Land Charge/Mortgage Loan

Configuration

In most cases, the buyer cannot completely pay the purchase price with their own capital, and he must therefore take out a bank loan. The bank is only routinely willing to grant the loan if a land charge (or rarer today: a mortgage) is entered into the land register as collateral in their favor. The land charge secures the bank’s claim for repayment of the loan installments in the following ways: If the borrower does not repay the loan installments as agreed upon, the bank, through the courts, may forcibly have the house auctioned off. The bank then receives the outstanding installments plus interest and the interest on arrears from the proceeds of the auction.

Land Charge Interest

You should not be alarmed by the land charge interest values of generally between 14% and 20%: For your loan, the interest rate specified in the loan contract is the only relevant factor. The land charge interest only causes the security amount of the land charge to increase over time. If, for example, in the land register there is a “land charge for 100,000.00 EUR plus 15% interest annually”, then the land charge grows to a security amount of 115,000.00 EUR after one year, and after two years to 130,000.00, and so on and so forth.

Frequently, the lending institutes also call for the entry of an additional security with the land charge, for so-called one-time ancillary services (between 5% and 10% of the land charge amount). Hereby, in the case of a compulsory auction, the – flat-rate – approximate foreclosure sale costs are thereby to be covered.

In the case of foreclosure, the bank can in principle claim the entire land charge debt plus interest and ancillary services from the proceeds of the action. However, in relation to the borrower, it may only retain the amount, which the latter still owes the bank on the loan; the excess amount is to be paid out to the borrower.

Submission to Execution

Of particular importance is the enforcement submission of the borrower, which is regularly included in a land charge certificate, and indeed both in rem and in personal terms. In this way, if the borrower fails to repay to loan on time, then the bank can have the encumbered property immediately auctioned off without having to participate in a lengthy legal process. On the other hand, they can also immediately access remaining assets of the borrower by means of compulsory execution, for example, by seizing the car, jewelry and other valuables or even wages. From the proceeds of the auction, they then receive the outstanding installments and interest.

Declarations of Purpose

The purpose declaration, which is often not included in the land charge certificate itself, governs which loan is secured by the land charge. Often, not only the loans granted for the purchase of the home are included, but also future loans by the same bank. The declaration of purpose is usually signed along in connection with the loan contract. With a land charge, loans for other people can also be secured. For example, parents can encumber their house with a land charge for a child’s loan. The declaration of purpose must then be formulated accordingly.

Removal of the Land Charge

In the majority of the cases, the loan installments are paid on time and in full. However, the land charge is not automatically deleted, but it has only entered into a “state of rest”. It can be reactivated at any time, such as when securing a new loan from the same bank. A corresponding purpose declaration only has to be made and the certificate of debt secured on landed property only handed over to the bank, if it had already been handed over to the borrower. If it is established that the land charge is not to be reused, it should be deleted. To do this, the bank must release a permit of cancellation and the property owner must agree to the deletion at the notary office. The notary then submits the corresponding applications to the land register authorities.

Checklist

In preparation of a land charge creation, I ask you to please send me the land charge creation application from the bank. Furthermore, I request the following information or documents from the parties:

Information

Natural person: first name, family name, name given at birth, date of birth, address,
Companies: Company, registered office, business address, district court, commercial registry number

Documents

Official photo identification, excerpts from the commercial register, copies of the powers of attorney, in the case of heirs not entered in the land charge register, certificate of inheritance, certificate of executorship, caregiver’s certificate of appointment

Costs

Notary fees cannot be levied or negotiated at the will of the notary; they are strictly governed by law. Decisive is the Court and Notary Fees Act that applies throughout federal territory. Therefore, the same fees are always charged by each notary for the same notarial activity.

The notarization fees are based on the so-called commercial value, and in the case of a land charge, according to their amount. In addition, there are usually some additional small expenses for copies, postage and telephone as well as the statutory value-added tax. Under certain circumstances, particularly for mortgages for the financing of the purchase price, additional notary fees may arise.

Examples:

Land Charge of Euro 10,000.00	Net notary fees	ca. Euro 75,00
Land Charge of Euro 50,000.00	Net notary fees	ca. Euro 165,00
Land Charge of Euro 100,000.00	Net notary fees	ca. Euro 280,00
Land Charge of Euro 500,000.00	Net notary fees	ca. Euro 940,00