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Real estate sale despite land charge – is that possible?

When it makes sense not to delete

It often happens that a property is to be sold even though it has a land charge on it. We explain what needs to be considered and whether it makes sense to leave them as they are. 

House sale despite the land charge

When a property is to be sold, most people think of the land register first. The reason: many properties are encumbered with a land charge or mortgage. This is entered during the financing phase and accompanies homeowners over many years.

Many are wondering if they can sell their house or apartment even though it’s not entirely theirs yet. A sale with a mortgage is possible, but there are a few things to consider. 

This is the basic debt of a property.

When financing a property with a loan, the land charge plays a central role. The new owner and the bank or savings bank agree on a loan amount. Because the lender wants to protect himself, he has the notary enter the so-called land charge in the land register. The loan will not be paid out until it is recorded in section III of the land register.

From a legal point of view, a mortgage is a form of mortgage, i.e., the right to attach something. This is stipulated in the German Civil Code (BGB). Accordingly, the land charge stipulated there can be immediately seized in the event of default of payment.

This means that no court decision is necessary, but the bank or savings bank can request it directly if necessary.

A land charge is not the same as a mortgage.

Anyone who is not very familiar with the matter easily confuses a land charge with a mortgage and vice versa. The two terms are fundamentally different.

A mortgage is always linked to a specific loan amount. When this has been repaid, the mortgage expires.

In contrast, the mortgage is not directly linked to the loan amount. “A land charge becomes an owner’s land charge at the end of the repayment of the loan and can therefore be used again and again. So you don’t necessarily have to delete them,” explains real estate expert.

The possibility of using the mortgage again as security makes it so interesting. This makes it relatively easy to take out a new loan, which can be used to finance modernization or another property, for example.

House sale with mortgage

When selling, the property is ideally handed over without financial burdens. However, once the decision to sell has been made, there may still be a land charge on it. If this is the case, the house or apartment can still be sold.

However, the question then arises as to what will become of the land charge. There are two ways to deal with her.

mortgage transferred

The land charge can be transferred from the seller to the new owner. This is also possible if no open loan is linked to the property. The entry in the land register is simply transferred and can be used for a new loan from the registered institute, for example, if the new owner wants it.

However, if a loan is still open, the buyer can take it over with the bank’s approval. The new owner then pays the required loan amount and can then, if desired, delete the mortgage.

However, it is also possible for the buyer to accept the terms of the old loan and thus take the place of the seller as the borrower.

In this case, too, the approval of the bank or savings bank is required.

In this case, it is best if the seller, buyer, and bank agree directly with each other on how to proceed.

In both cases, a notary must transfer the land charge with the consent of the lender.

delete the mortgage

The cancellation of the mortgage is only possible if the loan has been repaid in full and the bank or savings bank no longer has any outstanding claims against the seller. In this case, the former lender must issue a cancellation permit, which must be certified by a notary. The notary gives the document to the land registry, and the debt can be cleared.

Expert interview

Uwe Nageler is Head of Real Estate Sales at Kreissparkasse Böblingen. He is a real professional when it comes to selling houses and gives tips on how best to deal with the issue of mortgages when selling a house. 

Under what circumstances does it make sense for a seller to delete the land charge?

When he is sure that he will no longer need external funds in the future, for example, to renovate the heating, facade, or roof.

But also if the buyer’s bank demands a new entry during the sale and the land charge cannot be assigned.

In your experience, are properties with a mortgage less desirable?

No, it doesn’t matter at all. According to the law, the seller is obliged to hand over an “unencumbered property” when selling. He thus also bears the costs for deletion. 

What should sellers pay attention to when deleting the land charge?

Once a loan has been repaid, the owner receives the cancellation documents for the mortgage from their bank. We advise immediate deletion. Then you don’t have to look for lost land charge certificates and cancellation documents later. In the case of inheritance, this is a particularly unpleasant story because a declaration of invalidity of the land charge unnecessarily delays the processing of a sale. 

Are there things that sellers should pay attention to if the mortgage remains?

There are two options here: Either the land charge remains with the bank that was originally the lender. Advantage: If there is a need for credit again, the mortgage can be “revived” and used as security for a new loan.

Or the land charge is sent to the owner together with the cancellation or assignment documents.

My recommendation: You should keep the documents in the safe deposit box as a so-called “owner’s land charge.” Or have it transcribed to yourself in the land register. 

What exactly happens when a mortgage is assigned?

The land charge, i.e., the security, is transferred to another bank. The lender has changed. The transfer must be entered in the land register so that the assignment is traceable and the new person entitled to the land charge is visible. 

How much does it cost to clear the land charge?

That depends on the amount of the land charge. There are some fee calculators for the entry or deletion of land register rights on the Internet. In order to delete a land charge of, for example, 100,000 euros in the land register, you have to reckon with notary and land register costs of around 300 euros.

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