Clean record for the land register
Should the mortgage be cleared?
04/05/2022 06:57 am
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If the land register no longer contains a land charge, customers will immediately recognize that this property has been paid off. But this is not always advantageous.
At some point it will come, the big day: the home loan has finally been paid off. The owner can make this success official by having the land charge deleted from the land register. That might be a nice feeling. But it can be advisable to simply leave the land charge.
The mortgage is the most common security that banks require for the granting of a real estate loan. “Anyone who buys a property and takes out a mortgage on it, grants the bank a mortgage on the property,” explains attorney Holger Freitag from the Association of Private Builders in Berlin. This means that the bank can foreclose on the property if the customer no longer pays his installments.
Land charge and mortgage are two different things
In everyday life, the land charge is often equated with a mortgage. In fact, the mortgage is also a lien on property that is entered in the land register. But there are big differences. Freitag makes it clear: the mortgage always refers to a specific claim, i.e. it is linked to a specific loan. Its amount decreases as the loan is repaid and is ultimately zero.
In contrast, the land charge represents an abstract security that can also be entered in the land register without a corresponding liability. It remains in full after the loan has been paid off. In classic real estate financing, it is usually not the mortgage but the land charge that is used by the banks as security.
Deletion authorization from the bank must not cost anything
“Once the loan has been paid off, the bank issues a cancellation permit for the mortgage,” explains Sibylle Barent from the Haus & Grund owners’ association in Berlin. “If the owner wants to have the entry in the land register deleted, he has to go to the notary, who will notarize it and send the documents to the land registry.”
There are of course costs associated with this. The customer does not have to pay for the bank’s deletion approval. The Federal Court of Justice ruled that the bank may not charge any fees for this (Az. XI ZR 61/11). However, owners are obliged to bear the costs for the notary and the land registry.
As a rule, a little over 0.2 percent of the amount of the land charge is incurred as a fee. The land registry and the notary’s office each receive about half of this. “So if a sum of 200,000 euros is noted in the land register, there are costs of around 400 to 500 euros for the deletion,” says Barent.
If you need financing later, a mortgage is useful
Whether it makes sense to delete the land charge depends on various factors. On the one hand, what the owner intends to do with the property plays a role. “If he wants to sell it, for example, it can make sense to delete the land charge and then have a clean land register, so to speak,” says Freitag. This makes it clear to the buyer at first glance that the property is unencumbered.
However, if you continue to live in your house and perhaps want to modernize it later, you are well advised to simply leave the mortgage as it is. “If nothing is done, the land charge is automatically converted into an owner’s land charge,” says Holger Freitag. It definitely brings advantages.
“The owner land charge is an empty shell that can be filled with a new loan,” says Sibylle Barent. If the owner has a greater need for financing in 10 or 15 years, he can use this land charge immediately. If he had had them deleted, he might have to register a new land charge – with the corresponding costs.
In practice, psychology trumps reason
This can be helpful for older homeowners who have been paying off their house for decades until they retire and who, for example, want to renovate it later to make it more energy-efficient. “If you throw an owner’s land charge into the balance, that can help you get a larger loan from the bank again,” says Freitag.
Even before a planned sale of the property, it is advisable to communicate with the potential buyer. “If he needs larger financing, he can use the existing mortgage right away and doesn’t have to register a new one in the land register,” says Barent. This can save time and money, especially when funding from the same bank.
“Rationally, it makes sense in most cases to simply leave the land charge,” says Freitag. But in practice, erasure is not just a matter of common sense. Psychology also plays a big role here. “Many owners feel more comfortable when the land register shows no encumbrances.”
It is important to keep the bank’s cancellation permit so that it is at hand, even if the land charge is only to be canceled years or decades later. “It’s not uncommon for this document to be frantically searched for later in the course of a sale or in the event of an inheritance,” says Barent. If it is not found, the owner must bear the cost of replacing it.
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