Exemption from liability

Clearance of Encumbrances - Clearance of encumbrances refers to the removal of existing land charges, mortgages, or other encumbrances from the land register so that a property can be transferred to the buyer free of encumbrances. It is one of the seller’s key obligations under a real estate purchase agreement.

How does the discharge of encumbrances work in a real estate sale?

When a property is sold, in most cases a land charge in favor of the financing bank is still registered in the land registry. To ensure the buyer receives the property free of encumbrances, this encumbrance must be removed. The process follows a well-established procedure coordinated by the notary who notarizes the contract.

After the purchase agreement has been notarized, the notary contacts the seller’s bank and requests the exact amount required to pay off the outstanding loan. The bank then communicates the amount and issues a so-called declaration of release (also known as a release authorization). In it, the bank declares that it consents to the cancellation of the land charge as soon as it has received the redemption amount.

In practice, the redemption amount is paid directly from the purchase price. To this end, the notary sets up an escrow account: The buyer transfers the purchase price to the notary’s escrow account or directly to the seller’s bank. Only once the bank has received the full redemption amount does the release authorization take effect, and the notary can apply to the land registry office to have the land charge removed.

This procedure protects both parties: The buyer pays only once it is certain that the encumbrance will be removed. The seller receives the remaining purchase price after the redemption amount has been deducted. The entire process typically takes four to eight weeks after notarization.

Release Statement and Escrow Settlement

The bank’s release statement is the key document for the release of encumbrances. It contains the exact redemption amount, the bank account details for the transfer, and the conditions under which the bank authorizes the cancellation. Without this document, the notary cannot safely complete the transfer of ownership.

In escrow settlement, the notary acts as a neutral intermediary. They ensure that all requirements are met before funds are transferred and ownership rights change. If there are multiple encumbrances on the land register-such as a mortgage and, in addition, a right of residence or a real encumbrance-each must be clarified individually and, if necessary, deleted. The costs for deleting the mortgage from the land registry are usually borne by the seller.

Early Repayment and Early Repayment Penalty

Sellers who must repay their loan before the end of the fixed-rate period are generally obligated to pay an early repayment penalty to their bank. This penalty compensates the bank for lost interest income and can be substantial depending on the remaining term, loan amount, and interest rate differential. Important: The prepayment penalty reduces the seller’s net proceeds and must be factored into the purchase price calculation. If the property has appreciated significantly in value, the prepayment penalty often plays a minor role in the overall calculation-but it can be decisive when margins are tight. A tip for sellers: Before hiring a real estate agent, you should request your bank’s prepayment terms in writing to realistically calculate the net sales proceeds.

Special Considerations When Multiple Encumbrances Exist

In some cases, not only land charges but also other encumbrances listed in Section II of the land register (easements, rights of residence, rights of first refusal) must be clarified. The procedure differs here: While land charges can be discharged by paying the redemption amount, the discharge of easements or rights of residence requires the consent of the respective beneficiary. In the case of rights of residence established in favor of a person who is still alive, this may mean that cancellation is not possible-or only possible upon payment of compensation to the holder of the right of residence.

Practical Tip for Nuremberg and the Metropolitan Region

We recommend that sellers in the Nuremberg metropolitan region contact the financing bank early on and inquire about the estimated redemption amount. Especially in the case of older loans, home savings contracts, or multiple creditors (for example, pre-financing via a home savings loan and a second-lien bank loan), obtaining the release statement can take several weeks. The sooner this process is initiated, the smoother the subsequent settlement at the notary’s office will be.

In Nuremberg and the surrounding districts of Fürth, Erlangen-Höchstadt, and Nürnberger Land, we observe that many owners underestimate the importance of the release of encumbrances. Anyone wishing to sell their property should obtain a current land registry extract in advance and check which encumbrances are still registered. This helps avoid delays in the transfer of ownership. Upon request, we coordinate communication with the financing bank prior to the notarization so that the notary appointment proceeds smoothly.

Frequently Asked Questions About the Release of Encumbrances

Who bears the costs of the release of encumbrances?

The costs for the cancellation of the land charge at the land registry office and the notary fees for the cancellation authorization are generally borne by the seller. These typically amount to a few hundred euros, depending on the amount of the registered land charge. The fees are based on the German Act on Court and Notary Fees (GNotKG). In addition, there may be bank processing fees for preparing the release declaration-these vary depending on the institution.

What happens if the redemption amount is higher than the purchase price?

If the remaining debt exceeds the agreed-upon purchase price, the seller must cover the difference from their own funds so that the bank will issue the release of encumbrances. In such cases, we refer to a so-called shortfall. The notary will not initiate the settlement until full redemption is secured. In this situation, buyers are not paid until all financial flows have been reliably settled-a well-drafted contract by the notary is essential here.

How long does the release from encumbrances take?

Experience shows that four to eight weeks elapse between the notarization of the purchase agreement and the actual deletion from the land register. The duration depends primarily on the bank’s processing time and the workload of the relevant land registry office. In the Nuremberg region, land registry processing times are currently moderate but may vary depending on location. Urgent cases can be expedited by filing an expedited request with the land registry office, though this incurs additional fees.

Does a land charge remain in the land registry once the loan is paid off?

Yes, as a rule, a paid-off land charge is not automatically deleted. The bank issues the owner with a deletion authorization, which the owner can use to have the land charge deleted at the land registry office. Many owners neglect this step and are surprised to find that a large land charge is still listed in the land registry when they later sell the property-technically, it is “worthless” (since the loan has been repaid), but legally it constitutes an obstacle to transfer.

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