THE LAW OF THE REPUBLIC OF AZERBAIJAN

On Mortgage

This Law shall encompass the incurrence and state registration of mortgage in support of performance under civil law contracts, provide guidance on satisfaction of secured debt and other civil law liabilities using mortgage, determine the rights and responsibilities of the parties involved, and govern other issues in this context.

Chapter I

GENERAL PROVISIONS

Article 1. Key definitions

1.0. Terms used herein shall have the following meanings:
1.0.1. mortgage is pledge of real property and movable assets with officially registered titles as a means of satisfaction of fulfillment of an underlying obligation;
1.0.2. mortgage paper -paper affirming a mortgage right. A mortgage security documenting a mortgage right to a movable asset shall be executed as a book-entry paper;
1.0.3. legal holder of a mortgage paper- person who acquired right of possession mortgage paper;
1.0.3-1. owner of a movable asset mortgage paper is a person whose ownership of the mortgage-paper has been registered in the mortgage-secured securities electronic system (hereinafter referred to as the electronic system);
1.0.4 mortgagor- is a person pledging mortgaged property as a pledge. The mortgagor may be the debtor or a third party;
1.0.5. mortgage holder - is a person with a mortgage right and a precedence over the mortgagor’s other creditors with respect to foreclosure on the mortgaged property, including the legal holder (owner) of the mortgage paper - paper;
1.0.6. mortgage right - is the mortgage holder’s right of foreclosure on the mortgaged property, whenever so specified under Article 34 hereof;

1.0.7. mortgage agreement - is a contractual arrangement between the mortgagor and the mortgage holder to ensure fulfillment of the underlying obligation;
1.0.8. underlying obligation - is the debt and other liabilities arising from the underlying agreement and satisfied by mortgage in full or in part;
1.0.9. initial sale price - is the sale (marketable) price of the mortgaged property given the limited time available for a proper marketing exercise to determine the market value of the mortgaged property as specified hereunder.

Article 2. Mortgage legal framework

2.1. Mortgage-related issues shall be governed by this Law, the Civil Code and other laws and regulations of the Republic of Azerbaijan, as well as international treaties the Republic of Azerbaijan has acceded to.
2.2. Mortgage-related matters at the Alat Free Economic Zone shall be subject to the Law of the Azerbaijan Republic "On the Alat free economic zone".

Article 3. Scope of application of mortgage

3.1. Mortgage may be used to satisfy real claims arising from debt, purchase, contractor and other civil law agreements.
3.2. Future claims may also be satisfied with mortgage. Provisions of Article 10.5 hereof shall apply in this case.

Article 4. Scope of a mortgage-satisfied claim

4.1. Unless otherwise provided in the mortgage agreement, the mortgage holder’s claim shall be fully covered, including:
4.1.1. principal amount;
4.1.2. interest rate;
4.1.3. late fees and / or damages for failure to perform or properly perform, or perform in a timely manner;
4.1.4. enforcement inscription, legal costs and other expenses related to foreclosure of mortgaged property. 
4.2. Except as otherwise provided under Articles 4.1.4 or 5 hereof, if the mortgage agreement specifically identifies the value of the underlying obligation (claims specified under Articles 4.1.1 through 4.1.3 hereof), the obligation shall be deemed satisfied only to the extent of such value. 

Article 5. Mortgage holder’s additional costs covered by mortgage

If the mortgage holder is responsible for maintaining and safe-keeping the mortgaged property under the mortgage agreement or this Law, the mortgage holder’s reasonable maintenance and safe-keeping costs, including taxes and utility bills shall be deducted from the value of the mortgaged property.

Article 6. Mortgaged property

6.1. Mortgaged property may be real property owned by the mortgagor, including construction in progress and officially registered movable assets.
6.2. Assets removed from civil circulation, as well as assets non-eligible for encumbrance or transfer may not be mortgaged.
6.3. Indivisible assets may not be mortgaged in parts.
6.4. Mortgage may be general. General mortgage is a kind of mortgage where mortgaged property comprises several assets, each of which is used to cover the overall claim. The creditor’s claim may be covered by any of the assets, at the creditor’s discretion.
6.5. Unless otherwise provided in the mortgage agreement, the mortgaged property may be replaced with the mortgage holder’s approval.

Article 7. Characteristics of mortgage

7.1. The mortgage holder’s security interest in the mortgaged property shall apply to the fixtures, unless otherwise provided in the mortgage agreement. The mortgage right shall apply to any benefits, products and profits generated from the use of the mortgaged property, if so specified under the mortgage agreement.
7.2. Building, edifice and installation or other real property shall only be mortgaged with the land they are located or operated upon. If a piece of real property is foreclosed, the acquiring party shall also acquire the previous owner’s right to the land whereupon the real property is located.
7.3. If the mortgagor’s other assets are insufficient to fulfill obligations to third parties, the third party’s claim on the mortgaged property may be made after the mortgage holder’s claims have been satisfied in accordance with this Law.
7.4. Claims of the real property mortgage holder and the creditor of an encumbrance on a movable asset to a piece of real property shall be satisfied in accordance with the order of priority as defined under the Law “On encumbrance of movable asset” of the Republic of Azerbaijan.

Article 8. Mortgage of jointly owned assets

8.1. Jointly owned assets may be mortgaged with a notarized consent from all owners.
8.2. Any stakeholder in a shared property may mortgage their respective share in the property without consent from the other owners. If the mortgage holder makes a claim to the share and such share is sold, the proceeds from the sale shall be subject to the order of priority as specified under the Civil Code of the Republic of Azerbaijan.

Article 9. Subsequent mortgage

9.1. Unless otherwise provided by the law or a previous mortgage agreement, the mortgagor may re-mortgage (subsequent mortgage) an already mortgaged asset in order to satisfy other liabilities. 
9.2. The mortgagor shall provide each subsequent mortgage holder with all information specified under Article 10.8 hereof with respect to the mortgaged property.
9.3. The subsequent mortgage holder’s claims shall be payable from the mortgaged property under an order of priority after the previous mortgage holder’s claims have been satisfied in full, irrespective of their due date.
9.4. The previous mortgage holder’s priority shall be established upon state registration of the mortgaged property.
9.5. Mortgage holders may contractually renegotiate among themselves the priority rights with respect to mortgage claims. If there are more than two mortgage holders, any changes to the priority right shall be made with consent from the mortgage holders such changes affect.
9.6. If mortgage is documented by a mortgage paper, subsequent mortgage shall not be allowed.
9.7. Failure to comply with the subsequent mortgage regulations set forth herein shall entitle the mortgage holder to demand early fulfillment of the underlying obligation, and seek foreclosure of the mortgaged property, if such demand is not satisfied.

Chapter II

INCURRENCE AND STATE REGISTRATION OF MORTGAGE

Article 10. Mortgage agreement

1. A mortgage agreement shall not be independent and shall be entered into with an aim to ensuring fulfillment of the underlying obligation. A mortgage agreement may be entered into at any point in time while the underlying obligation still exists. Invalidation of the mortgage agreement shall not cause the underlying obligation to lose effect. Invalidity of the underlying obligation shall cause the mortgage agreement to lose effect.

