«Abstract: This article gives a broad introduction to real estate mortgages and foreclosures in Denmark. Denmark has the oldest mortgage legislation ...»
Foreclosure of Real Estate
– Ideas from a different legal system (Denmark)
Henrik Stakemann Spang-Hanssen
This article gives a broad introduction to real estate mortgages and foreclosures in Denmark.
Denmark has the oldest mortgage legislation in the world.
The legal and institutional framework has in many ways been the recipe for efficiency and success
within Danish mortgage banking and is probably the foremost reason for the long and unblemished history of specialized lending in Denmark dating back to 1851.
After a short introduction and history on Danish legislation, the article describes Danish mortgages, including appendixes with complete English translations of all mandatory mortgage terms.
Next, it describes in detail the Danish system on foreclosure of real estate, again including appendixes with English translations of the various Danish rules for auctions of real estate.
Finally, it offers some final remarks, a list over important case law (in Danish) and a list of recommended further reading and sources.
The reader should study Appendixes A through E thoroughly to obtain a full understanding of the Danish system.
Henrik Stakemann Spang-Hanssen, Foreclosure of Real Estate – Ideas from a different legal
system (Denmark) (Version: May 2009, confer date in footer). Available at SSRN:
http://ssrn.com/abstract=1414525 This paper can be downloaded without charge from
Social Science Research network Electronic Paper Collection:
http://ssrn.com/abstract=1414525 © May 2009 Henrik Stakemann Spang-Hanssen E-mail: email@example.com Research website: www.geocities.com/hssph SSRN-Author: http://ssrn.com/author=943044 Foreclosure of Real Estate – Ideas from a different legal system Foreclosure of Real Estate – Ideas from a different legal system (Denmark) 1 by Henrik Stakemann Spang-Hanssen Endnote * INDEX
2. Legislative history
3. Danish Mortgage certificates in real estate
4. Requirements for execution (as basis for foreclosure sale)
5. Writ/application for foreclosure sale
6. Preparations for Auction
6.1. Vejledningsmøde (Information-meeting)
6.2. Forberedende møde (Preparatory meeting)
6.3. Auction-Sales Information Sheet [Salgsopstilling / “Købsnøgle”]
6.4. Recall of the Auction
7. The Auction
7.1. The Beginning
7.2. The Bidding System
7.2.1. Størstebeløbet [“Maximum-Size-Amount”]
7.2.2. Strategy for Mortgagees
7.2.3. Strategy for Prospective Buyers
7.3. Hammer-Stroke & Bail
7.4. New auction
7.5. After the auction
7.6. Non-fulfillment-auction [misligholdelsesauktion]
8. Final Remarks
A. Compulsory Sale Terms / Conditions of Auction-Sale (real estate) [Justitsministeriets “tvangsauktionsvilkår”]
B. Guidance for use of information sheet [Vejledning i brug af salgsopstilling]
C. Auction-sale Information Sheet [Salgsopstilling / “Købsnøgle”]
D. Compulsory Sale Terms / Conditions of Auction-sale (cooperative flat)(in Danish)
E. Mortgage deed/note type formula A & B [Pantebrevs formularer]
E.1. Formula A
E.2. Formula B
F. Claimant Attorney’s Fee & Expert Fee (in Danish)
G. Court Decisions (in Danish)
H. Further Reading - Sources
Green Papers/White Papers/Reports
Law-amendments/reforms & executive orders
1. Introduction At present, the United States is experiencing a massive wave of foreclosures (UK: repossessions) of real estate. During the 1980s-90s, Denmark experienced such a wave. Thus, it could be of interest for Americans to compare their system with that of Denmark.
In Denmark – a non-common law country 2 - a major change of the rules on foreclosure of real estate was made by amendment to the Danish Civil Procedure Code (UK: Administrative of Justice Act) 3 (hereinafter “Retsplejeloven” or “Rpl”) in 1977. The two-fold purpose was to ease the way real estate could be purchased at auctions and to raise the level of information on the foreclosed properties in an attempt to achieve higher auction prices. Based on experience from the 1977 amendment, later reforms were also made.
Note: As this article is intended for upload on SSRN, where scholars from around the world share their writings and also search for the work of other authors,, and as some Danish legal terms cannot easily be translated into a single English word, I have at times used several different translationsconnected by slashes (“/”)) so as to relate terms in US-English, UK-English and European UnionEnglish.
