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When a bank customer resorts to credit, the credit institution may require the customer to provide guarantees to ensure that the loan is repaid.
A mortgage is a real guarantee that falls on an immovable property or similar thing.
In contracting a loan, the credit institution may require the establishment of a mortgage on the property in its favour in order to guarantee the payment of the loan.
This type of collateral is often used in the case of home loan agreements.
It is common for the credit institution to require the constitution in its favour of a mortgage on the financed property. The property can be the dwelling acquired, constructed or renovated that is financed by the loan, including the land.
The mortgage can also fall on a property belonging to a third person, for example of a relative, if the institution accepts this.
When assessing applications for home loans and other mortgage loans, the credit institution evaluates the property given as collateral for the loan. In this case:
The evaluation must be carried out by an independent appraiser registered with the Portuguese Securities Market Commission;
The credit institution must provide the bank customer with a duplicate of the reports and other documents related to the evaluations carried out on the property;
If the evaluation is supported by the bank customer, the customer holds the report and other evaluation documents;
The bank customer may submit to the credit institution a written complaint regarding the results and substantiation of the assessment, which must be the subject of a reasoned reply;
The bank customer may request a second evaluation of the property, the costs of which will be borne by the customer;
If there is a revaluation of the property at the initiative of the credit institution, in compliance with legal or regulatory standards, no fee or expense may be charged to the bank customer.
If the customer does not comply with the commitments assumed and fails to pay the agreed instalments, the credit institution may initiate legal proceedings to recover the amount owed, which may lead to the executive sale of the mortgaged property.
The value of the sale of the property may not be enough to pay all amounts owed.
A personal guarantee is the guarantee provided by a third party – the guarantor.
The guarantor is responsible for the repayment of the loan. If the debtor fails to comply with his or her obligations, it is the guarantor who assumes this burden.
In the credit agreement it may be provided that, in case of non-payment of the loan by the debtor, the guarantor:
Has the benefit of prior execution – the guarantor may refuse to pay the defaulted amounts on the credit agreement, while the institution has not exhausted all possibilities for recovery from the principal debtor, including the execution of the debtor’s assets, or the sale of goods through the court to settle the debts; or
Waives the benefit of prior execution – the credit institution may directly require the guarantor to pay the amounts owed. If the latter fails to comply, the credit institution may execute the assets of the guarantor, even if there are still assets of the debtor that could be executed to pay those amounts in default.
A guarantor can never cease to be guarantor, unless the credit institution agrees that they be replaced by another guarantor.
The credit institution may require the purchase of insurance to cover the amount of the loan in case of, for example, death, illness or unemployment of the bank customer.
When taking out home loans for mortgage refinancing, the credit institution may require that life insurance be purchased by the customer and his/her spouse, which covers the amount of the loan taken out.
During the term of the home loan agreement, the credit institution must inform the insurer about the evolution of the outstanding amount so that it can update the insurance capital (Decree-Law No. 222/2009).
Decree-Law No. 74-A/2017 (only in Portuguese)
Decree-Law No. 222/2009 (only in Portuguese)