1. A mortgage agreement shall be executed in the form of a written document signed by the mortgagor and the mortgage holder, or, if the mortgagor is not the debtor, by the debtor. The mortgage agreement shall be notarized. 1
2. Should there be any discrepancies between the mortgage agreement and the contract, from which the underlying obligation arises, if the mortgagor is the debtor, such contract shall prevail, or, if the mortgagor is not the debtor, the mortgage agreement shall prevail.
3. The mortgage agreement shall be subject to state registration. The mortgage agreement shall take effect upon state registration.
4. The mortgage agreement shall specify the names and residences (locations) of the parties, the mortgaged property, its name, location and other description sufficient for identification, the substance, size (value), grounds for incurrence and maturity of the underlying obligation, the parties to the contract from which the underlying obligation arises, place and date of signing thereof, and, in consideration of the imperative legal provisions, terms of the mortgage holder’s claim to the mortgaged property, method of alienation of the mortgaged property, the starting sale price of the mortgaged property or independent appraisers to evaluate the mortgaged property, the selling party if the mortgaged property is to be disposed of in the open market, procedure and order of priority for distribution of the sale proceeds, and the mortgagor’s electronic mail address. If the value of the underlying obligation is to be determined at a future point in time, the mortgage agreement shall identify the valuation procedure. 4
5. If the mortgage-satisfied obligation is to be fulfilled in parts, the mortgage agreement shall specify the due dates or frequency of payments, their amounts or the conditions enabling determination of such amounts.
6. The mortgage agreement shall specify the title under which the mortgaged property belongs to the mortgagor, and the state registry of such title.
7. When a mortgage agreement is signed, the mortgagor shall inform the mortgage holder in writing of any third party rights to the mortgaged property, pledges and other encumbrances, third party claims and court disputes, as well as the nature and value of obligations satisfied with any previous mortgage that the mortgagor is aware of. Failure to do so shall enable the mortgage holder, including any subsequent mortgage holder, to demand early fulfillment of the underlying obligation or modification of the mortgage agreement, or termination thereof and compensation of damages.

Article 11. State registration of mortgage

11.1. Mortgage agreements involving real property shall be subject to registration with the state real estate registry, and mortgage agreements involving movable assets shall be subject to registration with the relevant official movable assets registry.

11.2. The mortgage right arises upon state registration of the mortgage agreement. The mortgage agreement shall be deemed to have attained state registration upon entry of the details specified under Article 11.3 and, in certain cases, Article 11.4 hereof, in the relevant registry.
11.3. State registration of the mortgage agreement shall involve indication of the mortgaged property, the nature, size, maturity of the underlying obligation and the mortgage holder.
11.4. If the mortgage agreement provides for issuing or documenting a mortgage paper, the state registration of the mortgage agreement shall, in addition to the information above described, involve indication of issuance or documentation of a mortgage paper.
11.5. If there are several mortgage holders (creditors) for the same obligation, they shall be registered with the state registry as joint mortgage holders.
11.6. If a construction project in progress is mortgaged, such mortgage may be pre- registered with the state real estate registry.
11.7. If, upon completion of a mortgaged construction project in progress, the now completed asset (newly created asset) is registered with the state registry, the mortgage shall remain in effect, providing that the mortgage had not been terminated hereunder at that point.

Article 12. State registration regulations for mortgage

12.1. State registration of real property mortgage shall be conducted under the Law of the Republic of Azerbaijan “On State Real Estate Registry”.
12.2. State registration of the mortgage of a movable asset with ownership rights recorded in an official registry shall be conducted by the competent executive body managing the state registry for such assets.
12.3. The following supporting documents shall accompany the application to the official registry for state registration of a movable asset’s mortgage:
12.3.1. a notarized copy of the mortgage agreement;
12.3.2. proof of payment of the state registration fee.
12.4. If the mortgage holder’s rights are ascertained by a mortgage paper, the mortgage paper and a notarized copy thereof shall be submitted to the state registry.

12.4-1. If the mortgage holder’s rights to a piece of real property are ascertained by a mortgage-paper, the state registry shall access the mortgage-paper’s details via the electronic system.
12.5. The movable asset registry shall, within not more than 5 business days, conduct state registration of the movable asset and issue a registry extract to the mortgage holder. Submissions for state registration shall be kept by the registry.

12.6. The extract shall specify the mortgage registry, place, time (date and time) of registration, registration number, other identification details for the mortgage holder and mortgagor, and a summary of the mortgaged property.
12.7. If the mortgage holder’s rights are ascertained by a mortgage-paper, the mortgage-paper shall be inscribed so as to indicate the registry, time (date and time) of registration and registration number, signed and stamped by the registry’s executive officer, and returned to the mortgage holder.
12.7-1. If the mortgage holder’s rights to a piece of real property are ascertained by a mortgage-paper, the mortgage-paper shall be inscribed so as to indicate the registry, time of registration (date and time) and registration number, signed by the registry’s executive officer electronically, with a notification issued to the mortgage holder and mortgagor via the electronic system.[17]
12.8. The registry shall form a mortgage database to store information. A copy of the registered mortgage agreement, and a copy of the mortgage-paper, if applicable, (other than mortgage-secured securities ascertaining the mortgage rights on real property) shall be archived and stored by the registry.
12.9. An official registry statement concerning registered rights and any encumbrances thereupon with regards to a movable asset shall be furnished to the title holder, the title holder’s assignee, legal heirs to the title holder’s property under the law or will and the competent government agencies, per their respective purviews, within 3 calendar days.
12.10. The registry or extract from registry shall be subjected to appropriate corrections within not more than 3 business days from receipt of a concerned party’s written request concerning correction of any technical errors made during state registration of a movable asset’s mortgage.
12.11. The registry, its executive officers and employees shall be liable under the law for any damages incurred by concerned parties as a result of breach of registration regulations by said registry, its executive officers and employees.

Article 13. Refusal and suspension of state registration of a movable asset mortgage

13.1. State registration of a movable asset mortgage may be denied if any of the following applies:
13.1.1. registration documents are incomplete;
13.1.2. the mortgagor does not have the authority to dispose of the asset or such authority is legally encumbered.
13.2. If the right to the mortgaged property is judicially disputed, the court may order a suspension of the state registration of the mortgaged property until the dispute is resolved.

13.3. If state registration is refused or suspended, the registry shall provide a written reply to the applicant reasoning the refusal or suspension not later than within the registration timeframe.
13.4. Mortgage shall attain state registration after the circumstances warranting refusal or suspension of registration have been removed.
13.5. Concerned parties shall have the right to pursue administrative and / or judicial appeals of ungrounded rejection or suspension of state registration of mortgage or unlawful registration of mortgage.

