Hungarian structured finance transactions rely on a clear and enforceable security framework. The Hungarian Civil Code provides lenders with a comprehensive set of security interests that can be flexibly structured to support complex financing arrangements and to mitigate credit risk in secured lending transactions.
Mortgage over real estate
A mortgage registered in the land registry (in Hungarian: ingatlant terhelő jelzálogjog) serves as the principal form of collateral over immovable property in Hungary. Mortgages are the cornerstone of real estate finance and project finance transactions, providing lenders with a reliable and transparent form of security.
In many cases, a mortgage is accompanied by a prohibition on alienation and encumbrance (in Hungarian: elidegenítési és terhelési tilalom). This restriction prevents the mortgagor from selling or further encumbering the property without the mortgagee’s consent, thereby preserving the lender’s priority and maintaining the property’s value as collateral.
Enforcement follows a statutory procedure under Hungarian law and may result in a judicial sale or direct transfer of ownership, depending on the parties’ agreement and the registered encumbrances on the property.
Pledge over movables and receivables
The pledge (in Hungarian: jelzálogjog) is the most widely used security instrument over movable assets, receivables, bank accounts, and even future claims. Since the 2014 reform of the Hungarian Civil Code, non-possessory pledges are perfected by registration in the collateral register (in Hungarian: hitelbiztosítéki nyilvántartás), ensuring both transparency and enforceability. Pledges play a key role in structured finance and syndicated lending, offering flexibility for both domestic and cross-border transactions.
Pledge over shares or quotas
In corporate and acquisition finance, lenders often rely on share or quota pledges to secure their position. A pledge over a limited liability company (in Hungarian: korlátolt felelősségű társaság) interest must be registered in the company register, while a pledge over shares in a private company limited by shares (in Hungarian: zártkörűen működő részvénytársaság) is primarily recorded in the shareholders’ register. These encumbrances allow lenders to gain control over the borrower’s corporate vehicle in an enforcement scenario, an essential feature in leveraged and project finance structures.
Security deposit
Security deposits (in Hungarian: óvadék) are a recognised form of collateral under Hungarian law. They provide lenders with a robust enforcement mechanism, as the secured party may satisfy its claim directly from the deposited asset upon default, without the need for judicial proceedings. Security deposits can be established over both cash, shares (such as shares held in private company limited by shares (in Hungarian: zártkörűen működő részvénytársaság) certain financial instruments, offering enhanced protection and liquidity compared to traditional pledges and further to this, greater comfort to the lender due to the limited possibility of disposal by the obligor.
Security assignment and guarantees
Security assignments of receivables and corporate guarantees issued by group entities are used in structured lending; nonetheless, in recent years, such encumbrances have become less frequent in market practice. Although contractual in nature, their validity and enforceability must comply with the Hungarian Civil Code and the Insolvency Act to ensure effectiveness during default or restructuring.
Security Agent Structure
Hungarian law recognises the security trustee (in Hungarian: zálogjogosulti bizományos) structure, enabling one entity to hold and enforce security interests for multiple creditors. This mechanism aligns Hungarian banking law with international market practice and is fundamental in syndicated and cross-border structured finance deals.
Final Remarks
The Hungarian legal framework provides a sophisticated and flexible toolkit for secured lending. A carefully designed combination of mortgages, pledges, guarantees and security assignments ensures comprehensive lender protection and efficient enforcement, supporting the growing role of structured finance in Hungary.