To date mortgages have not been a popular method of securing obligations in Russia for three main reasons.
The first is the notary's fee for notarizing a mortgage agreement (obligatory under Russian law) of 1.5% of the value of the obligation secured. Such a high fee increases transaction costs.
The second hindrance to the development of mortgage-based financing is the complicated system for recovery of mortgaged assets. If a borrower defaults, the creditor is unable to foreclose on the mortgaged property. The creditors are obliged to sell the property through a complicated procedure of public auctions and recover the debt from the auction sale proceeds. The whole process of recovery is delayed for several months. Also, a court can postpone the sale for up to a year.
The third hindrance is the complicated bureaucratic procedure for notarization and state registration of a mortgage agreement (both obligatory for the mortgage to come into force). To complete these procedures both parties to the mortgage agreement are required to provide a large quantity of documents, which themselves often require notarization (and apostilles if one of the parties is foreign).
For example, to confirm the authority of the persons signing the mortgage agreement, it is necessary to provide not only the power of attorney of the person, but also documents "confirming the authority of persons who signed such POA", that is, the charters of both companies, a decision of the relevant body appointing that person, and a document confirming the authority of the body.
Now amendments to the law On state duty, signed by President Putin on August 20 2004, seem to provide positive legislative changes in this area. These amendments abolished the first, and probably most important, hindrance to mortgage transactions: the notary's fee for notarization of a mortgage agreement was diminished from 1.5 to 0.3% and its maximum amount limited to about $100.
The investment community hopes that the other two hindrances to mortgage financing will soon also be demolished.