Article 14. Additional state registration of mortgage

14.1. Additional state registration of mortgage shall be conducted if any of the following applies within 3 business days from submission of documents to the state real estate registry and the official movable asset registry accordingly:
14.1.1. the nature, size or maturity of the underlying obligation has changed;
14.1.2. the right of claim on the underlying obligation has been transferred to another party;
14.1.3. the mortgaged property is being disposed of.
14.2. The application for additional state registration of mortgage shall be supported with a notarized copy of an agreement to amend the mortgage agreement, transfer the claim and dispose of the mortgaged property.
14.3. If, when the mortgage holder’s rights are ascertained with a mortgage paper the nature, size, maturity of the underlying obligation changes, the mortgaged property is replaced or disposed of, the mortgage paper shall be appropriately modified and subjected to additional state registration.
14.4. Additional state registration of a mortgage documented by a mortgage paper shall be conducted at the relevant registry where the mortgage paper attained state registration.
14.5. Additional state registration of mortgage shall be certified with an official extract from the state real estate registry or the official movable asset registry accordingly, or, for mortgage-secured securities, with a relevant enforcement inscription.

Article 15. Termination of state registration of mortgage

15.1. State registration of a mortgage shall be terminated by the registry at the mortgage holder’s written request or under a court order.
15.2. If state registration of a mortgage is terminated, the mortgage paper shall be terminated as specified hereunder.

Article 16. State fee

16.1. A state fee shall be payable in a manner and amount specified under the applicable laws for notarization of a mortgage agreement, state registration and additional state registration of mortgage.
16.2. Unless otherwise provided in the agreement signed by the mortgagor and the mortgage holder, the mortgagor shall cover the state fee for state registration of mortgage.
16.3. Except as otherwise provided under Article 14.1.2 hereof, the mortgagor shall cover the state fee for additional state registration of mortgage, unless otherwise provided under the mortgage agreement.
16.4. When mortgage is terminated, the mortgagor shall cover the fee for termination of encumbrance charges on real property.

Chapter III

MORTGAGE PAPER

Article 17. Mortgage paper

17.1. A mortgage paper may be issued or formalized during the term of the mortgage agreement. If a mortgage paper is executed, the rights and responsibilities of the mortgagor, the mortgage holder, as well as other legal holders shall be exercised in consideration of the special characteristics of mortgage paper as specified hereunder.
17.2. A m mortgage paper shall ascertain the legal holder’s following rights:
17.2.1. the mortgage right with respect to the mortgaged property;
17.2.2. right to demand execution of the underlying obligation without provision of any other evidence;
17.2.3. right of foreclosure on the mortgaged property whenever specified under Article 34 hereof.
17.3. A mortgage paper shall be executed in a single counterpart to be provided to the mortgage holder.
17.3-1. A mortgage paper ascertaining the mortgage right to a piece of real property shall be executed by a person specified under Article 17.4 hereof electronically in the electronic system, which shall issue an electronic notice to this effect to the mortgage holder.
17.4. The mortgage paper shall be executed by the mortgagor, or, if the latter is a third party, by the debtor on the underlying obligation. The signature of the person executing the mortgage paper (other than mortgage paper ascertaining the mortgage right to real property) shall be subject to notarization.

17.4-1. The authority to be determined by the competent executive body shall be responsible for determining how mortgage paper that ascertain the mortgage right with respect to real property are to be executed.

17.5. If there are several mortgage holders on the same obligation, mortgage paper shall not be issued or formalized.
17.6. Rights with respect to mortgage paper may be transferred as specified under Article 20 hereof.

Article 18. Contents of a mortgage paper

18.1. If a mortgage-paper is issued to, or formalized in the name of the original mortgage holder, it shall specify:
18.1.1. the words “mortgage paper” in the document’s name and the place of execution;
18.1.2. the mortgagor’s name and address, or, if the mortgagor is a legal entity, the name and location;
18.1.3. the mortgage holder’s name and address, or, if the mortgage holder is a legal entity, the name and location;
18.1.4. place and date of signing of the mortgage agreement;
18.1.5. if the mortgagor is not the main debtor, the debtor’s name and address, or, if the debtor is a legal entity, the name and location;
18.1.6. the nature, size (value), grounds for incurrence, maturity of the underlying obligation, parties to the agreement the obligation is based on, the place and date of signing thereof. If the mortgage-secured obligation is to be executed in parts, the mortgage paper shall specify the due dates or frequency of payments, their amounts or requisites enabling determination of such amounts.
18.1.7. description and location of the mortgaged property;
18.1.8. the right under which the mortgaged property belongs to the mortgagor and the registry that has registered such right, the registration number, date and place, and other encumbrances thereupon;
18.1.9. whether the mortgage holder’s rights to foreclose on the mortgaged property are exercised through an enforcement inscription; 
18.1.10. the mortgagor’s signature, or, if the mortgagor is a third party, the main debtor’s signature as well;
18.1.11. date the mortgage paper was issued or formalized.
18.2. A mortgage paper may not have an inscription prohibiting subsequent transfer
or formalization in other people’s name.
18.3. The format of the mortgaged-secured securities shall be determined by the competent executive body.

18.3-1. The format of the mortgage paper ascertaining the mortgage right to a piece of real property shall be determined in the electronic system. The electronic system shall be managed by the authority to be determined by the competent executive body.
18.4. If there are any discrepancies between a mortgage paper and the mortgage agreement, the legal holder of the mortgage paper may demand termination thereof, and issuance or formalization of a new one. If the legal holder of the mortgage-paper identifies such a discrepancy, and the legal holder is a third party, the legal holder shall notify the main debtor to this effect as well.
18.5. The person who executed the mortgage-paper shall be liable for any damages incurred as a result of the discrepancy and rectification efforts.

Article 19. State registration of mortgage-secured securities

19.1. Mortgage-secured securities shall attain state registration in accordance with the applicable laws.
19.1-1. State registration of mortgage-secured securities ascertaining mortgage rights to real property shall be conducted by the authority to be determined by the competent executive body.
19.2. If rights to a mortgage paper are transferred, the endorsement shall be subject to additional state registration by the registry where the mortgage paper attained state registration.

Article 20. Transfer of rights to mortgage-secured securities

20.1. Rights to mortgage secured securities shall be transferred through an endorsement and transfer of the mortgage secured securities in the transferee’s favor. If the endorsement is made by an individual, such individual’s signature shall be subject to notarization.
20.1-1. Rights to a mortgage backs security ascertaining mortgage rights to real property shall be transferred by making an electronic signature-powered endorsement in the transferee’s favor in the electronic system, and issuing a notice to such transferee through the electronic system.

20.2. The mortgage paper shall be transferred together with the mortgage agreement, and the transferee shall thus acquire all the rights and responsibilities of the mortgage holder under the mortgage agreement.
20.2-1. If the rights to a mortgage paper ascertaining the mortgage rights to real property are formalized in another person’s name, the mortgage agreement shall have transferred to such person and the latter shall thus acquire all the rights and responsibilities of the mortgage holder under the mortgage agreement.
20.3. Through transfer of rights under a mortgage paper, the claim on the underlying obligation shall be assigned to the new holder of the mortgage paper. If, when rights under a mortgage paper are transferred, the underlying obligation has been executed in part, the legal holder of the mortgage paper shall make a note on the mortgage paper to this effect, and the outstanding portion of the underlying obligation shall be deemed assigned.
20.4. The endorsement shall clearly and precisely name the transferee of the rights under the mortgage paper. Endorsement shall not be permitted unless the legal holder is named on the mortgage paper.
20.5. The endorsement shall be signed by the mortgage holder as specified in the mortgage-paper, or, if that endorsement is not the first one, the holder of the mortgage- paper as specified in the previous endorsement.
20.6. A person who has acquired a mortgage-paper that had been stolen or taken away from the endorser against such endorser’s will shall not be considered the legal holder of the mortgage-paper, providing that evidence has been provided that such person knew or had to have known about this.
20.7. The transferor of rights under a mortgage-paper shall notify the main debtor to this effect in writing. Failure to do so shall give rise to the legal consequences under the Civil Code of the Republic of Azerbaijan with respect to assignment of claims.

