Letter mortgage loan – what is it?
As a rule, the land charge represents security for a loan. The corresponding loan is granted by banks for the respective property, so that the land charge serves as direct protection for the encumbrance of the property. Especially in the case of long-term and, above all, risky construction or this mortgage is good security for the banks.
What is the land charge?
The land charge is a mortgage. This is generally entered in the land register for a property. In contrast to the land register debt, where only the entry in the land register is made, this type of land charge also creates a so-called land certificate. Document creation is generally associated with costs.
As a rule, the land charge represents a security for a loan. The corresponding loan is granted by banks for the respective property, so that the land charge serves as direct protection for the encumbrance of the property. This mortgage is good security for banks, especially in the case of long-term and, above all, risky construction or real estate loans. In this way, the banks hedge against possible payment defaults.
The land charge gives the creditor (the bank) the right to foreclosure the property and the property built on it if the debtor can no longer meet his payment obligations under the loan agreement. The debtor’s outstanding debts are then serviced with the proceeds from the foreclosure. If a debtor has liabilities with several creditors that are secured by a land charge, the claims that are listed first in the land register are serviced first. The order of the land register entries thus determines which debts are paid primarily.
The peculiarity of this mortgage is the issuance of a mortgage certificate for the creditor. All important information that is also in the land register is entered on the mortgage note. The rights to the land charge go to the creditor upon delivery of the land charge letter. The mortgage with the letter can easily be transferred to another creditor by written assignment, which – if desired – can also be certified by a notary. However, such a transfer is not necessarily recorded in the land register.
The land charge: advantages and disadvantages
The advantage of the land charge is that there is no need to make an entry in the land register when the land charge is assigned. Therefore, the assignment is not visible to third parties and there are no land registry costs. Probably the biggest disadvantage of a land charge is the cost: the issuing of a land charge is estimated to cost about 25 percent more than the land charge. If the mortgage note is lost, it is declared ineffective in a so-called procurement procedure.
The order and the deletion of the land charge
If a property owner agrees to mortgaging his property with a land charge to secure a loan, this is referred to as a land register order. With this land register order, the application for entry of the land charge in the land register is also connected. Important for the entry in the land register is a notarized or also publicly certified approval by the owner, which must be presented to the land register office.
In addition to the mortgage certificate, a certified approval for deletion by the creditor is required to delete a mortgage. Only the return of the mortgage note does not delete the mortgage.