Buying a mortgage flat often raises concerns, but the transaction is not particularly complicated. Regardless of whether a voluntary or compulsory mortgage has been established on the premises, you can use the bank’s financing.
How do you buy a mortgage on a mortgage? What formalities are associated with buying a mortgage flat? Before you take the first steps – check it out!
Purchase of a mortgaged apartment and the most important information about the mortgage
The purchase of indebted property on credit should not cause major problems, but only if you understand the essence of the mortgage itself, as well as the rules for establishing and deleting it.
What is a mortgage?
According to the definition, a mortgage is a so-called limited property law, which secures the repayment of a given claim (e.g. credit) on real estate. It is set up for the benefit of a creditor (e.g. a bank) who can, thanks to it, in the event of default by the debtor (e.g. borrower), satisfy his property claims.
A mortgage is created when it is entered in the land and mortgage register of a given real estate, but it expires – when the entire obligation towards the mortgage creditor is settled. This means that the creditor has the right to pursue satisfaction of his claims against the property, regardless of whose property it is.
Establishing a mortgage – what does this mean for the creditor and what does it mean for the debtor?
When the mortgage borrower stops paying the loan installments, the bank may require him to sell the mortgaged property and pay all debts . If he is in arrears with several payments and still does not consistently talk with the bank, his case may eventually go to court and then to the bailiff.
In the case of bailiff proceedings , the property is cash in the auction. Regardless of which option you are talking about, the amount due is first received by the mortgage creditor. For the debtor and / or his other creditors there is a possible surplus, i.e. the difference between the price of the apartment and the amount of settled debt.
A mortgage-borne property can also be sold by the borrower voluntarily (e.g. due to a desire to change his place of residence). In this situation, the same rules apply as in the above cases.
What can you charge for a mortgage?
Be aware that you can charge a mortgage not only on your property, but also:
- cooperative ownership right to premises;
- perpetual usufruct;
- debt secured by a mortgage;
- fractional part of the property.
It is not important what the subject of the security is. The mortgage secures the debt and can be expressed only in a specified sum of money. It is worth emphasizing that the amount charged on the mortgage does not have to correspond to the size of the liability or the value of the property. For example, you can buy an apartment for 250 thousand. USD, at 50 thousand USD own contribution and USD 200,000 USD loan. In this case, however, the mortgage may not be established up to 200 or 250 thousand. USD, but 300 thousand USD or even higher amount.
Purchase of a mortgaged apartment – where and how to check a mortgage?
Before buying a property, be sure to check its land and mortgage register (Electronic Land and Mortgage Registers are available, where the document is made available online by entering your number). The land and mortgage register contains all the most important information about real estate, including those regarding any restrictions on the premises or mortgage charges.
Information on the established mortgage can be found in section IV of the land and mortgage register. You can find out who is the mortgage creditor and how much the debt is. However, if the property was taken over by a bailiff, this fact is shown in section III of the land and mortgage register.
What are the types of mortgage and how do they differ?
A mortgage charges the real estate most often due to taking out a mortgage, but it can also secure another type of loan. Regardless of the type of liability, the mortgage on the house or flat is voluntary (contractual mortgage). The owner voluntarily makes a statement in the form of a land and mortgage register application or a notarial deed, committing, in order to secure the repayment of a given obligation, to establish a mortgage in favor of the lender.
The mortgage creditor is usually a bank. The mortgage can also be established for other entities, for example the Tax Office or the Social Insurance Institution. In such cases, the mortgage burden does not require the debtor’s consent (compulsory mortgage) and occurs due to unpaid public liabilities, fines or maintenance.
Purchase of a flat encumbered with a mortgage on a loan: formalities, procedures, risk
You can have a bigger problem with buying a property encumbered by a compulsory mortgage rather than a contractual one, which results from difficulties in obtaining bank financing. Some banks are not interested in granting credit for such transactions. There are a few important aspects to keep in mind.
Who pays the mortgage from the indebted property?
In order not to be responsible for the debt of the current owner, you must ensure that the property is released from mortgage. A mortgage may be removed by both the buyer and seller of the property. The latter may do so before signing the notarial deed of the sale contract, or by enclosing with it a request to delete the mortgage. The buyer can complete this formality after he becomes the new owner of the apartment. It is enough that he submits an appropriate application to the land and mortgage register court with the attached consent to delete the mortgage. The first part of the loan will be transferred to repay the debt (i.e. the creditor), while the remaining amount of financing will go to the seller’s account.
The decision to delete the mortgage is issued by the court within a few weeks of submitting the application. The court order is sent to the address provided in the notarial deed or application.
Credited purchase of real estate with a contractual mortgage
When you buy a contractual mortgage on a mortgage, you have to deal with virtually the same formalities as for a transaction involving an apartment without a mortgage. However, before the entire procedure begins, you will receive from the seller a certificate of the balance of the outstanding loan. This is an important document that should contain information such as:
- borrower and bank details;
- loan balance and currency;
- account number to be repaid;
- commission for early repayment of the loan;
- promise to delete the mortgage after repayment.
When it comes to applying for a loan, the bank will check your creditworthiness. It will also analyze the data collected about the applicant: the Credit Information Bureau and the economic information bureau. It will require the presentation of personal and financial documents, as well as documentation regarding the purchased property.
Compared to classic cases, the main difference here is that the entire credit process usually takes a little longer.
Loan for real estate encumbered with a compulsory mortgage
Those banks that are ready to finance the purchase of real estate with a forced mortgage have not developed the same requirements or details of the loan process. Each of them applies individually established rules, but on the other hand, the most important issues are all treated similarly.
First of all, the bank expects that the funds received under the loan will be used primarily to repay the entire debt . He will also require that the mortgage established for him appear in the land and mortgage register in the first place and that the value of the property is greater than the size of the debt.
Some banks may require the substitution of another property as collateral .
Real estate with a forced mortgage can be purchased as part of a bailiff auction . This makes her credit purchase look different than in standard cases. The process of credited purchase of a property from auctions is as follows:
- Examination of the loan application . If you submit your application before bidding, the bank will determine the value of the loan based on your statement in which you will declare the amount for which you intend to bid on the property. To the application you must attach its technical and legal documentation and the content of the auction notice. Most banks that do such transactions need to be nailed
- Issue of a credit decision and possible signing of a contract with a bank .
- Transfer of funds to the account specified in the final decision on the so-called nailing (approval of the highest bid submitted at the auction).
- After receiving the funds from the loan, you provide a final decision on the so-called assignment of ownership (this confirms the transfer of ownership of the property to the buyer).
There are at least two significant problems with buying an auctioned flat on credit. First, the bank must give permission to transfer funds to the seller’s account before signing the notarial deed.
The second main difficulty is that the bank has 21 days to grant a credit decision. In the meantime, you have only 14 calendar days from winning the bid to pay the full amount to the seller’s account. Therefore, you must attach your consent to the decision before the expiry of the deadline with the loan application. In addition, to minimize the risk that the credit process will take more than two weeks, you should prepare all necessary financial documents before bidding and go to the lender for a preliminary credit decision.
Why is it worth checking the land and mortgage register for the property I am buying?
Before applying for a loan to buy real estate, make sure that all current information is in the land and mortgage register. Sometimes it happens that there is a mortgage entry, but in practice the property is not burdened with any debt. It is possible in a situation where its owner has already repaid the debt, but did not take care of deleting the mortgage. Then all you have to do is submit an appropriate application to the land and mortgage register court, and the mortgage entry will disappear and the entire credit process will proceed as in standard cases.