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New amendment to the Hungarian Civil Code

The purpose of the new amendment to the Hungarian Civil Code, effective as of 1 October 2016, is to make effective the independent mortgage, which was used under the former civil code, along with refining rules with respect to the security deposit.

The independent mortgage is a security that does not require enforcement dependent on the loan or other security relationships between a creditor and debtor. It is inspired from the German Civil Code. Starting with 1 October 2016 the independent mortgage will replace the unsuccessful separated mortgage (különvált zálogjog). The law provides for the possibility for the existing separated mortgages to be converted upon the request of the mortgagor to independent mortgages under a special proceeding provided in the said amendment.

Another notable modification refers to corporate entities that are allowed to establish call options, security assignments and other fiduciary securities to secure their claims. Such transactions are is still prohibited between consumers or within a corporate-to-consumer transactions.

Lastly, a meaningful modification on transfer of debts will provide creditors with greater stability when it comes to the non-performing loans business. The new rules provide that security interests attached to an underlying loan are not affected if the creditor’s position changes and that the approval of the security provider is only required if the debtor changes.