpose of use); reference to the issue of mortgage security or to its absence.

The law of Ukraine states a new type of security for mortgage (mortgage note), which indicates the unconditional right of its holder for execution of the main obligation by a debtor and in if it’s not executed, the right to foreclose on the mortgaged property. The mortgage note can be issued only to secure monetary obligation of a debtor. A holder can transfer a mortgage security to another holder by endorsement who will eventually have the same rights with regard to the mortgaged property.