Article 21. Exercise of rights under mortgage paper

21.1. The legal holder of the mortgage-paper shall, as soon as they start to exercise rights under the mortgage-paper, make notes on the mortgage-paper regarding execution of the underlying obligation. Such notes shall be clear and comprehensible for both the mortgagor, and any subsequent possible holders.
21.1-1. The mortgagor shall make notes regarding execution of the underlying obligation on the mortgage-paper in the electronic system. A notice regarding such notes shall be issued through the electronic system to the mortgagor.
21.2. Unless any other evidence is available, the fact that the mortgage-paper is held by the legal holder or there is no note or any other confirmation on the mortgage-paper regarding partial execution of the underlying obligation, such obligation or the portion thereof shall be deemed unexecuted. Unless otherwise provided, the fact that the mortgagor has the mortgage-paper confirms execution of the underlying obligation.
21.2-1. If there is a note or any other form of confirmation of partial execution of the underlying obligation on the mortgage-paper in the electronic system, this shall be construed as if this obligation or a portion thereof has been executed. Termination of the mortgage-paper in the electronic system shall be the confirmation of execution of the underlying obligation.
21.3. Foreclosure on the mortgaged property under a mortgage-paper shall be conducted in line with the provisions hereof.
21.4. The mortgagor may not make any objections against the legal holder’s claims not grounded in the mortgage-paper.

21.5. If the mortgage-paper is terminated hereunder, the registry shall immediately upon receipt of the mortgage-paper terminate it by stamping “terminated” thereupon, and archive the terminated security.
21.5-1. If a mortgage-paper that ascertains the mortgage right to real property is terminated hereunder, the registry shall make appropriate entries in the registry.

Article 22. Reinstatement of rights under lost or damaged mortgage paper

22.1. Rights under lost mortgage paper or mortgage paper damaged due to improper storage or any other reasons whatsoever shall be reinstated by issuing a duplicate of the lost (damaged) mortgage-paper referencing the copy of the security in the registry’s keeping based on the legal holder’s written request. The duplicate shall have the word “duplicate” written on it, shall be signed by the registry’s executive officer, stamped, and issued to the legal holder of the mortgage-paper, with a relevant entry made in the registry.
22.2. The duplicate mortgage-paper shall be fully identical with the lost (damaged) mortgage-paper. Otherwise, the registry that issued the duplicate mortgage-paper shall be liable for any damages resulting from any inconsistencies.

Article 23. Termination of mortgage-secured securities

23.1. Mortgage paper shall be terminated upon voluntary transfer to the mortgagor or as specified under Article 48 hereof.
23.2. Mortgage paper that ascertain mortgage rights to real property shall be spontaneously terminated in the electronic system by the mortgage holder or as specified under Article 48 hereof.

Chapter IV

INTERACTIONS OF THE MORTGAGOR AND MORTGAGE HOLDER

Article 24. Rights and responsibilities of the mortgagor and mortgage holder

The mortgagor and mortgage holder may, in addition to the rights and responsibilities arising hereunder, have additional rights and responsibilities arising from the mortgage agreement.

Article 25. Rights and responsibilities of the mortgagor

25.1. The mortgagor shall have the following rights:

25.1.1. unless ownership and / or use of the mortgaged property is transferred to the mortgage holder, to own and use the mortgaged property per its designation;
25.1.2. to bequeath the mortgaged property;
25.1.3. to dispose of the mortgaged property under Article 30 hereof;
25.1.4. if the mortgage holder fails to enable proper storage and use of the mortgaged property, to pursue judicially the mortgage holder’s acceptance of termination of the mortgage and premature execution of the underlying obligation.
25.2. The right specified under Article 25.1.3 above shall be terminated upon service of a notice of foreclosure.
25.3. The mortgagor shall have the following responsibilities:
25.3.1. to ensure storage and safety of the mortgaged property;
25.3.2. to put arrangements in place to provide protection of the mortgaged property against third party claims and actions;
25.3.3. to pay taxes, utilities and similar charges on the mortgaged asset;
25.3.4. if foreclosure is claimed upon the mortgaged property, to provide access to prospective purchasers to the mortgaged property for onsite visual inspection; 
25.3.5. to retrieve a statement of the total value of the underlying obligation from the mortgage holder, whenever so specified under Articles 30.6 and 38.2 hereof, to be furnished to the notary public.

Article 26. Rights and responsibilities of the mortgage holder

26.1. The mortgage holder shall have the following rights:
26.1.1. to conduct a documentary and actual verification of existence, state and storage conditions of the mortgaged property;
26.1.2. to require the mortgagor to take actions to ensure proper maintenance conditions for the mortgaged property;
26.1.3. if the mortgagor is found to be unable to perform, to pursue judicially handover of the mortgaged property;
26.1.4. to require persons whose actions damage or deteriorate the mortgaged property to cease such actions;
26.1.5. to assign or sell the claim on the underlying obligation;
26.1.6. to pledge the mortgage right;
26.1.7. if a claim of foreclosure on the mortgage has not been appealed in the court under Article 37.1 hereof, to direct foreclosure on the mortgaged property under the notarial enforcement inscription.
26.2. If possession and / or use of the mortgaged property is transferred to the mortgage holder under the mortgage agreement, the mortgagor’s relevant responsibilities shall be transferred to the mortgage holder.

26.3. The mortgage holder shall, as specified under Articles 30.6 and 38.2 hereof, issue a statement of the value of the underlying obligation to the mortgagor to be forwarded to the notary public.

Article 27. Maintenance and insurance of the mortgaged property

27.1. If the mortgage agreement so specifies, the mortgagor shall procure destruction and damage insurance coverage for the mortgaged property referencing the mortgaged property’s market value at conclusion of the mortgage agreement, while an individual debtor shall also procure life and competency insurance coverage to an extent not less than the size of the claim satisfied by the mortgage. [44]
27.2. The mortgagor shall immediately notify the mortgage holder of any potential risk of destruction of, or damages to the mortgaged property.
27.3. Should the mortgagor be in a material breach of the procedures for use of the mortgaged property or maintenance responsibilities with respect to such property, and such breach poses a risk of destruction of, or damages to the mortgaged property, or the mortgagor fails to procure the necessary insurance coverage, the mortgage holder may demand an early execution of the underlying obligation. If such demand is not satisfied, the mortgage holder may claim foreclosure on the mortgaged property.
27.4. If possession and / or use of the mortgaged property is transferred to the mortgage holder, the mortgage holder shall, if so specified under the mortgage agreement, procure the insurance coverage.

