How to get a mortgage

But you must meet the bank’s conditions. First of all, you must have sufficient income to be able to repay the loan. At the same time, the bank will put a lien on your property. This is a guarantee to the bank that it will get its money back. If you can’t make the repayments, it can at least recover from the sale of the apartment or house itself.

Pledge before selling the house

Mr. Pavel 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.

A lien 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.

Transfer or sale of lien

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 chances and sell the house to people quietly over their heads.

Of course, the lien 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 buying a property, check thoroughly to see if there is any lien on it. This is because the transfer of the debt does not move the lien, but it remains on your apartment or house. In this case, you are buying the property along with the effects that non-payment would have with the real estate. Therefore, you should always resolve the old liens when transferring and, for example, pay them off first out of the purchase price.

Property with a mortgage

When selling a property in 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.

What happens after the debt is repaid

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 removed from the land register.

We prepared this article for the Lidové noviny series “Law & Housing”