No. An agreement concluded before the debt falls due under which the creditor would acquire ownership of the collateral is invalid by law: this is prohibited forfeiture of collateral. Courts assess the true purpose of the entire transaction, so a sale or gift agreement signed alongside a loan 'just in case' will not stand either. The creditor should obtain payment by selling the collateral and return the surplus proceeds to the debtor; the same rule applies to a transfer of rights by way of security.
This proposal regularly appears with non-bank loans: alongside the loan agreement, the lender wants a sale or gift agreement for the property, saying they will “use it only if you do not pay”. It sounds like simple protection. In reality, it is an arrangement expressly prohibited by law, regardless of what the documents are called.
The prohibition on forfeiture of collateral
Under the Civil Code (Act No. 40/1964 Coll.), a security interest secures a debt. The creditor obtains satisfaction by selling the collateral, rather than retaining it:
Any agreement concluded before a claim secured by a security interest falls due, under which the secured creditor may obtain satisfaction by acquiring ownership of the thing, apartment or non-residential premises, or another right or asset subject to the security interest, is invalid unless otherwise provided by law.
— Section 151j(3) of the Civil Code (unofficial English translation)
Such a provision is absolutely invalid, as is any transaction circumventing the law (Section 39). The prohibition protects the debtor while under pressure and willing to accept the creditor’s terms. Once the debt is due, an agreement is no longer barred: the parties may then freely agree, for example, to transfer the collateral instead of paying.
The court reads the signed documents together
The agreement’s title does not matter. If a loan agreement and a sale agreement “activated” by non-payment are signed on the same day, the court assesses them as a whole. In judgment No. 2MCdo/2/2006, the Slovak Supreme Court held that an agreement whose true purpose is to satisfy a creditor by making the collateral their property is invalid regardless of its designation; it reiterated those conclusions in judgment No. 3Obdo/43/2022. The same applies to gift agreements “for security” and transfers with a buyback arrangement. Ownership does not pass under an invalid agreement, and if the land registry has already approved registration, a declaration of ownership may be sought in court.
How to create lawful security
The first route is a proper security interest. On default, the creditor begins enforcement and realises the collateral by auction or another agreed method of sale; proceeds exceeding the debt and costs belong to the debtor. Even an agreed private sale must not involve the creditor selling the collateral to themselves: they would act both for the security provider and in their own interest. In judgment No. 3Obdo/43/2022, the Slovak Supreme Court found such a sale agreement absolutely invalid because of the conflict of interest.
The second route is a transfer of rights by way of security. Ownership passes to the creditor only temporarily, and the law expressly excludes forfeiture here too:
Agreements concluded before the secured claim falls due whose content or purpose is to satisfy the creditor by allowing them to retain the transferred right permanently are invalid.
— Section 553c(2) of the Civil Code (unofficial English translation)
The creditor must realise the transferred right and return the proceeds exceeding the debt and its accessories without undue delay (Section 553c(5)).
What if you have already signed?
A forfeiture provision is invalid directly by law; the invalidity neither becomes “time-barred” nor is cured. However, the sooner the situation is addressed, the less damage needs to be remedied, ideally before an application for registration is filed. If a charge remains on the title record long after the debt was repaid, we explain the procedure in the creditor has ceased to exist but the security interest remains on the title record. Another form of apparent security is an “irrevocable” power of attorney to transfer assets; we explain why it fails in an irrevocable power of attorney as transaction security.
How we can help
We prepare a security agreement with an enforceable sale mechanism that withstands scrutiny by the court and land registry, or a transfer of rights by way of security with proper accounting for proceeds. We structure the financing itself through our credit and loan agreements service. If the other party has presented agreements providing for forfeiture, contact us before signing: a review is quicker than a later ownership dispute.
This answer provides general information on the law as at 5 September 2026. It does not constitute legal services or replace an assessment of an individual case. The details of your situation may differ. Book a consultation to discuss them.