Article 28. Transfer of mortgage satisfied claims

28.1. If the mortgage satisfied claim is transferred to another party, the underlying mortgage shall also be transferred. The transferee shall thus acquire the rights and responsibilities of the mortgage holder.
28.2. Transfer of a claim shall be executed through an assignment agreement or endorsement of the mortgage paper in the transferee’s favor. Transfer of a claim shall be subject to additional state registration hereunder. Otherwise, transfer of the claim shall be deemed invalid.

Article 29. Transfer of mortgage secured debt

If the debt encompassed by the underlying obligation is transferred to another party (other than bequeathals), the mortgage shall be terminated unless the mortgagor gives the mortgage holder a written consent to keep the mortgage in effect. 

Article 30. Disposal of the mortgaged property

30.1. Unless otherwise provided under the mortgage agreement, the mortgagor may only transfer, or give powers of attorney (other than motor vehicle proxies) or otherwise dispose of (use, rental, etc.) the mortgaged property with the mortgage holder’s written approval. Any arrangement that in any ways restrains the mortgage holder’s right to bequeath the mortgaged property shall be deemed invalid. 
30.2. If, pursuant to provisions hereof, the mortgaged property is transferred to another party through sale, reorganization of a legal entity or bequeathal, the mortgage shall remain intact, and the transferee shall thus acquire the original mortgagor’s responsibilities under the mortgage agreement, including those not properly performed by the original mortgagor.
30.3. If the mortgaged property is transferred to several parties under Article 30.2 hereof, each of the mortgagor’s heirs (legal successors) shall be liable for failure to fulfill to the extent of the mortgaged property’s portion transferred to them.
30.4. If the mortgaged property is an indivisible asset or jointly owned by the mortgagor’s legal successors on other grounds, the legal successors shall become joint mortgagors.
30.5. If the mortgaged property is transferred in violation of the provisions hereof, the mortgage shall remain in effect and give rise to the legal consequences under Article 31 hereof.
30.6. If sale of the mortgaged property is sufficient to cover the claims on the underlying obligation, then, notwithstanding the provisions of Article 30.1 hereof, the mortgagor may sell the mortgaged property and use the proceeds to repay the mortgage holder. The mortgagor shall furnish the statement of the value of the underlying obligation as specified under Article 25.3.5 hereof to the notary public. The notary shall then proceed to certify the sale agreement, and follow through a complete transfer of the amount assessed as sufficient to cover the mortgage holder’s claims to the mortgage holder’s account. After the mortgage holder’s claims have been paid in full, the mortgage holder (joint mortgage holders) shall petition the state registry to terminate the state registration of the mortgage.

Article 31. Consequences of breaching the rules of alienation of the mortgaged property

31.1. If the mortgaged property is disposed of in a manner that is in breach of the regulations set forth under Article 30 hereof, the mortgage holder may demand:
31.1.1. to nullify the disposal arrangement for the mortgaged property and invoke the consequences set forth under Article 337 of the Civil Code of the Republic of Azerbaijan;
31.1.2. early fulfillment of the mortgage-satisfied obligation, and, if the obligation is not fulfilled, foreclosure of the mortgaged property.

31.2. If evidence is made available that proves beyond doubt that the acquirer of the mortgaged property knew or must have known that the mortgaged property had been disposed of in breach of Article 30 hereof, the acquirer shall be additionally liable for failure to execute or properly execute the mortgage-fulfilled obligation to the extent of the value of the mortgaged property.

Article 32. Consequences of forced acquisition of the mortgaged property

32.1. If the mortgagor’s ownership rights to the mortgaged property are terminated owing to a transfer, requisitioning or nationalization on legal grounds for public needs, and the mortgagor is provided with a replacement and / or substitute asset, the mortgage right shall apply to the replacement asset or the mortgage holder shall acquire the right of precedence insofar satisfaction of the mortgage holder’s claim from the value of the compensation payable to the mortgagor is concerned. If the mortgage holder’s such rights are not protected in full (the replacement and / or substitute asset is below the value of the mortgaged property), the mortgage holder may demand early fulfillment of the underlying obligation, and, if the demand is not satisfied, claim foreclosure on the replacement asset.
32.2. If the mortgaged property is seized by the court for commission of a crime or any other offence, the mortgage shall be terminated. In this case, the mortgage holder may demand early fulfillment of the underlying obligation.
32.3. If the mortgaged property is legally seized from the mortgagor because its actual owner is a different person, the mortgage shall be terminated. In this case, the mortgage holder may demand early fulfillment of the underlying obligation after the relevant court order takes effect.

Chapter V

FORECLOSURE AND TERMINATION OF THE MORTGAGED PROPERTY

M a d d ə 33. İpoteka predmetinə tutmanın yönəldilməsi əsasları

Borclu əsas öhdəliyi icra etmədikdə və ya lazımınca icra etmədikdə ipoteka saxlayanın tələbinin ödənilməsi üçün ipoteka predmetinə tutma yönəldilə bilər.

Article 34. Incurrence of the right to foreclose the mortgaged property

34.1. The mortgage holder shall have the right to foreclose the mortgaged property if any of the following applies: 

34.1.1. the underlying obligation or a portion thereof is past due 90 calendar days or more; 
34.1.2. the foreclosure test of the mortgage agreement is invoked; 
34.1.3. any other circumstances as may be defined hereunder.

M a d d e 35. İpoteka predmetinə tutmanın yönəldilməsi

35.1. İpoteka saxlayanın tələbinin məhkəməyə müraciət edilmədən ipoteka predmeti hesabına ödənilməsinə aşağıdakı hallarda yol verilir:
35.1.1. ipoteka predmetinə məhkəməyə müraciət edilmədən tutmanın yönəldilməsi ipoteka müqaviləsində nəzərdə tutulduğu halda;
35.1.2. ipoteka kağızı verildiyi və ya rəsmiləşdirildiyi halda;
35.1.3. ipotekaya tutmanın yönəldilməsi əsası yarandıqdan sonra ipoteka saxlayanla ipoteka qoyanın notariat qaydasında təsdiqlənmiş razılaşması olduqda;
35.1.4. ümumi paylı mülkiyyətdə olan ipoteka predmetinə məhkəməyə müraciət edilmədən tutmanın yönəldilməsi barədə ipoteka saxlayanla bütün mülkiyyətçilərin notariat qaydasında təsdiqlənmiş razılaşması olduqda.
35.2. Bu Qanunun 35-ci maddəsində nəzərdə tutulmuş hallar olmadıqda və ya ipoteka qoyanın yaşadığı (olduğu) yeri müəyyən etmək mümkün olmadıqda ipoteka predmetinə tutma yalnız məhkəmənin qərarı əsasında yönəldilə bilər.