Thus, a civil law country where caselaw is not an “issue”, Henrik Spang-Hanssen, The Modern Law School’s Uriaspost – the Post of Danger [a teachers manual on civil law], available at SSRN: http://ssrn.com/abstract=1102293. On precedence, see J. PAUL LOMIO & HENRIK SPANG-HANSSEN, LEGAL RESEARCH METHODS IN THE US AND EUROPE page 158-162 (2. Edition) (Denmark: Copenhagen: DJØF Publishing, 2009 – ISBN 978-87-574-1936-8).
“Retsplejeloven” or “Rpl”, latest consolidated version no. 1069 of 6 November 2008 (without later amendments) at www.retsinformation.dk/print.aspx?id=121708 (last visited May 2009).
Henrik Stakemann Spang-Hanssen, May 2009 – Page 2 of 82 Foreclosure of Real Estate – Ideas from a different legal system The 1977 amendment also had the aim of helping the homeowner to forestall a sale at auction. To achieve this goal, the court 4 - which in Denmark has to be involved in any case of auction sale of real estate 5 - was given the opportunity to hire a realtor as an expert and allow this person to try to sell the property in the free market. In addition, provision was made for appointment of an attorney to assist the homeowner.
In Denmark nearly all mortgage loan notes/certificates constitute not only security in real estate but also function as the debtor’s promissory note (hand 6 /IOU). 7 Thus, if a debtor’s real estate is sold at an auction, and does not cover all the debt pursuant to the mortgage, the charge certificate will continue to be evidence of the remaining debt owed by the debtor personally. 8 This is a system that the author cannot recommend for the United States, as it can invite mortgage companies to ease the requirements for lending on the basis of real estate or even disregard the true value of real estate as a security.
In Denmark, in case of non-payment of a mortgage in real estate or other breach of the mortgage, the creditor can ask the court to turn over possession of the real estate so the creditor can cover the balance in his/her favor through the income of the estate (“Brugeligt pant”). 9 For dwellinghouses/personal residences, this method will often be used if the estate is rented.
In 2003, the financial environment in Denmark was simplified and reformed from several acts into only two, including one for decades working act “Realkreditloven” 10 for the special Danish socalled “Realkreditinstiutter”. Since then, the Danish financial market has been ruled by the Financial Business Act/Financial Institution Act (“lov om finansiel virksomhed”) 11 and the Mortgage Credit loans and Mortgage Credit Bonds etc. Act/Mortgage-credit Institute’s Property Loan and Property Bond Act (“lov om realkreditlån and realkreditobligationer m.v.”). 12 The revision also allowed credit institutions to offer no repayment loans to residential and summer estates for a period of up to ten years.
Also “free auctions over real estate” are to be effected by courts. See § 1 subsection 3 of Lov om offentlig auktion ved auktionsledere [“Public Auction-managers Act”] no. 191 of 9 April 1986 with amendments in law no. 385 of 22 May 1996 and law no. 1018 of 23 December 1998.
That is, in Denmark, a mortgagee cannot obtain repossession absent a (written) agreement with the debtor, which agreement can only be made after the debtor’s non-fulfillment. Whether repossessor can claim any difference after having sold the assets, will depend on the written agreement with debtor. Danish mortgage loans in real estate are recourse debt loans, and the US-style rule on repossession does not work automatically. That is, if the repossessor sells the asset for an appropriate amount, and if that amount is less than the amount of the loan, and if the repossessor sues the debtor for the balance (plus reasonable fees if applicable) in a timely manner, the debtor will be liable to pay the balance.
European Union: Borrower’s note. Mortgages in Danish real estate do not parallel US, where the debt is a non-recourse debt, and the lender simply has to pay off the difference if not covered by the real estate.
See § 11 subsection 1 litra 3 of Gældsbrevsloven [the Instrument of Debt Act/Document of Indebtedness Act], latest consolidated version no. 669 of 23 September 1986 (without later amendments) at www.retsinformation.dk/print.aspx?id=59267 (last visited May 2009).
The debt has a time-limitation of 20 years from the date of the debtor’s signature on the document (see §43 subsection 3 of Gældsbrevsloven, above footnote 7), unless the certificate has been presented to a court – when a new 20 years period begins. See § 490 subsection 3 of the Civil Procedure Code, above footnote 3.
Chapter 54 of the Civil Procedure Code. Reformed by law no. 469 of 30 June 1993.
