Land charge / mortgage - What financing risk exists?

Hello Nordanney,

well, with a long-term full repayment loan, the issue of follow-up financing etc. is of course irrelevant. I would never want to use consumer loans or the like anyway. In an emergency, you would just have to go to the notary again.

With the land charge, you are completely dependent on the side agreement made (I believe "security agreement"), completely independent of the notarial contract. There could be some legal error or something similar in this side agreement... You submit to immediate enforcement without a court judgment or the like. Hence the concern with the "small details": an accidental delay in payment combined with the mentioned dishonesty could be very explosive.

With the mortgage, on the other hand, the notarial deed specifies which amount of money (and only this amount) is the subject of the pledge. Of course, a bank can also initiate a foreclosure here, but in my opinion the process seems more complex and therefore safer.

A striking/(admittedly) unrealistic example: My 600,000 EUR house is paid off except for 590,000 EUR and I have gotten into (resolvable) financial difficulties.
1) With a mortgage, initially the dispute value of 10,000 EUR would be at stake in court and the court will decide how to proceed (if necessary with a foreclosure, because that is the creditor's right). I have to sell my car and that's it.
2) With the land charge, there’s no beating around the bush and a foreclosure order lands at my house. Why? Because they are allowed to. I have to defend myself expensively with a lawsuit etc. and except for the security agreement I have no arguments. The bank doesn’t need any, because it has the land charge.

Or am I wrong in my view (which could be)?

And the last argument: I have to have a land charge deleted separately to be really unencumbered, the mortgage automatically becomes void when the loan is paid off.

Maybe you are all right and I shouldn't worry because I probably have no other choice anyway. Still, I find it important to discuss the topic. Many thanks to everyone for the constructive participation!

well, with a long-term full repayment loan, the topic of follow-up financing etc. is irrelevant. I would never want to take out consumer loans and the like anyway. In an emergency, you would simply have to go to the notary again.

YOU don’t need that. But that is the exception. Consider what has been "normal" in recent decades – the current interest rate level is exceptional and unhealthy (in the long run). Therefore, the land charge already fits the average customer, who makes up 95% of all customers.

You submit to immediate foreclosure without a court judgment or the like.

The bank would agree to that with you anyway – in addition to the mortgage. For example, this is also additionally agreed in our contracts, alongside the land charge and the submission according to the Code of Civil Procedure.

1) With a mortgage, the dispute value of 10,000 EUR would initially be at issue in court, and the court decides how to proceed (if necessary, with a foreclosure auction, because that is the creditor’s right). I just have to sell my car and that’s it.

No, it is established that the debt still exists, then enforcement proceeds. Selling the car simply is not an option.

2) With the land charge, they don’t mess around and a foreclosure order drops into the house. Why? Because they can. I have to defend myself hassle with a lawsuit etc. and apart from the security agreement have no arguments. The bank doesn’t need any because it has the land charge.

Yes, the bank is allowed to. But there is also the normal dunning procedure beforehand (also with a mortgage). Banks don’t just do that casually (even if they could).

And the last argument: I have to have a land charge explicitly deleted to really be unencumbered, the mortgage is automatically void once the loan is repaid.

Wrong, the mortgage also remains in the land register and must be deleted. Only for the bank is the mortgage no longer usable.
The land charge transforms for the unused parts into an owner’s land charge and can be used by you however you want (assignment, deletion, securing a new loan). That is exactly the advantage.

Maybe you’re all right and I shouldn't worry since I probably don’t have any other choice anyway.

Yes ;) – just like all the other homeowners, reschedulers, renovators, heirs, etc.

But what exactly is so disadvantageous about the mortgage for the banks that they insist solely on the land charge? Wouldn't it be completely irrelevant to the bank whether it is a land charge or a mortgage?

Last but not least, I have a question about the security agreement: What exactly is stated in such a document (does anyone perhaps know an example)? Is it advisable to have the document reviewed by a lawyer, or is it content-wise totally banal and simple? How is it usually handled?

I am just really intimidated by it...

Google "grundschuldzweckerklärung dg verlag" and take a look at the concise version. The form is used by approximately 1,100 banks.

P.S. The land charge is used because it has advantages and has simply become established. BluRay also became established, or back then VHS, and so on. That's just how it is.

My comment: Even for long-term financing, the land charge makes sense. Note: Customer's right of termination according to the Building Code after 10 years. The land charge can be assigned; the mortgage would have to be newly registered.

But what exactly is so disadvantageous about the mortgage for the banks that they insist exclusively on the land charge? Wouldn't it be completely indifferent to the bank whether it's a land charge or a mortgage?

Last but not least, I have a question about the security agreement: What exactly is stated in such a document (does anyone maybe know an example)? Is it perhaps advisable to have the document reviewed by a lawyer or is it content-wise totally trivial and simple? How is it usually handled?

I just have huge respect for it...

This has already been explained to you several times.

Cross-selling. The banks sell more and more products and preferably where interest is paid. For example, installment loans, an overdraft facility on the salary account. Over-collateralization is worth its weight in gold here. Moreover, customers shy away from having a partial land charge released. It’s expensive then. You could do that yourself too.

I don’t understand your fear. If you fulfill your obligations, nothing will be initiated by the bank.

From a regulatory perspective, I remember that the more collateral, the better the key figures. It is a “crux,” there is cheap money, and people are supposed to be flooded with it but, please, with low risk. Golden triangle. Works poorly: many loans – cheap money – low risk.