Undercollateral

Asset mortgages are very popular and widely used in Denmark when a lender - such as a bank, mortgage company or others - grants a loan to a borrower.

Collateral can secure all or part of the amount lent, reducing the lender's risk in granting the loan.

There are basically two types of mortgages in Denmark: underpant and håndpant. In this article, we will focus on underpledge and its use for businesses, lenders and creditors.

What is a mortgage?

A pledge is a security that a company, bank or other credit or lender can take against a borrower's assets. The pledge acts as collateral for all or part of the debt or credit granted by the lender.

Both tangible and intangible assets can be pledged, but the most common are the borrower's home or vehicle. In some cases, expensive assets such as paintings, art or similar can also be pledged - provided the asset has value.

If the borrower defaults on the loan or credit, the pledgee can sell the asset to cover outstanding amounts and costs.

What is a mortgage?

There are two types of mortgages: mortgages and sub-mortgages. Both have the same purpose - to secure a loan - but differ in the way the mortgage is handled.

Underpledge is the most common form of mortgage in Denmark. Mortgages often require more administration as the lender must store and have physical possession of the asset. For example, a mortgage may involve the lender storing an expensive painting for the duration of the loan.

The difference is that the lender does not physically possess the asset or have control over it. This makes it particularly suitable in situations where physical storage is impractical or unnecessary.

Examples of pledges

Underpledge is one of the most commonly used types of mortgage in Denmark, partly because underpledge is often cumbersome, expensive and time-consuming. For example, a mortgage requires the lender to provide secure storage space for the borrower's asset.

The most common examples of liens are found in real estate and vehicles - typically mortgages and car loans.

These types of mortgages are registered and secured through land registration, making the mortgage legally binding and protected.