LITHUANIA Law and Practice Contributed by: Evaldas Klimas and Vygintas Kuprys, WALLESS
3.7 Subordinating Existing Debt to Newly Created Debt A debt may become subordinated upon the con - sent of a previous creditor and the conclusion of an agreement with that creditor. In this case, the registered security that was created first would have to be re-registered to give it priority over a later created and registered security. 3.8 Lenders’ Liability Under Environmental Laws Only an owner or possessor of real estate who performs an activity will be liable under the rel - evant environmental laws. A lender holding or enforcing security over real estate will not usually be liable under environmental laws. 3.9 Effects of a Borrower Becoming Insolvent The commencement of insolvency proceedings does not generally have an adverse effect on a security interest over property. On the contrary, under Lithuanian insolvency law, secured credi - tors have priority to recover their debts from the value of the insolvent borrower’s property given as security. However, it should be noted, that any security granted by the borrower at the time they had financial difficulties may be subject to claw- back under Lithuanian insolvency law. 3.10 Taxes on Loans There are currently no existing, pending or pro - posed rules, regulations or requirements that lenders or borrowers pay any recording or simi - lar taxes in connection with mortgage loans or mezzanine loans related to real estate.
Furthermore, the principles of Lithuanian civil law and corporate law require that an entity entering into any transaction should have sufficient com - mercial benefit from that transaction. Both of these issues may lead to the invalidity or unenforceability of obligations of the Lithuanian guarantor and/or mortgagor (pledgor). 3.6 Formalities When a Borrower Is in Default If a borrower fails to fulfil secured obligations, enforcement of the mortgage over the real estate would be carried out through an out-of- court enforcement procedure. A creditor would have to apply to a notary public, requesting the issuing of an enforceable instrument. After the enforceable instrument has been issued by the notary public, the creditor would have to apply to a bailiff, requesting the initiation of a recov - ery procedure over the real estate mortgaged in favour of the creditor. Under Lithuanian law, the priority of a mortgage over real estate is decided by considering the tim - ing of the mortgage registration in the Register of Agreements and Constraints of the Republic of Lithuania, ie, registration will reflect the registered mortgage priority over any other mortgages not yet registered and any subsequently registered mortgages, as well as all unsecured claims. The duration of the enforcement and realisation on real property security can vary greatly. If there are no unfounded complaints, the enforcement takes about six months from the application to the bailiff. If the debtor has exhibited malice in making unfounded complaints, the litigation may last for several years. No specific rules regarding restrictions on a lender’s ability to foreclose or realise on collateral in real estate lending have been implemented by governmental entities in response to the COVID-19 pandemic.
598 CHAMBERS.COM
Powered by FlippingBook