Zimbabwe is a widely informal market where many people are starting their businesses and the issue of capital is always critical. Many people sometimes fail to create value through the assets which they already have. This article will focus on securities interest on movable properties and mortgage bonds on immovable properties. The money lenders that is banks and microfinances accept these types of securities and others as will be illustrated in this writing.
This is a form of security where a debtor gives a movable asset in favour of a creditor as security in the event that the debtor defaults. A thing is considered to be movable if it can be moved from one place to another without being damaged or without losing its identity. The movable property can be in the form of corporeal or incorporeal property. Corporeal movable property is property that has a body and can be touched, for example motor vehicles, farming machinery, household furniture, even future progeny of livestock and farm produce. Incorporeal movable property is that which does not have physical form, for example, commercial licenses and permits (e.g liquor license, site permit) and shares in a company.
The interest security agreement between a debtor and a creditor has to be in writing and signed by both parties which then facilitates the registration of the security interest agreement as required by the Movable Property Security Interests Act [Chapter 13:45]. After the debtor and creditor enters into a security interest agreement, the security interest has to be affirmed by a registered Notary public, following which it has to be registered at the Collateral Registries offices situate in Harare. The registration of security interest is very important for many reasons including to facilitate admissible evidence in the event of a dispute between the debtor and creditor.
This is also a form of security where a debtor gives his/her immovable property in favour of a creditor to secure a loan. Put simply, a mortgage bond is created when a borrower and lender enters into an agreement in terms of which the lender provides a loan to the debtor. Following which the loan is secured by immovable property whose tittle papers are handed over to the lender until the debt is recovered. Immovable property is that which cannot be transferred from one place to another for example land, houses, boreholes and others.
Mortgage bonds are also to be put down into writing and confirmed by both the debtor and creditor, following which it is to be attested and registered by the Registrar of Deeds as regulated by the Deeds Registries Act [Chapter 20:05]. The registration of a mortgage bond secures the operation of the loan hence debtors are encouraged to pay their loans well up within agreed time frames. In the event that a debtor defaults, the creditor has the option to choose the legal route and recover the debt through attachment of the bonded immovable property.
Distinction between Security Interests and Mortgage Bonds
It is important to distinguish security interest from the commonly used mortgage bonds. The major difference lays in the property provided as security for the debt. As defined above, security interests deal only with movable property and usually apply to loans of a lower value. Whereas mortgage bonds deal with immovable properties and work for loans of a considerably higher amount. With mortgage bonds one cannot secure the loan with immovable property that is not registered in their names yet with security interest the movable property need not be specifically registered. Further, security interests are attested only by a legal practitioner who is a notary public yet mortgage bonds are attested by the Registrar of Deeds.
It is however important to note that finance houses largely prefer mortgage bonds over security interest. This is because the control and possession of the movable property remains in the hands of the debtor facilitating an easier means to alienate or even sell the property whilst the security interest is still in operation. Nevertheless, security interest are easily accessible to borrowers particularly the low income earners and as a matter of fact, numerous micro-financing houses are now in operation throughout the whole country.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.