Article 36. Foreclosure procedures

36.1. The mortgage holder shall send the notice detailing the information specified under Article 36.2 hereof to the address of the mortgagor and the other person specified in the mortgage agreement, and a copy of the same to the subsequent mortgage holder, including joint mortgage holders, as well as charges as defined under the Movable Asset Encumbrance Law of the Republic of Azerbaijan that the mortgage holder is aware of via registered mail and electronically. An official notice via registered mail shall be deemed to have been delivered after 5 calendar days from handover to the post office, while an electronic notice shall be deemed to have been delivered after 3 calendar days from dispatch.
36.2. The notice of foreclosure shall specify:
36.2.1. the foreclosed mortgaged property referencing the registration time and number of the mortgage in the relevant registry;
36.2.2. a description of the underlying obligation;
36.2.3. notice of foreclosure under a notarial enforcement inscription;
36.2.4. date of notice, name and signature of the notifying person.
36.3. The notice of foreclosure shall be subject to registration by the mortgage registry at the mortgage holder’s written request within 1 business day. The written request form shall specify the day the notice was dispatched to the mortgagor, and shall be submitted to the registry in two copies. The registry shall accept the notice upon receipt, and return a copy thereof, signed and sealed by the registry’s executive officer, to the applicant.
36.3-1. If the mortgage holder’s written request for registration of the foreclosure notice by the mortgage registry is submitted as an electronic signature-powered electronic document, the mortgage registry’s executive officer shall electronically sign and return the request to the applicant.
36.4. Foreclosure may not proceed if any of the following applies:
36.4.1. no request has been submitted to the mortgage registry within 3 business days from service of the foreclosure notice under Article 36.1 hereof;
36.4.2. a court of law has found the foreclosure notice to be invalid hereunder.
36.5. If the mortgage holder fails to furnish the registry with a foreclosure notice as specified hereunder, the mortgage holder shall be legally liable for any damages incurred by the mortgagor, any other mortgage holder and other parties with interests in the mortgaged property as a result of such failure.
36.6. The mortgage holder may petition the registry to nullify the foreclosure notice before proceeding to sell the mortgaged property.

Article 37. Foreclosure remedies

37.1. The mortgagor, another mortgage holder or any other party with an interest in the mortgaged property may appeal the foreclosure in a court of law within 21 calendar days from receipt of the foreclosure notice. 
37.2. If foreclosure is appealed in a court of law, the interest, late fees and other charges as specified under the mortgage agreement shall be accrued accordingly.

Article 38. Foreclosure under an enforcement inscription

38.1. If foreclosure is not appealed in a court of law under Article 37.1 hereof, the foreclosure shall proceed under a notarial enforcement inscription (notarial order) on the mortgage holder’s claim under the mortgage agreement or the mortgage-paper.
38.2. If the mortgage agreement allows open market sale of the mortgaged property, the notary shall, at request from either party, dispatch the party’s notarized request with an enforcement inscription for sale of the mortgaged property in an open market setting to the enforcement agency within 1 business day. The Enforcement Law of the Republic of Azerbaijan allows 2 months for voluntary fulfillment of the claim through open market sale of the mortgaged property. In this case, the mortgaged property shall be sold based on the mortgagor’s statement of the value of the underlying obligation submitted to the notary. If the mortgaged property is sold during this period of time in at the open market, the notary shall cause the proceeds from the sale to be transferred from the deposit account to the enforcement agency’s deposit account, and the amount shall be distributed as specified under Article 47 hereof. If the mortgaged property is not sold during this period of time, the enforcement officer shall enforce the claim. If the mortgage agreement does not specify the starting sale price of the mortgaged property, then, as the parties agree, the starting sale price shall be appraised by one of the independent appraisers identified under the mortgage agreement, or, if such independent appraisers cease their business or are terminated under the law while they were in the process of determining the sale price, by another appraiser to be thereafter appointed by the parties. Services of independent appraisers shall be covered by the mortgage holder to be reimbursed from the sale proceeds.

Article 39. Court resolution of disputes arising from the mortgage agreement 

39.1. The court shall review and rule upon petitions relating to disputes arising from the mortgage agreement within 1 month from submission. If the ruling is appealed, the higher instance courts shall review and rule upon the appeal within 1 month from submission.
39.2. The mortgage holder shall provide sufficient evidence to satisfy the court that a foreclosure notice has been served on the parties specified under Article 36.1 hereof.
39.3. The court’s foreclosure ruling shall specify:
39.3.1. sums due to the mortgage holder from the value of the mortgaged property, other than security and sale costs. The security and sale costs shall be identified after the sale is completed.
39.3.2. description of the mortgaged property;
39.3.3. starting sale price of the mortgaged property. The starting sale price shall be negotiated by the mortgagor and the mortgage holder, or, in event of disagreement, set by the court based on an independent appraiser’s evaluation;
39.3.4. pre-sale security arrangements for the mortgaged property, if necessary.
39.4. If the foreclosed mortgaged property is the mortgagor’s sole place of residence and the mortgagor does not have the means to reside elsewhere, the court may, at the mortgagor’s petition, defer the foreclosure by not more than one year. The deferral shall not affect the rights and responsibilities of the parties with respect to the mortgage- satisfied obligation, and interest, late fees and other charges shall continue to accrue during the period of deferral.
39.5. Except as otherwise provided under Article 39.4 hereof, the mortgage holder’s approval shall be required for the court’s grant of deferral on foreclosure, incremental enforcement of the court’s judgment, change of the enforcement method and procedure, as well as a suspension of enforcement.

M a d d ə 40. İpoteka predmetinin satılması

Tutmanın yönəldilməsi haqqında bildiriş bu Qanunun 36.1-ci maddəsində nəzərdə tutulmuş şəxslərə verildikdən azı 30 təqvim günü keçdikdən sonra ipoteka predmeti bu Qanunla müəyyən edilmiş qaydada satıla bilər.

Article 41. Methods of sale of mortgaged property

41.1. Mortgaged property foreclosed under the mortgage agreement may be sold through open market or auction, including electronic auction.
41.2. The enforcement officers shall proceed to foreclose under a court order or a notarial enforcement inscription as specified under the Enforcement Law of the Republic of Azerbaijan. The enforcement officer shall commission a specialist auctioning entity (hereinafter referred to as the auctioneer) to be mutually agreed upon by the mortgage holder and the mortgagor with at least five years of relevant experience to carry out the auction. If the parties fail to agree upon an auctioneer within 5 calendar days, the enforcement officer shall outsource the contract as specified under the Enforcement Law of the Republic of Azerbaijan.
41.3. The auctioneer’s commission shall be processed in line with the Enforcement Law of the Republic of Azerbaijan and shall specify the starting sale price of the mortgaged property.
41.4. The method of sale and the party to carry out the sale of a foreclosed mortgaged property in an out-of-court procedure based on a notarized arrangement between the parties shall be negotiated and determined by the parties. If the mortgaged property is offered through an auction under such agreement, the mortgage holder or the mortgagor may commission an auctioneer.
41.5. Auctions shall be public.

Article 42. Auctioning procedures

42.1. The auctioneer shall, within 5 business days from acceptance of the enforcement officer’s commission, advertise the auction via mass media outlets and its own web-site, and notify the mortgage holder and mortgagor to this effect via registered mail. The auction announcement and the notification shall be made (dispatched) at least 20 calendar days before that auction. The auction shall be conducted not later than 30 calendar days from acceptance of commission. The auction announcement and notification shall specify the auction’s time, venue, format, location and description of the mortgaged property offered, starting sale price, auction interval (not more than 3 percent of the starting sale price), security deposit, when and how the deposit is paid, list of documents required for admission to auction, as well as the when and how the purchase price is to be paid. Each bidder shall pay a security deposit of 5 percent of the starting sale price of the auctioned item.
42.2. the auction fails or is denied, the auctioneer shall refund the security deposits within 7 calendar days.

