How are interest-free mortgages drawn

Mortgage notes

Do you want one Buy property, remodel or renovate, debt capital is usually required and a mortgage is taken out. However, the word “mortgage” is alien to the law. From a legal point of view, the mortgage consists on the one hand of the lender's claim (credit institution) and the lien on the property. If the credit claim is not settled, the lender can use the proceeds of the pledged item to satisfy itself on the basis of the lien. If the pledged thing is a piece of property, one speaks of a mortgage. There are two types of mortgage, the mortgage and the mortgage bond. A mortgage is established through an entry in the land register, based on a publicly notarized contract. The mortgage note is of importance in practice.

What exactly is a mortgage note?

A mortgage note establishes a personal claim that is secured by a mortgage (Art. 842 Paragraph 1 ZGB). The mortgage note claim is a personal claim. This means that the debtor is not only liable with the pledged property, but with all of his assets.

There are two types of mortgage notes: on the one hand, the paper mortgage note and, since January 1, 2012 (property law revision), the so-called register mortgage note.

At the Paper note a mortgage title (deed) is issued upon establishment in addition to the entry in the land register. This mortgage title is a marketable security that is issued either in the name of the holder (= bearer debt certificate) or in the name of a person (= registered debt certificate). The mortgage note is drawn up at the responsible land registry. The land registry administrator issues the mortgage title and signs it. Finally, the mortgage certificate is entered in the land register. The certificate is more than just a document. You can think of it as having a part of the land register in circulation. The lien on the property can only be changed or deleted if the mortgage note is submitted to the land registry. If the mortgage note has been lost, it must be declared invalid by the court. If a redeemed paper mortgage note is not deleted, it must must be kept in a safe place. Ideally in a place where the owner and, if necessary, his heirs can find him again.

The Register mortgage note also requires a publicly notarized contract between the creditor and the debtor and arises with the entry in the land register. The registered mortgage note is always in the name of the creditor or the landowner. The register mortgage note is a registered lien. No security will be issued.

Important: Paying the debt to the creditor does not automatically expire the claim. The mortgage bond claim continues to exist in the nominal amount. After the debt has been paid off, the debtor (owner) can request the obligee to consent to the transfer of the registered mortgage note in the name of the debtor, or to issue the paper mortgage note. In the case of the paper mortgage note, the creditor is free to submit the paid mortgage note to the land registry for deletion or to keep it in a safe place or, in the case of the registered mortgage note, to request the deletion of the entry in the land register or to allow the mortgage note to continue. If a new mortgage is taken out at a later point in time, fees can be saved by reusing the redeemed mortgage note.

How is a mortgage note drawn up?

The lien is established in two stages:

  1. Conclusion of the pledge agreement. In most cases, this contract is drawn up by the bank and sent to the notary's office. In a second step, the contract is publicly notarized.
  2. After the notarization has taken place, the landowner must submit the written registration to the land registry for the entry of the real estate lien.

The land registry then sends the bank the so-called interim certificate. The interim deed is the confirmation of the registration of the mortgage note for entry in the land register. The bank usually approves the loan based on this document.

How is the mortgage note deleted?

If the real estate lien is to be deleted, this is generally done by registering the owner in the land register. If it is a paper mortgage note, the mortgage note is usually submitted together with the cancellation approval of the former creditor. In the case of the register mortgage note, the notary's / land registry office must submit the deletion approval of the creditor entered in the land register as well as the land register registration of the owner.

Conversion of the paper mortgage note into a registered mortgage note

All paper mortgage notes that were drawn up before January 1, 2012 can be converted into register mortgage notes by joint written application by the owner (debtor) and the obligee.