Collateralization

When we buy an apartment from a contractor, he usually has Lending bank. The lending bank is responsible to us for the completion of the construction or the return of the money we have paid. This way, if the contractor goes bankrupt, we are insured against the loss of all our money.

The lending bank, for its part, is the one that receives our money instead of the contractor through payment vouchers. The money accumulates with the bank and is released to the contractor gradually according to the construction progress. This way, the lending bank protects itself from a situation where it has paid the contractor for a part of the building that was not built, and in the event of the contractor's bankruptcy, the lending bank would be exposed to a high risk of losing its money. For example, if in a building planned for 15 floors, 3 floors have been built so far, but the lending bank has released all the money. In the event the contractor cannot complete the construction, the lending bank will join in to complete the remaining 12 floors at its own expense, or return the money to all the buyers at its own expense (it emptied the project's coffers too quickly).

All of the above is true as long as only the purchaser's equity funds have been deposited into the lending bank's project account. When the purchaser begins to pay from the mortgage, the bank that provided the mortgage wants to ensure that in the event of a refund due to the contractor's bankruptcy, the customer will receive their paid equity funds, and the bank that provided the mortgage will receive a guarantee from the lending bank for the mortgage funds through Converting the guarantees that was given to the client at the time of purchase to the bank that issued the mortgage, On the mortgage funds.

As mentioned, the matter of the guarantee transfer is only relevant when purchasing from a contractor. Upon signing the contract with the contractor, you should inquire about the bank and branch providing financing for the project and how to contact this branch for the guarantee transfer. We do not want to be in a situation where, after signing the mortgage and facing tight deadlines, we begin the inquiry process.

I used the term throughout the article Lending bank. Most projects are financed by banks. In recent years, other financial entities have also been providing financing for real estate projects. The principle is the same.