If you don’t have enough money to buy an apartment or house for cash, so to speak, you can use a mortgage. In this article, we’ll fill you in on exactly how a mortgage works and what it’s like to pledge your property.
If you don’t have enough money to buy an apartment or house for cash, so to speak, you can use a mortgage. In this article, we’ll fill you in on exactly how a mortgage works and what it’s like to pledge your property.
Before you begin to choose your dream home, familiarize yourself with the bank’s terms and determine how much mortgage (if any) you can qualify for. One of the main requirements is that you have sufficient income to be able to repay the loan. But your age also plays a role – the higher it is, the worse the terms and the less likely you are to be approved for a loan. If you are approved for a mortgage, the bank will have a lien placed on your property. This is a guarantee to the bank that it will get its money back. In fact, if you can’t make the repayments, it can at least heal on the sale of the apartment or house itself.
Tip: Read why not to underestimate the contractual lien.
Mr. Paul was selling his parents’ house and wanted to save on paperwork. So he made an arrangement with a friend who wanted to buy the house. However, with Pavel’s consent, he mortgaged the property before the sale and used the money from the bank to buy a new car. Pavel ended up losing the house because the bank had it auctioned off to get its money back.
Alien is one of the so-called rights in rem. This means that it can’t just be circumvented, because it is registered in the land registry, just like the ownership itself. It is used to secure a debt in case the debtor is unable to pay his or her obligations to the creditor in a timely and proper manner. If that were to happen, there would be enforcement proceedings and the pledge could change hands at a public auction, just as it did with Mr Pavel’s parents’ house. The auction would then give priority to the claims of the pledgee, i.e. the bank.
Tip: Do you need to register your property in the Land Registry? We can help you with the drafting so that everything is in order the first time and you don’t miss important deadlines or lose money.
Receivables protected by a lien may be sold or transferred. This option is often chosen by banks because they do not want to recover the money. They sell debts from troubled clients to debt collection companies, who take no guff and sell the house to people quietly over their heads.
Of course, thelien cannot be transferred separately. It is firmly linked to the thing pledged, in this case the apartment or house, and the loan in question. Therefore, before you buy a property, check thoroughly whether there is any lien on it. This is because the lien does not move with the transfer of the debt, but remains on your apartment or house. You are thus buying the property together with the property. Therefore, you should always resolve the old liens when transferring and, for example, pay them off first out of the purchase price.
Tip: People interested in buying a house or apartment often rely only on information they get from a real estate agent or the property owner. Of course, they may not tell you everything you need to know. This includes pending mortgages and similar issues. So read our article on what to check before buying a property.
When selling a property on which the previous owner has taken out a mortgage that has not yet been repaid, the relevant bank must agree to take over the debt. This requires proof of income and other documents that are submitted with a normal loan application. The bank then determines the conditions under which the new client can assume the debt, and then nothing prevents the transfer of the property. The amount of the outstanding mortgage is deducted from the purchase price and the buyer pays the difference to the seller. The property is transferred to the land registry and the new owner starts to make the repayments.
Tip: There are several situations when you need to sell a mortgaged house. For example, you can’t keep up with the payments, you’re getting divorced and don’t want to continue making payments together, or you’ve found a new home and want to sell the old one. It is also often the case that people need to sell their small home with a mortgage so that they can buy a house instead. Read how to sell a mortgaged property.
Once you have repaid the loan, the pledge is extinguished. However, this may not be the case in all cases. It is also possible to arrange a so-called released pledge. This works so that the bank gets its money back, but then lends you more. This new debt is not secured by a new pledge, but the old, released pledge is used.
This is particularly advantageous in situations where several mortgages are tied to the property. In the event of problems, they are dealt with in the order in which the pledges were created. Thus, the new debt with the old pledge can get priority.
Therefore, if you are buying a property where the owner has just paid off the mortgage, this does not mean that the lien has been deleted from the land register.
We provide a complete package of legal services related to real estate sales and purchases, including reservation contracts and escrow services. We will also help you with all tax and land registry issues. Our work is fast and accurate, ensuring a worry-free transaction. You’re also welcome to pay after services are provided.
We prepared this article for the Lidové noviny series “Law & Housing”. See also other articles from the series:
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We provide a complete package of legal services related to real estate sales and purchases, including reservation contracts and escrow services. We will also help you with all tax and land registry issues. Our work is fast and accurate, ensuring a worry-free transaction. You’re also welcome to pay after services are provided.
Ondřej is the attorney who came up with the idea of providing legal services online. He's been earning his living through legal services for more than 10 years. He especially likes to help clients who may have given up hope in solving their legal issues at work, for example with real estate transfers or copyright licenses.
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