Freedom from encumbrances in real estate sales

Freedom from encumbrances plays a crucial role when selling or buying a property. Real estate is a high-value asset that can, of course, be used as collateral by the owner in the event of financial distress. The property remains in the possession of the owner, but the mortgage or land charge taken out on it is, of course, I'm Land Register registered and the property is therefore no longer free of encumbrances. Should the owner intend to sell their property at a later date, the debts must be settled beforehand.

Because a real estate buyer generally expects the property they wish to acquire to be free of encumbrances. It completely does not matter whether it is developed or undeveloped. Anyone who owns an encumbered property can still sell it. This primarily applies when there is a serious purchase interest in a specific property. The buyer can then apply for a release from encumbrances or they can assume the encumbrances contractually. The real estate agent also helps with difficult transactions in any case and ensures a satisfactory solution for all parties.

Free of encumbrances or not: everything is notarized in the purchase agreement

The unencumbered status of a property may not be given for various reasons, and various Easements be registered. Most commonly, an owner has encumbered their property with a land charge to secure a loan from a bank. This land charge remains in the land register until the owner has repaid the loan. Then the property owner receives a so-called from the lender Cancellation of registration.

The unencumbered status of the land register is restored in this way. A notary must in any case ensure that the Property free of encumbrances upon sale or also that the buyer acquires the property with an agreed-upon encumbrance or assumes certain restrictions or prohibitions on exercise.

The absence of encumbrances can be restricted in very different ways.

Another type of restriction when selling real estate would be that a right of residence for third parties is entered in the land register. This entry secures the registered persons the Right of residence even in the event of a change of ownership. This Right of residence or usufruct are often received by parents from their children when the family home has already been transferred to them by notarial deed and they are now the new owners.

However, this by no means rules out the possibility that the children may want to sell the parental property. Conversely, it is not uncommon for parents to grant their children a right of residence in order to be able to transfer a house or apartment later with tax benefits. The absence of encumbrances can also be achieved through a Right of way be restricted, which was granted to a neighbor, for example, in order to access their own property. In most cases, the buyer must take over this right of way. However, this does not necessarily have to be a disadvantage.

Interested buyers can always apply for a release from encumbrances

The sale of a property can also take place without existing freedom from encumbrances. This happens primarily when a buyer is strongly interested in a specific property. The prospective buyer can and will then apply for a release from encumbrances in order to be able to acquire the desired property without the existing encumbrances. A release from encumbrances refers exclusively to encumbrances caused by real property liens such as land charges or mortgages.

For a potential buyer, these mortgage liens of the property seller are considered External loads, which he does not have to take on. Through a release from encumbrances, these external encumbrances are deleted. Once the release from encumbrances has taken place, the seller can sell his property free of encumbrances to the interested party.

An application for release from encumbrances in the interest of both seller and buyer

An application for clearance of encumbrances is almost always filed by the potential buyer, since it is primarily in their interest to acquire a property with guaranteed freedom from encumbrances. The application is generally filed with the notary as part of the notarization of the purchase agreement. However, a clearance of encumbrances is also possible after the real estate sale. This route, however, is considerably more complicated and laborious.

In this case, the real estate buyer must prove in detail that the encumbrances originate from the previous owner. If the buyer has requested a clearance from encumbrances before the purchase, as is customary, it is initially up to the seller to restore freedom from encumbrances. Normally, however, the seller is not in a position to do so, because otherwise they would not have encumbered their property in the first place. The notary will now initiate further steps.

The notary is now responsible for the encumbrance-free release of the property

The notary is now responsible for the property's freedom from encumbrances and acts as a trustee for this purpose. First, the notary receives the agreed purchase price for the property from the property buyer. Next, the notary pays off the encumbrance on the property with the respective lender. In return, the seller receives the consent to cancellation for the land register from the bank, which the seller must, however, obtain themselves and forward to the notary. The property seller then also receives the rest of the purchase price. The freedom from encumbrances is recorded by the notary in the purchase contract. The property's freedom from encumbrances is thus restored.

What a release from encumbrances can cost and who has to pay for it

The costs for clearing encumbrances are paid by the property seller, unless another agreement has been made between the buyer and the seller. The costs for clearing encumbrances are comprised of notary fees, the standard fees for deleting the mortgage in the property's land register, and the portion of the purchase price required to settle the debt with the bank to repay the loan. The notary's fee and the cost of deleting the mortgage in the land register of the property in question are always based on the amount of the mortgage.

The notary fees are regulated by the Court and Notary Costs Act, which applies nationwide. Depending on the amount of the land charge, this amounts to several hundred euros. About half of the total amount goes to the land registry office for carrying out the deletion of the encumbrance entry and restoring unencumbered status. The release from encumbrances is in any case a viable path for anyone who wants to sell an encumbered property and also a fair procedure for a potential buyer who is not willing to take on the previous owner's liabilities.

The real estate agent supports a fair sale and purchase

Anyone looking to sell or buy a property should be able to rely on a competent real estate agent. You do not have to be an expert in the field of real estate transactions yourself, regardless of whether it is a purchase or a sale. A notary must always be involved in a property sale so that the change of ownership is legally sound through a notarized purchase agreement. It is completely irrelevant whether the property in question is free of encumbrances or not. The clause stating that a property is transferred free of encumbrances is common in most real estate transactions, but it is not mandatory.

However, every buyer must in any case inform themselves about any existing encumbrances on the property. An competent real estate agent will take care of that for its customers anyway and the best solution for buyers and sellers find. In the case of mortgages or land charges, freedom from encumbrances should be established in any case. If third-party rights, prohibitions on exercise, or other restrictions exist, attempts can also be made to render them ineffective. In some cases, however, it is unavoidable that these obligations must be assumed by a new owner.