Total mortgage

A general mortgage is a mortgage that encumbers multiple properties simultaneously and entitles the creditor to satisfy its entire claim from any of the encumbered properties (Sections 1132 et seq. of the German Civil Code (BGB)). The creditor may, at its discretion, seek satisfaction from a single property or all of the encumbered properties until its claim is fully satisfied. In contrast, a single mortgage is secured only by a single property.

Legal Structure and Creation

In practice, a general mortgage often arises when a borrower provides multiple properties as collateral or when the division of an estate results in multiple properties being created from a single, uniformly encumbered property. Each of the encumbered properties is liable for the entire debt; however, the owners may assert claims for compensation against one another internally. In the land register, the general mortgage is entered in all relevant land registers, with a reference to the other properties (general encumbrance note).

The joint mortgage must be distinguished from the joint land charge, which is used much more frequently in modern banking. While the mortgage is accessory to the claim-that is, it stands or falls with the debt-the land charge exists independently of the claim. The principle of joint and several liability of multiple properties is the same for both forms of security.

Release of Individual Properties

If the creditor has received a portion of the claim or the need for security has decreased, they may release individual properties from the general mortgage. Such a partial release requires a notarized application for cancellation and the consent of the land charge creditor. In practice, the general mortgage is used for large portfolio financings in which multiple properties serve as a security package.

The release of individual properties from a global mortgage is often the subject of intense negotiations between the borrower and the bank. Banks frequently insist that the proceeds from the sale of a property be used first to repay the debt before the release is granted. Anyone seeking release without having to pay off the entire remaining debt should include a release clause in the original loan agreement.

Global Land Charge as a Practical Variant

Since mortgages in Germany have increasingly been replaced by land charges, the term “global land charge” is more commonly used in practice. Banks prefer land charges because they can be reused as collateral for new loans after the original loan has been repaid. In portfolio financing, a global land charge is often registered across all properties, offering the bank maximum flexibility in foreclosure.

For the property owner, a global land charge means that each individual property is liable for all debts in the portfolio. If the owner sells a property, they need the bank’s consent-and this is not free of charge. The bank may demand an early repayment penalty or a debt restructuring fee. Clear contractual provisions regarding the conditions for partial cancellation are therefore essential.

Internal Allocation of Liability Among Multiple Owners

If multiple owners hold interests in the encumbered properties, each property is liable to the bank for the entire debt in its external relationship. Internally, however, the owners have claims for compensation against one another. If one of the properties pays the entire debt, the affected owner may demand proportional compensation from the owners of the other properties.

This risk is particularly relevant in communities of heirs, where different co-heirs take over different portions of a property estate encumbered by a joint mortgage. A precise stipulation of the internal allocation of liability in the estate settlement agreement is indispensable here.

Practical Tip for Property Owners in Nuremberg and Franconia

Anyone who owns multiple properties in the Nuremberg metropolitan area and wishes to take out a loan should carefully check whether the bank insists on a joint mortgage on all properties or whether a single encumbrance is sufficient. A joint mortgage significantly restricts the ability to dispose of each individual property: Anyone wishing to sell a property must either obtain the creditor’s consent to release the mortgage or repay the entire remaining debt.

We recommend agreeing to a clear release clause in the loan agreement, under which the bank releases individual properties upon proportional debt repayment-for example, upon payment of 110% of the proportional mortgage lending value. This gives real estate investors in the region the flexibility to remove individual properties from a portfolio and sell them without having to restructure the entire financing.

In cases of inheritance involving multiple encumbered properties, we also recommend always coordinating the estate settlement with the bank-a new creditor (e.g., a community of heirs) automatically assumes liability, which the bank typically seeks to secure through a new debtor substitution agreement.

Frequently Asked Questions

What is the difference between a general mortgage and a general land charge?

In the case of a general land charge-which is much more common in practice-there is no accessory nature to the claim: the land charge exists regardless of whether and to what extent a claim still exists. However, both general mortgages and general land charges follow the principle that each property is liable for the entire debt.

Can a co-owner of an encumbered property demand cancellation?

No, not unilaterally. Cancellation or release requires the creditor’s consent. However, a co-owner can negotiate internal release upon proportional payment of their debt and demand a corresponding authorization for cancellation.

Do joint mortgages automatically arise in the event of inheritance?

If an encumbered property is divided among several heirs upon inheritance and each heir assumes a portion, an individual mortgage can become a joint mortgage. In such cases, the distribution of the estate should be coordinated with the redemption or reorganization of the encumbrances-a notary specializing in inheritance law can significantly facilitate this process.

Can the bank foreclose on a property with a joint mortgage even if only one owner fails to pay?

Yes. The creditor can generally seize any of the encumbered properties. However, there must be an outstanding claim that the debtor has failed to satisfy. If multiple owners hold interests in the properties, they may assert a right of recourse against the defaulting debtor.

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