Latest consolidated version no. 982 of 5 December 2003.
Originally, law no. 453 of 10 June 2003 (based on Bill no. L 176/2002). Latest consolidated version no. 897 of 4 September 2008 (without later amendments) at https://www.retsinformation.dk/print.aspx?id=121129 (last visited May 2009).
Originally, law no. 454 of 10 June 2003 (based on Bill no. L177-2002). Latest consolidated version no. 898 of 4 September 2008 (without later amendments) at https://www.retsinformation.dk/print.aspx?id=121133 (last visited May 2009).
Henrik Stakemann Spang-Hanssen, May 2009 – Page 3 of 82 Foreclosure of Real Estate – Ideas from a different legal system By law no. 577 of 6 June 2007, 13 Denmark allowed “Covered Bonds” 14 to increase competition in financing of real estate and to offer Danish consumers more choices. This 2007 law allows foreign credit institutions/banks to issue “covered bonds” similar to “realkredit-obligationer” bonds issued by special Danish mortgage-credit institutes through decades. The law implements European Union Directive 2006/48/EC of 14 June 2006. 15 Pursuant to the Danish Registration of Property Act [hereinafter Tinglysningsloven], 16 rights and obligations related to real estate in order to have a security priority over prior-third parties must be registered in the land-register 17 at the court forum where the real estate is located. The Act divides
the register into four parts:
One for real estate [land register] One for cars (“Bilbogen”, centralized to the court of Aarhus 18 ) One for cooperative flats (“Andelsboligbogen”, 19 also centralized to the court of Aarhus 20 ) One for movable and personal property (“Personbogen,” also centralized to the court of Aarhus 21 ).
Section 37 of Tinglysningsloven states that where real estate is permanently established (worked out) for the purpose of a particular enterprise/business, any registered mortgage (certificate) in the land register for that property – unless otherwise agreed upon/written in the certificate – will embrace/cover/include the enterprise/business-related equipment and materiel/fittings (including machines, technical installations and facilities of any kind); and for agricultural/farm real estate, any registered mortgage (certificate) in the land register will embrace/cover/include livestock/herds, fertilizer(s), crops 22 and other products, as far as they are not removed pursuant to regular operation of the property. If the real estate is insured, then the security in the property also covers – unless otherwise agreed upon/written in the certificate – the insurance amount.
Section 38 of Tinglysningsloven states that when a building is erected/put up – fully or partly – and when wire/cables/pipes, central heating, household machines/domestic electric appliances or similar items have been installed in the building at the expense of the owner for use in the building, Lov om ændring af lov om finansiel virksomhed og forskellige andre love (Særligt dækkede obligationer) www.retsinformation.dk/print.aspx?id=27608 (last visited May 2009).
“Særligt dækkede obligationer”. Mandatory template for mortgage certificate given in Justice Department Order no.
745 of 28 June 2007.
Directive 2006/48/EC of the European Parliament and of the Council of 14 June 2006 relating to the taking up and pursuit of the business of credit institutions, E.U. Official Journal L 177, 30.6.2006 p. 0001-0200 at http://eurlex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2006:177:0001:0200:EN:PDF (last visited May 2009).
See § 1 of “Tinglysningsloven” [the Registration of Property Act], latest consolidated version no. 158 of 9 March 2006 (without later amendments) at www.retsinformation.dk/print.aspx?id=2031. The first version came into force in 1927.. A guide on how to register “”Pantsætning af fast ejendom” at http://www.domstol.dk/saadangoerdu/bolig/pantsaet/Pages/default.aspx. A guide in Danish on how to use the Register [“Vejledning - Opslag i Tinglysningssystemet”] at http://www.domstol.dk/Selvbetjening/tinglysningssystemet/vejledninger/Documents/Vejledning%20Opslag%20i%20Tinglysningssystemet.pdf (all last visited May 2009)..
See § 42e of “Tinglysningsloven.” See footnote 16 above.
See §1 subsection 2 of law no. 216 of 31 March 2004 on Security in and execution of cooperative flats [Pant og udlæg i andelsboliger m.v. ].
See § 42k of “Tinglysningsloven.” See above footnote 16 above.
See § 43a of “Tinglysningsloven.” See above footnote 16 above.
There is a special way for a manufacturer of seed grain to get security in the crop – registering a so-called “høstpantebrev” [crop-mortgage deed] before delivering the seed.