Mortgage

Land charge - A land charge is a real right that encumbers a parcel of land with the obligation to pay a specific sum of money. It is entered in Section III of the land register and, in practice, serves almost exclusively to secure real estate loans.

What exactly does a land charge mean?

The land charge is governed by Sections 1191 through 1198 of the German Civil Code (BGB) and belongs to the category of real property liens. Unlike a mortgage, a land charge is not accessory-meaning it is not legally tied to a specific claim. This means that the land charge exists as an independent right, even if the underlying loan has been fully repaid. This characteristic makes it particularly attractive to banks, as it can be flexibly reused for new loans without requiring a new notarial deed or land registry entry.

In practice, the link between the land charge and the loan is established through a so-called declaration of purpose (also known as a security agreement). In this document, the bank and the borrower agree on which specific claims are secured by the land charge. This declaration is not part of the land register but rather a separate contract between the parties. It is crucial because it limits the purpose of the land charge and grants the owner a claim to restitution or cancellation of the land charge upon full repayment.

When registering in the land register, a distinction is made between two forms: the book land charge and the certificate land charge. With the book land charge, the registration takes place exclusively in the land register, and any dispositions regarding it-such as an assignment-must also be processed through the land register. In the case of a certificate-based land charge, a land charge certificate is additionally issued by the land registry office. This certificate is a security that enables the transfer of the land charge through simple delivery and a written declaration of assignment, without the need to amend the land register. In modern banking practice, the book-based land charge is predominantly agreed upon, as it involves less administrative effort and avoids the risk of losing the certificate.

The land charge is created by a notarial deed and subsequently registered by the land registry office. The costs consist of notary fees and land registry fees and are based on the amount registered. As a rule of thumb, incidental costs for creating a land charge total approximately 0.8 to 1.0 percent of the land charge amount.

Cancellation and Further Use After Repayment

After the loan has been fully repaid, owners face the question of whether the land charge should be deleted or left in place. Deletion is carried out through a notarial application for deletion based on a deletion authorization issued by the bank after repayment. However, deletion is not mandatory and incurs additional notary and land registry costs.

Many financial experts recommend leaving a repaid land charge in place as a so-called owner’s land charge. The advantage: If a new loan is needed later-for example, for a renovation or the purchase of another property-the existing land charge can be assigned to the new bank without incurring new registration costs. An assignment is significantly cheaper than a new registration.

Practical Tip for Property Owners in Nuremberg and Franconia

When purchasing real estate in the Nuremberg metropolitan region, registering the land charge is one of the first steps following the notarization of the purchase agreement. Registration by the relevant land registry office-in Nuremberg, the Nuremberg Local Court-takes between four and eight weeks, depending on the workload. Since the bank typically disburses the loan only after the land charge has been registered, this time factor should be taken into account when planning the purchase.

Our network of experts recommends that property owners in Franconia always consider assigning the existing land charge when switching banks or arranging follow-up financing, rather than having a new one registered. The cost savings often amount to several hundred euros. When selling a property, it is also important to request the bank’s consent to release the lien early on to avoid delays in the transfer of ownership.

Frequently Asked Questions

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

The key difference lies in accessory nature: A mortgage is directly linked to a specific debt and automatically expires upon its repayment. A land charge, on the other hand, continues to exist as an independent right, separate from the loan debt. In practice, mortgages are rarely used in real estate financing anymore, as the land charge offers banks greater flexibility and can be reused in debt restructuring.

What are the costs associated with registering a land charge?

The costs are governed by the Court and Notary Fees Act (GNotKG) and depend on the amount of the land charge to be registered. For a land charge of 300,000 euros, the notary fees for the creation amount to approximately 800 to 900 euros, and the land registry fees to about 650 to 750 euros. In total, buyers should expect costs of around 0.8 to 1.0 percent of the land charge amount. These costs are part of the incidental purchase costs and must be factored into the financing plan.

Can a land charge be foreclosed upon without the owner’s consent?

Yes, if the land charge was created with a so-called waiver of the right to resist immediate foreclosure-which is the norm for bank financing. In this case, the bank can directly foreclose on the property in the event of default without first having to obtain a court judgment. However, the owner can defend themselves by filing a counterclaim against enforcement if the foreclosure is unjustified.

What happens to the land charge when a property is sold?

When selling a property financed with outside funds, the registered land charge must generally be discharged or transferred to the buyer’s bank. Discharge requires authorization from the creditor bank, which is granted only after the secured loan has been repaid in full. During the transaction, the notary coordinates the release of encumbrances: They request the release authorization from the seller’s bank, communicate the terms to the buyer’s bank, and ensure that the purchase price is first used to pay off the remaining debt before the surplus is paid out to the seller. In Nuremberg, coordination between the notary, the seller’s bank, and the buyer’s bank typically requires a lead time of two to four weeks for well-organized transactions-this timeframe should be taken into account when planning the closing date.

Priority of Multiple Mortgages

A property may be encumbered by multiple mortgages-for example, if a first mortgage was established for the original loan and a second for a subordinated renovation loan. The priority is determined by the date of entry in the land register: The mortgage entered earlier takes precedence in the event of foreclosure. Buyers should carefully review the land register: If there are multiple land charges listed in Section III, all must be deleted or assigned so that the property can be transferred free of encumbrances. In practice, there are occasionally legacy encumbrances-land charges from loans that were repaid long ago but were never deleted. These must be resolved before the sale; the notary obtains the necessary authorizations for deletion. We recommend requesting a complete land register extract at the latest when concrete sales plans are being made and clarifying all outstanding encumbrances.

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