ISRAEL Law and Practice Contributed by: Hagit Bavly and Adi Daniel Zamir, Arnon, Tadmor-Levy
that the pledge and financing transaction do not cause a reduction in the entity’s capital. 3.6 Formalities When a Borrower Is in Default A borrower seeking to foreclose on a mortgage or pledge created over a residential apartment must comply with Article 81B1 of the Execution Law 1967, which stipulates that, in the case of a loan that is repaid by instalments and where the borrower defaults on at least one instalment, the lender may file a petition to foreclose only six months after the date of default, and only with regard to the amount in arrears and not with regard to the entire loan amount. If it was not stipulated that the loan would be repaid in instalments, the lender may, upon default, file a petition for full recovery of the loan as of the actual date of default. The borrower has a right to perform a self-sale and for this has an additional 90 days at their disposal. If the borrower does not exercise this right and does not file an objection, the sale procedure will continue. This may take a few months, and in cases where the borrower’s eviction from the residential unit is required, this may take longer. On average, the period for the realisation of a residential unit (provided that the borrower does not file an objection) is up to one year. The realisation of real estate assets that are not residential units is faster. A borrower has the right to repay the debt within 60 days from the date of submission of the application for realisa - tion, or to object to it. The procedure will include the appointment of a receiver, publication pro - cedures, etc. If the borrower does not file an objection, the whole process should take about six months from the date of filing the case at the enforcement office.
If the borrower submits an objection, the case will continue in court; and it is difficult to esti - mate the case’s length until its conclusion. The lender will rank higher than other creditors only if they procured the appropriate registration for their rights. The best protection is granted by registering a mortgage in the Land Registry or – if the borrower’s rights are not yet registered in the Land Registry – by a pledge with the Reg - istrar of Companies (in the case of a company) and in the Registry of Pledges (in the case of an individual). 3.7 Subordinating Existing Debt to Newly Created Debt In the case of two or more pledges of the same kind, the one that was registered first will prevail. A fixed charge will prevail over a floating charge. Obviously, the ranking can be changed by agree - ment between the owner and the lenders. 3.8 Lenders’ Liability Under Environmental Laws The lender does not hold possession or rights in the property. Foreclosure is usually affected by selling the property to a third party, not by trans - ferring it to the lender. The lender is therefore not deemed the possessor and is not liable for com - pliance with environmental laws with respect to the property. However, such incompliance may affect the property’s value. 3.9 Effects of a Borrower Becoming Insolvent The borrower’s insolvency does not in itself void security interests created by the borrower in favour of a lender. However, the Insolvency and Economic Rehabilitation Law allows the court to cancel liens or other securities in some cases – for example:
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