Mortgage on the property

Owner’s Land Charge - An owner’s land charge is a land charge held by the property owner themselves-not by a lender. It arises automatically when a senior land charge is discharged or a loan has been repaid in full without the land charge being removed from the land register. The owner’s land charge secures the owner’s priority in the land register and can, if necessary, be used again as collateral for financing - without incurring new notary fees for the creation of the lien.

Creation and Legal Basis

An owner’s land charge arises in various ways:

• Repayment of the loan (Section 1163(1) Sentence 2 BGB): If the secured loan is repaid in full, the land charge is transferred to the owner by operation of law-it becomes an owner’s land charge
• Discharge of a senior land charge: If a first-ranking land charge is discharged, the subordinate rights do not automatically move up in priority-the rank that has become vacant is allocated to the owner
• Assignment to the owner: The bank may assign the land charge to the owner after the loan has been repaid, rather than having it discharged

In practice, the owner’s land charge is often not explicitly noted as such in the land register-the land charge remains formally registered but is no longer enforceable due to the lack of a secured claim. In this case, the owner should keep the bank’s authorization for cancellation in a safe place.

Strategic Benefits

The owner’s land charge offers significant practical advantages:

• Preservation of priority: The owner retains first priority in the land register-new financing can leverage this priority, which improves interest rates
• Cost savings: Re-registering a land charge incurs notary and land registry fees (approx. 0.5-1% of the land charge amount). Assigning an existing owner’s land charge costs only a fraction of that
• Flexibility: The owner’s land charge can be assigned to a new bank at any time - ideal for debt restructuring or refinancing
• Protection against foreclosure: Due to the owner’s first-ranking position, junior creditors can recover less in the event of a foreclosure auction

Distinction from a Mortgage

Unlike a mortgage, which is accessory and always remains tied to a specific claim (the mortgage automatically expires upon repayment of the claim), a land charge is abstract and independent of any specific claim. This means: The land charge continues to exist even after the loan has been fully repaid-and becomes an owner’s land charge. This abstract nature is the key reason why, in practice, land charges are almost exclusively used for real estate collateral rather than mortgages: The land charge can be reused more easily and cost-effectively for new financing.

Practical Tip for Property Owners in Nuremberg and Franconia

We recommend that property owners in the Nuremberg metropolitan region do not automatically have the land charge deleted after the loan has been fully repaid. Instead, you should have the bank issue you a cancellation authorization and leave the land charge in the land register as an owner’s land charge. This secures the first-ranking position in the land register for potential future financing-such as for an energy-efficient renovation, an addition, or the purchase of a second property. Keep the cancellation authorization safely at home. If you do decide to cancel the mortgage later, you can do so at any time-conversely, once a mortgage is canceled, it is irrevocably gone and must be re-registered at considerable expense. Banks in the region-Sparkasse Nürnberg, HypoVereinsbank, Volksbank Raiffeisenbank-typically issue the cancellation authorization free of charge upon written request.

Frequently Asked Questions

Should I cancel the land charge after repaying the loan or keep it?

Keeping it is almost always the better choice. Cancellation incurs notary and land registry fees (approx. €400-600 for a €200,000 land charge) and irrevocably destroys the valuable priority in the land registry. Keep the land charge as an owner’s land charge-it costs nothing to maintain and can be transferred to a new bank via simple assignment (cost: approx. €100-300) in the event of future financing. Deletion is only mandatory if you sell the property and the buyer or their bank requires a property free of encumbrances.

Can my bank still use the owner’s land charge even though the loan has been paid off?

No-once the loan has been fully repaid, the bank no longer has any claim under the land charge. As the owner, you are entitled to request the cancellation authorization and the assignment to yourself. Important: Actively request the authorization for cancellation from the bank. As long as the land charge is still registered in the land registry in the bank’s name, third parties-e.g., in the event of a sale-might mistakenly assume that the property is still encumbered. Transferring the land charge to the owner’s name clarifies the situation in the land registry.

How do I transfer an owner’s land charge to a new bank?

The transfer is effected by assignment (Section 398 BGB in conjunction with Section 1192 BGB): The owner assigns the land charge to the new bank via a notarial deed, and the assignment is entered in the land register. The costs for the notary and land registry entry range from approximately €100 to €400, depending on the amount of the land charge-significantly less expensive than establishing a new land charge (€500-€1,500). Your financial advisor at the new bank will typically handle the process together with you and coordinate the deadlines with the notary’s office.

Owner’s Mortgage and Land Registry Strategy for Renovation Financing

Anyone planning an energy-efficient renovation or an extension after fully repaying a construction loan-and who needs new financing for this-benefits directly from retaining the owner’s mortgage. The new bank can assume the existing mortgage through assignment instead of creating a new one. This not only saves on notary and registration fees but also speeds up the disbursement of the loan, as there is no need to wait for new land registry entries.

In the Nuremberg metropolitan region, where energy-efficient renovations of existing buildings from the 1960s to the 1980s are increasingly on the agenda, this strategy is particularly relevant. Renovation costs ranging from 80,000 to 180,000 euros for a complete energy-efficient modernization (insulation, heating system replacement, window replacement) can be refinanced more cost-effectively using an existing owner’s land charge than by establishing a completely new security interest. Talk to your financial advisor at Sparkasse Nürnberg, HypoVereinsbank, or a Volksbank Raiffeisenbank in the region early on about the possibility of assigning the land charge-this can save weeks in processing time.

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