Mortgage
Often, the financing makes or breaks the purchase of a property or house. The buyer often appeals to a bank, an insurance company, pension fund or foundation for the financing. The person who borrows money for the purchase of a property or house grants a mortgage. This means that the property or house becomes the collateral to give the financier the security that he will get back the money he has loaned. The law gives him the right to recover his claim (if the owner fails to pay the mortgage) from the proceeds from a public sale of the property or house, so he has preference over the other creditors. This mortgage is granted by the owner or lessee. As soon as the mortgage has been granted to the financier, he becomes the mortgagee. The property or house encumbered with the mortgage is the collateral.
Special provisions in a mortgage deed
By law, the mortgage contains several safeguards thanks to which the financier can count on repayment of the loan granted. The strongest safeguard is the right of the financier to cause the collateral to be sold in public (auction) if the debtor fails to meet his obligations. The financier ranks first to pay the outstanding debt from the proceeds of the public sale. Two other safeguards are the substitution of property and the rental clause.
Substitution of property means that a payment under non-life insurance, if any, is encumbered with a pledge in favor of the mortgagee (financier): the security in the form of the house can be substituted with a pledge on the claim on the insurer (the claim on the insurer is collateral instead of the property or house). This safeguard is of importance in the event of fire or other significant damage on account of which the value of the house as collateral is strongly diminished or the house even becomes worthless. Consequently, the mortgage deed states that the buyer has to insure the collateral (the house) against fire and other risks. The mortgagee (financier) has the authority by law to have inserted in the mortgage deed that the owner/lessee cannot rent out the collateral without his permission, and that, moreover, he is not allowed to cause the rent to paid in advance for a long period of time. This authority originates from the risk that in such cases a collateral will sell at considerably less money in a public sale. This so-called rental clause is also registered in the public registers. If a house is then still rented out without permission and/or the rent is paid in advance for a long period of time, the mortgagee does not have to take this into account in case of a public sale - after permission of the Court of First Instance of Aruba. In that case the tenant has to vacate the house. If the tenant is allowed to stay in the house, he has to pay the new owner rent again. Each tenant can verify his rights in the mortgage deed of the house. For this deed is registered in the public registers.