The winning bidder who fails pay the purchase price within the timeframe specified hereunder shall not be eligible for a deposit refund. The deposit shall be disposed of as specified under Article 47 hereof.
Security deposits of losing bidders shall also be subject to refund within 7 calendar days. The winning bidder’s contract price shall include the security deposit as well.
42.3. Any person, including the mortgage holder and the mortgagor may bid at the auction. Officers of the enforcement agency ordering the auction and the auctioneer, as well as property appraisers may not directly or indirectly bid at the auction.
42.4. A bidding mortgage holder shall not place a security deposit. If the mortgage holder wins the auction, the mortgage holder shall be relieved of paying the purchase price to the extent of the mortgage holder’s claim.
42.5. The highest bidder shall win.
42.6. The winning bidder and the auctioneer shall sign a legally binding memorandum to formalize the auction’s results on the day of the auction. Refusal to sign the memorandum shall invoke the consequences under Article 415 of the Civil Code of the Republic of Azerbaijan.
42.7. The winning bidder shall, within not more than 7 calendar days from winning the auction, pay the purchase price, less the security deposit. If the winning bidder fails to pay the purchase price within that timeframe, the second highest bidder may purchase the mortgaged property for that price. The auctioneer shall approach the second highest bidder to this end, and if the latter agrees to purchase the mortgaged property in writing, such bidder shall become the auction’s winner.
Failure to pay the purchase price shall invoke the legal consequences specified hereunder.
42.8. The memorandum of the auction’s results shall be deemed as grounds for the mortgage registry to proceed with terminating the mortgage and making appropriate entries to record the new owner in the registry.

Article 43. Declaring an auction failed

43.1. The auctioneer shall declare an auction failed via the mass media outlets where the auctioneer has previously advertised the auction and its own web-site if any of the following applies: 
43.1.1. fewer than two buyers showed;
43.1.2. the auction had not bidders;
43.1.3. the winning bidder has refused to sign the memorandum of the auction’s results;
43.1.4. the winning bidder has failed to pay the purchase price in full within the timeframe specified hereunder, providing that the timeframe has not been extended with the mortgage holder’s prior approval.

43.2. Announcement of an auction failure, to be made per Articles 43.1.1 through
43.1.4 hereof, shall be published not later than 3 calendar days from the date originally set for the auction or payment of the purchase price accordingly.
43.3. The mortgage holder may, under an agreement with the mortgagor, purchase the mortgaged property for the starting sale price within 10 calendar days from the announcement of auction failure.
43.4. If the mortgage holder’s arrangement to purchase the mortgaged property as described under Article 43.3 hereof fails, a repeat auction shall be conducted within not more than 20 calendar days from the first auction.
43.5. The repeat auction shall follow the procedure outlined under Article 42 hereof. The auctioneer may offer the mortgaged property for the starting sale price, or, if the auction failed due to lack of bidders, at 15 percent off the starting sale price, providing that the lowest sale price of the mortgaged property is sufficient to satisfy the claims of another mortgage holder with precedence over the mortgage holder selling the mortgaged property through a public auction in respect of at least registration priority of costs and rights.
43.6. If there is a single bidder at the repeat auction, the auction shall be considered successful, and the bidder shall be the auction’s winner.
43.7. Except as otherwise provided under Article 43.1.1 hereof, if the auction is announced failed for any other reasons, the mortgage holder may purchase the mortgaged property at 25 percent off the repeat auction’s sale price, providing that the lowest sale price of the mortgaged property is sufficient to cover the claims of other mortgage holders with precedence over the mortgage holder who purchased the mortgaged property in respect of at least registration priority of rights.
43.8. If the mortgage holder fails to take over the mortgaged property within 30 calendar days from the announcement of auction failure, the mortgage shall be terminated.
43.9. If the mortgage holder keeps a mortgaged property that cannot belong to the mortgage holder owing to its nature and designation, the mortgage holder shall dispose of the asset as specified under the law within one year.

Article 44. Invalidation of an auction

Any auction conducted in breach of the regulations set forth herein shall invoke the legal consequences specified under Article 416 of the Civil Code of the Republic of Azerbaijan.

M a d d ə 45. İpoteka predmetinin müqavilə üzrə açıq bazarda satılması

45.1. İpoteka predmetinin açıq bazarda satılması üzrə alqı-satqı müqaviləsi
 ipotekanın dövlət qeydiyyatı orqanına ipotekaya xitam verilməsi və yeni mülkiyyətçi haqqında qeydlərin müvafiq reyestrə daxil edilməsi üçün əsasdır.
45.2. İpoteka predmetinin müqavilə üzrə açıq bazarda satışı baş tutmadıqda ipoteka saxlayanla ipoteka qoyan arasında razılaşmaya əsasən həmin əşya ilkin satış qiyməti ilə hərraca çıxarıla bilər və ya onu ipoteka saxlayan əldə edə bilər.
45.3. Razılaşma əldə edilmədikdə tərəflərdən hər hansı biri ipoteka predmetinin hərracda satılması barədə məhkəməyə müraciət edə bilər. Belə işlərə məhkəmə ərizənin daxil olduğu gündən 1 ay müddətində baxır.

Article 46. Termination of sale of mortgaged property

46.1. The main debtor and / or the mortgagor or any third party may, by satisfying the mortgage holder’s full claim on the underlying obligation before the mortgaged property is sold through open market or auction (before the purchase is notarized or the auction’s results are formalized in a memorandum) or before the mortgage holder takes over the mortgaged property hereunder (before the purchase agreement is notarized), terminate the foreclosure and sale of the mortgaged property. Any arrangement that purports to restrain or otherwise limit this right shall be null and void.
46.2. The person claiming termination of the foreclosure and sale of the mortgaged property shall cover the mortgage holder’s foreclosure and sale expenses.

Article 47. Distribution of income from the sale of mortgaged property

47.1. 47.1. Notariat qaydasında təsdiqlənmiş razılaşma əsasında ipoteka predmetinin satılmasından əldə olunan gəlir bu Qanunun 38.2.6-cı maddəsinə müvafiq olaraq bölüşdürülür. 
47.2. If the mortgaged property is foreclosed under a court order or a notarial enforcement inscription, proceeds from the sale of the mortgaged property shall, within not later than 7 calendar days from the posting to the enforcement agency’s deposit account, be distributed by the enforcement agency as follows:
47.2.1. to cover the mortgage holder’s mortgage-satisfied claim, including the principal amount, interest, late fees and / or damages for failure to perform or properly perform, or perform in a timely manner (payments shall be made in the above order);
47.2.2. to cover the costs specified under Articles 4.1.4 and 5 hereof;
47.2.3. if a subsequent mortgage holder exercises the mortgage right, to cover such mortgage holder’s claim;
47.2.4. after the claims specified under Articles 47.2.1 through 47.2.3 hereof are paid in full, to cover the enforcement fees as specified under the Enforcement Law of the Republic of Azerbaijan.

