Land charge simplifies real estate financing - foreclosure threatens in the event of payment default

If you want to fulfill your dream of owning your own house or apartment, you usually have to take out a loan. To protect themselves against payment defaults, banks and financing insurers usually have an enforceable land charge entered in the land register. If the loan cannot be repaid in accordance with the contract, the land charge makes it possible, under certain conditions, to foreclose on the property without prior court judgment. The lender receives his money back from the proceeds. In addition, land charge holders are often unaware that they are also liable with their wages and other assets to meet the bank's claims.

Enforceable land charge to secure the bank

If buyers or builders take out a loan to finance real estate, this must be secured by a so-called mortgage. This is often a land charge. This serves solely to secure the creditor and makes it easier for him to sell the property if installments are not paid. For this purpose, submission to immediate foreclosure is agreed in the land charge order form, so that the lender can initiate foreclosure without a court judgment in the event of default. However, this requires the land charge to be terminated, which is subject to strict conditions. There is then a six-month waiting period before a forced sale. If the property is sold, the borrower must repay at most the outstanding residual debt including unpaid interest. In addition, the borrower is often held personally liable and must pay off the loan with his other assets if necessary.

Ranking in the land register is decisive for security

A decisive factor for the security that the lender receives from the land charge is its ranking in the land register. Property owners can have several rights entered there, which are serviced in order in the event of realization. This means that in the event of a forced sale, the proceeds are used first to pay off the claims of the first rank, which therefore offers the highest security. A bank will therefore usually insist on a first-ranking land charge. If other rights are already registered there, the bank will often demand a subordination of its rights. Other rights that are not aimed at a payment, such as residential rights, also reduce the value of the property, as they must continue to be granted by the buyer in the event of a sale.

Land charge by letter saves costs and time later on

A land charge can be structured as a registered land charge or a registered land charge. The registered land charge is only entered in the land register with the note "land charge without letter". An additional entry in the land register is required for the subsequent amendment, which is costly and time-consuming. With a land charge by letter, on the other hand, a land charge certificate is also issued, which is a deed and security in one. The land charge certificate usually remains with the bank until the loan has been paid off in full. Although the land registry charges a fee for issuing the land charge certificate, it offers a number of advantages once the loan has been paid off: the land charge certificate can be assigned free of charge by private deed or notarized deed, for example to secure a new loan.

The notary guides you through the creation of the land charge

The creation of a land charge always requires the involvement of a notary. If there is also an agreement on immediate enforcement, the order must be read out and notarized. The deed of appointment states, among other things, the amount of the land charge. The procedure itself is standardized: The lender prepares the land charge order form and forwards it to the notary. The notary draws up the land charge deed and submits it to the land registry after it has been read out, signed by the borrower and notarized. The land registry enters the land charge in the land register. The notary sends the deed of appointment and the updated extract from the land register to the lender, thus completing the creation of the land charge. Both the land registry and the notary incur costs, the amount of which depends on the individual case.

If you would like advice on this topic from a notary in advance, you can find it on the Internet at https://notar.de/ the right contact person. You can also visit the online consumer portal of the Chamber of Notaries at https://ratgeber-notar.de/.