Mortgage in the Land and Mortgage Register

What a mortgage is

A mortgage is a limited property right that secures a specified claim against real estate. It entitles the creditor, most often a bank, to seek satisfaction from the encumbered property regardless of whose ownership it has become, and with priority over the owner's personal creditors. This institution is regulated by the Act on Land and Mortgage Registers and Mortgages.

In practice, a mortgage most often secures a housing loan. Thanks to it, the bank is certain that, in the event of non-repayment, it will be able to conduct enforcement against the property, which translates into the availability and terms of financing.

Types of mortgages

Under the current legal framework, the basic structure is the contractual mortgage, which the parties establish by agreement, most often when granting a loan. It may secure one or several claims, including future ones, arising from a specific legal relationship.

Alongside the contractual mortgage there is the compulsory mortgage, which a creditor may obtain on the basis of a title entitling it to an entry, for example a court ruling. It serves to compulsorily secure a claim without the consent of the property owner.

How the entry in the land and mortgage register arises

The creation of a contractual mortgage requires an entry in Section IV of the land and mortgage register. This means that the mere conclusion of the contract is not sufficient — the encumbrance begins to legally exist only when the entry is made by the land and mortgage register court. The basis for the entry is usually the owner's declaration in the appropriate form together with bank documents.

Section IV contains information about the amount of the mortgage, the currency and the creditor. Analysing this section is crucial when buying real estate, because it discloses existing financial encumbrances.

Effects of a mortgage for the owner and the buyer

The most important feature of a mortgage is that it is tied to the property, not to the person of the debtor. If the encumbered property is sold, the mortgage as a rule continues, and the acquirer becomes the owner of an encumbered thing. Therefore, when buying an apartment with a loan, it is necessary to secure the transaction appropriately.

In practice, selling a property encumbered by a mortgage usually requires cooperation with the bank, repayment of the remaining part of the loan from the price, and obtaining consent to remove the mortgage. The notary and the parties should arrange the settlement so that the buyer does not take over someone else's debt.

Expiry and removal of a mortgage

A mortgage as a rule expires together with the expiry of the secured claim, that is, most often after full repayment of the loan. The expiry alone, however, does not remove the entry from the land and mortgage register — a separate application to remove the mortgage is needed, which the property owner files.

The basis for the application is usually a bank document confirming repayment and expressing consent to removal, the so-called clearance letter. Tidying up Section IV is important for a planned sale or another loan, so it is not worth delaying the formalities.

Summary: the mortgage under control

A mortgage is an effective security for a claim that exists only after an entry in Section IV of the land and mortgage register and continues despite a change of owner. For the buyer it means the need to carefully check the encumbrances and to settle the transaction safely, and for the person repaying the loan — to remember about the formal removal of the entry. A conscious approach to the mortgage helps avoid unpleasant surprises when selling or refinancing.