Real estate sale despite land charge – is it possible?

It often happens that a property is to be sold, although a land charge is encumbered on it. We explain what to consider and whether it can make sense to leave it in place. We spoke with real estate expert Uwe Nageler from Kreissparkasse Boblingen about this issue.

I. House sale despite land charge

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

Many ask themselves whether they can sell their house or their dwelling, although it does not belong so yet completely to them. A sale with a land charge is possible, but there are a few things to keep in mind.

This is the land charge of a property

Diagram: Relationships between borrower and bank

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 secure himself, he has the notary register the so-called land charge in the land register. Only when it is recorded in section III of the land register, the loan is disbursed.

Legally, the land charge is a form of mortgage, that is, the right to seize something. This is stipulated in the German Civil Code (BGB). Accordingly, the land charge recorded there is immediately attachable in case of default of payment.

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

Land charge is not equal to mortgage

Those who are not so familiar with the matter can easily confuse land charges with mortgages and vice versa. There is a fundamental difference between the two concepts.

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

In contrast, the land charge is not directly linked to the loan amount. "A land charge becomes the owner’s land charge at the end of the repayment of the loan and can thus be used again and again. So you don’t necessarily have to delete it," explains real estate expert Uwe Nageler from Kreissparkasse Boblingen.

The possibility of reusing the land charge as collateral makes it so interesting. This makes it relatively easy to take out a new loan, for example to finance a modernization or another property.

"The mortgage is by far not as flexible to use and guarantees as security always only the amount of the loan debt. The mortgage is therefore practically no longer used today. Today, land charges are registered as collateral," says Nageler.

Selling a house with a land charge

When the property is sold, it is ideally handed over without any financial encumbrances. Once the decision to sell has been made, however, it may still be subject to a land charge. 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 it.

Transfer land charge

The land charge can be transferred by the seller to the new owner. This is also possible if there is no open loan attached to the property. The entry in the land register is simply taken over and can be used, for example, for a new loan with the registered institution, if the new owner wishes to do so.

However, if a loan is still outstanding, the buyer can take over this with the bank’s consent. The new owner then pays the required loan amount and can subsequently delete the land charge if desired.

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

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

In this case, it is best if the seller, buyer and credit institution agree directly on how to proceed.

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

Delete land charge

The land charge can only be canceled 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 deletion authorization, which must be certified by a notary public. The notary passes the document on to the land registry and the debt can be deleted.

II. Expert interview

Uwe Nageler is head of real estate sales at Kreissparkasse Boblingen. He is a real professional when it comes to selling a house and gives tips on how best to deal with the issue of land charges when selling a house.

Under which circumstances it makes sense as a seller to cancel the land charge?

If he is sure that he will no longer need outside funds in the future, for example, for a renovation of heating, facade or roof.

But also if, upon sale, the buyer’s bank demands a new registration and the land charge cannot be assigned.

In your experience, are properties with a land charge less sought after??

No, this does not matter at all. The seller is obliged by law to provide an "unencumbered property" at the time of sale to hand over. He thus also bears the costs for a deletion.

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

If a loan is repaid, the owner receives the cancellation documents for the land charge from his bank. We advise immediate cancellation. Then you do not have to search later for lost land charge letters and cancellation documents. In the case of inheritance, a particularly unpleasant story, because a declaration of invalidity of the land charge unnecessarily delays the settlement of a sale.

Are there things that sellers should pay attention to if the land charge remains in place??

There are two options here: Either the land charge remains in the custody of the bank that was originally the lender. Advantage: Should the need for a loan arise again, the land charge can be "revived" and be used as security for a new loan.

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

My recommendation: You should keep the documents in the bank safe deposit box as a so-called "owner’s land charge". Or have it transferred to oneself in the land register.

What exactly happens with the assignment of a land charge?

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

What is the cost of extinguishing the land charge?

This depends on the amount of the land charge. On the Internet there are several fee calculators for the registration or deletion of land register rights. To revive a land charge of, for example, 100.000 euros in the land register, you must expect notary and land registry costs of about 300 euros.

We will be happy to advise you personally if you want to sell your real estate.

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