47.3. Joint mortgage holders’ claim shall be distributed as specified under the mortgage agreement, or, otherwise, prorated to their respective claims.
47.4. Any sum of the proceeds from the sale of the mortgaged property remaining after all payments specified under Article 47.2 hereof have been made in full shall be returned to the mortgagor.
47.5. If the proceeds from the sale of the mortgaged property are insufficient to cover the mortgage holder’s claim, the mortgage holder shall have the right to claim the missing amount from the debtor’s other assets, unless otherwise provided by the mortgage agreement. In this case, the mortgage holder shall not have a mortgage-based precedence. If the income from the sale exceeds the mortgage holder’s claims, the excess shall be returned to the mortgagor.

Article 48. Termination of mortgage

48.1. Mortgage shall be terminated if any of the following applies:
48.1.1. the mortgage holder and the mortgagor have agreed to do so;
48.1.2. the underlying obligation has been terminated;
48.1.3. the mortgaged property has been sold through foreclosure;
48.1.4. the mortgaged property has been destroyed;
48.1.5. any other circumstances as may be defined hereunder.
48.2. Under the circumstances referenced under Articles 48.1.1 through 48.1.3 hereof, the mortgage holder shall, within 5 calendar days from termination of the mortgage, furnish a request to this effect with the mortgage registry. The mortgage holder shall be liable for any damages incurred by the mortgagor as a result of the mortgage holder’s failure to file the request.

Chapter VI

CHARACTERISTICS OF LAND MORTGAGE

Article 49. Mortgageable land lots

49.1. Land lots owned by legal entities and individuals may be mortgaged.
49.2. State or municipality-owned land lots may be mortgaged, other than common lands in residential areas, as well as other lands not eligible for mortgage under the land laws.
49.3. Agricultural lands may be mortgaged to guarantee obligations in connection with agricultural production and processing, as well as designated use of this category of lands as specified under the land laws.

Article 50. Indivisibility of mortgaged lands

In consideration of a land lot’s size and class, as per the land laws, a portion of a land lot that cannot be used as a separate parcel may not be mortgaged. If a portion of a land lot is mortgaged, the boundaries of the portion shall be clearly delineated before mortgaging.

Article 51. Mortgage of land lots where the mortgagor’s buildings, edifices and installations are located

51.1. Unless otherwise provided in the mortgage agreement, the mortgage right arising from mortgage a land lot shall not apply to the mortgagor’s building, edifice and installation located or under construction on that land.
51.2. If, when the agreement does not have a provision stipulating a mortgage of building, edifice and installation located or under construction on a land lot to the same mortgage holder, the land lot is foreclosed, the mortgagor shall reserve the rights to the building, edifice and installation, and shall also acquire a limited right of use (easement) of a portion of the land to allow access and use of such building, edifice and installation. The terms and conditions of access to and use of that portion of the land shall be determined under the agreement between the mortgagor and the mortgage holder, and any disputes shall be settled in court.
51.3. If the mortgagor’s property, plant or equipment located or under construction on a mortgaged piece of land are mortgaged with the same mortgage holder, the mortgagor’s rights with respect to such property, plant or equipment, and the terms and consequences of transfer thereof shall be defined hereunder.

Article 52. Construction on a mortgaged land lot

The mortgagor shall have the right to build property, plant or equipment, as specified under the law, on a vacant mortgaged land lot without the mortgage holder’s consent. In this case, the mortgage right shall apply to the building, edifice and installation and the mortgagor, unless otherwise provided in the mortgage agreement, shall not have the right to dispose of them without the mortgage holder’s consent.

Article 53. Mortgage of a land lot where a third party’s building, edifice and installation are located

If, when a land lot is mortgaged whereupon building, edifice and installation are located owned not by the mortgagor but by a third party, the mortgage holder forecloses on the land lot and the latter is sold, the mortgagor’s rights and responsibilities with respect to such party shall be transferred to the purchaser of the land.

Article 54. Valuation of the mortgaged land lot

If a mortgaged land lot is foreclosed hereunder, the starting sale price shall be determined based on the market value.

Article 55. Characteristics of alienation of a mortgaged land lot

55.1. The purchaser of a mortgaged land lot may re-purpose the land only if and how specified under the laws on land.
55.2. Mortgaged land lots may not be sold to foreign entities. If a foreign legal entity, national or a person without citizenship as a mortgage holder exercises the rights provided under Article 43, they shall dispose of the land lot not later than in one year.
55.3. When agricultural lands are offered for sale through open market, farmers, or persons among such farmers who own neighboring land lots shall have precedence among persons who offer similar terms of purchase of such land.

Chapter VII

CHARACTERISTICS OF RESIDENTIAL AND HOUSING MORTGAGE

Article 56. Scope of application of residential mortgage provisions

56.1. Privately-owned houses and apartment buildings, as well as apartments may be mortgaged.
56.2. State or municipality-owned houses and apartments may not be mortgaged.
56.3. Hotels, recreation areas, summer houses and other similar buildings and houses may be mortgaged on a general basis. The residential mortgage regulations shall not apply in this case.

Article 57. Apartment mortgage

When an apartment is mortgaged in an apartment building co-owned by the mortgagor and other parties, the mortgagor’s share in the joint ownership right to the apartment building shall also be pledged as pledge along with the individual apartment.

Article 58. Mortgage of houses and apartments under construction

58.1. When a loan is granted to build a house or an apartment building, as well as to purchase an apartment in an apartment building under construction, the mortgage agreement may allow the house under construction or an apartment in the apartment building to be used as pledge for the obligation.
58.2. A house under construction or an apartment in an apartment building under construction (share in a residential cooperative) may be mortgaged based on the mortgagor’s right to such house or apartment pre-registered with the state real estate registry under Article 11.6 hereof.
58.3. Upon completion of the mortgaged house or apartment building, the pre- registered mortgage shall remain legally binding as per Article 11.7 hereof.

Article 59. Foreclosure of a mortgaged house or apartment

59.1. If a house or an apartment is mortgaged, foreclosed and sold, this, except as otherwise provided under Article 59.3 hereof, shall not constitute grounds for eviction of the legally registered tenants of the house or the apartment.
59.2. The new owner of the house or the apartment shall sign a rental agreement with the previous owner of the house or the apartment. If the new owner refuses to sign rental agreement, the previous owner (the mortgagor) may petition the court to pursue the agreement.
59.3. If a mortgaged house or apartment is foreclosed and sold, the mortgagor and his co-habitant family members and other individuals shall vacate the premises within not later than one month, providing that:
59.3.1. the house or the apartment was mortgaged with a view to repaying a loan under the mortgage agreement; or
59.3.2. the mortgagor’s co-habitant family members and other persons of legal age had committed in a notary way to vacate the premises when the mortgage agreement was signed if the house (apartment) is foreclosed and sold. Any persons registered as legal tenants of the house or the apartment after the mortgage agreement was signed shall be deemed to have assumed such obligation.
59.4. If the mortgagor and the mortgagor’s co-habitant family members and other persons fail to vacate the premises and de-register as legal tenants of the residence within the timeframe specified under Article 59.3 hereof, such persons shall be evicted and removed from the house (apartment) and de-registered as legal tenants within 10 calendar days based on an enforcement foreclosure document without a court order.

Ilham ALIYEV,

President of the Republic of Azerbaijan

Baku April 15, 2005

№ 883-IIQ