Securing receivables as an entrepreneur – transfer of ownership as security

What is transfer of ownership as security?

Transfer of ownership as security is a method of securing receivables often used when granting loans to entrepreneurs – this type of security for receivables is also provided for in banking law, but not only banks can protect their receivables in this way.

Transfer of ownership as security constitutes a contractual transfer of ownership of items constituting security for the creditor and entitles the creditor to exercise ownership rights over the item to the extent necessary to secure the receivable. The fact of transferring ownership of goods or real estate to the creditor significantly facilitates obtaining funds for which the debtor acted unreliably. Transfer of ownership as security means that the creditor does not need to obtain an enforcement title, as in the case of enforcement on mortgage security.

It should be remembered that the secured receivable should correspond as closely as possible to the value of the item that the receivable secures. Moreover, it is worth using when preparing the contract
with the help of a lawyer to effectively enforce rights from items appropriated for security purposes.

Transfer of ownership to secure movable property

In the case of securing receivables using movable property, the contract transfers ownership of precisely indicated and described items to the creditor. In practice, this means that if the debtor repays his debt, the effects of the contract transferring ownership cease to be binding on the parties (transfer of ownership under a resolutory condition). However, during the term of the contract, the debtor is only a dependent owner of the movable property – he is not entitled to ownership rights or those related to the rights of an independent owner.

Transfer of ownership to secure real estate

Civil law excludes the possibility of transferring ownership of real estate provided, however, that this does not exclude the possibility of securing receivables by using transfer of ownership as security using real estate. However, the ownership of the real estate should be transferred unconditionally to the creditor, and the agreement on transfer of ownership as security should include provisions obliging the creditor to transfer back the ownership of the real estate to the debtor after the initial performance that was secured by the real estate has been fulfilled.