Third mortgage holder: must be sued, not merely notified

Key data

Executing a mortgage without suing the registered owner of the property has a very concrete cost: the Property Registry refuses to register the adjudication. This means the transaction is left in limbo, with procedural costs already incurred and no possibility of transferring or guaranteeing the acquired asset.

The Resolution of March 30, 2026 from the General Directorate of Legal Security and Public Faith, published on July 8, 2026, confirms this criterion by resolving an appeal against the negative qualification of the Property Registry of Córdoba no. 2. The registrar suspended the registration of a mortgage adjudication decree because the company House Blue State SL, registered owner of the property since 2007, had not been sued or demanded payment, despite the procedure being initiated in 2016.

What does this regulation establish?

The resolution applies and interprets three rules that were already in force but whose exact scope generated controversy in practice:

The key point clarified by the resolution is the difference between notification and lawsuit + payment demand. Notifying the third holder that a procedure is underway does not grant them party status or allow them to exercise their defense rights. Only formal lawsuit and payment demand meet legal requirements. A subsequent notification after the procedure begins does not retroactively remedy the lack of lawsuit.

Economic and operational impact

The impact is not theoretical. When the Registry suspends the registration of an adjudication decree, the acquirer of the credit or property faces:

• Inability to register the adjudication, which prevents selling, mortgaging or using the asset as collateral.
• Procedural costs already incurred (attorney and solicitor fees, court costs, auction expenses) that cannot be recovered even if the procedure must be redone.
• Need to restart or remedy the procedure, with the additional timelines and costs involved.
• Risk of prescription or expiration of claims if significant time has elapsed.

This problem particularly affects funds that acquire mortgage credit portfolios in the secondary market. In many cases, the credit was originated years ago, the property changed registered owners between the mortgage constitution and the execution initiation, and the new creditor executes without reviewing the complete registry history.

Who does it affect?

• Debt funds and servicers that acquire NPL portfolios with mortgage guarantee and execute credits originated by third parties.
• Financial entities that execute mortgages on properties whose registered ownership has changed since the mortgage constitution.
• Buyers in mortgage auctions who acquire the property and intend to register the adjudication without the prior procedure being correct.
• Law firms and legal services that manage mortgage execution procedures and must verify the registry status before filing the lawsuit.
• Advisors and due diligence teams in transactions involving purchase of portfolios of adjudicated real estate assets.

Practical example

The case that originates this resolution is illustrative and real: a bank (or assignee fund) initiates in 2016 a mortgage execution procedure on a property. Upon consulting the Registry, the property is registered in the name of House Blue State SL since 2007, that is, nine years before the procedure initiation. The executing entity directs the lawsuit only against the original mortgage debtor and, at some point in the process, notifies House Blue State SL of the procedure's existence.

The procedure culminates with an adjudication decree. When presented to the Property Registry of Córdoba no. 2 for registration, the registrar suspends it: House Blue State SL had title registered before the lawsuit and should have been sued and demanded payment from the beginning, not merely notified. The General Directorate confirms the defect. The acquirer cannot register the property.

To avoid this scenario, before filing any mortgage lawsuit it is essential to obtain an updated simple note from the Registry and identify all registered owners with title prior to the lawsuit filing date.

What should companies do now?

1. Audit ongoing mortgage execution procedures: verify if there is any third holder with title registered before the lawsuit filing date who has not been formally sued and demanded payment.
2. Review the due diligence protocol prior to the lawsuit: include as a mandatory step obtaining an updated simple registry note and identification of all owners with title prior to the lawsuit.
3. Update lawsuit templates: ensure the lawsuit is expressly directed against the registered third holder and that the payment demand is made to them in accordance with arts. 685-686 LEC.
4. Review acquired NPL portfolios: in mortgage credit portfolio purchase transactions, include in due diligence verification of the registry status of each property and procedural correctness of ongoing cases.
5. Consult with the legal team if there are adjudication decrees pending registration that may be affected by this defect, before presenting them to the Registry.

Official source

Consult complete regulation in official source

Notice: This article is for informational purposes only and does not constitute legal advice. For specific decisions, consult a qualified professional. Source: https://www.boe.es/diario_boe/txt.php?id=BOE-A-2026-14848