You might be asking yourself: "Why should I care about the banks? I want to sell, not buy!" However, there are a few things you should consider.
In most cases, the buyer will finance the property. This means they do not have the capital to pay for the property in cash. Therefore, this is about securing payment of the purchase price.
Perhaps you too have not yet fully repaid the loan for your property, and your bank still has claims against the property. These must be settled as part of the transfer of ownership.
Purchase price financing
Real estate is typically financed through a bank. This means that part or even the entire purchase price will be paid to you not by the buyer, but by their bank. You should discuss this openly with the prospective buyer, as the security of the purchase price payment is a crucial concern. Ask the buyer if they have already spoken with banks and request proof that they are able to finance the agreed-upon price.
When a bank provides financing, it naturally requires security for its money. This is usually arranged by registering a mortgage in the land register.
However, the property still belongs to you, which is why the buyer cannot simply register a mortgage. You must therefore cooperate in obtaining the loan by granting a power of attorney authorizing the transfer of the mortgage.
Power of attorney to encumber property
With a power of attorney to encumber your property, you give the buyer the right to take out a loan against it. You grant this power of attorney in the purchase agreement.
The regulations regarding this sound very complicated. The notary will be happy to explain them to you in detail. However, the principle is easy to understand: The buyer is permitted to secure the loan with your property, but for this to happen, they must instruct their bank to pay the loan amount exclusively to you, or rather, to your bank. This ensures that the loan can only be used to pay the purchase price.
Costs of deletion
Most of the costs associated with the sale can be passed on to the buyer. However, you will usually have to bear the costs for removing your encumbrance.
Release from liabilities
It often happens that a property offered for sale is not yet fully paid off. In such cases, a mortgage securing your loan is still registered in the land register. The new owner will not assume this registration. Therefore, it is necessary to have this mortgage removed as part of the transfer of ownership.
The simplest way is for the buyer to transfer the outstanding amount from the purchase price to your bank. The bank will then approve the cancellation of the mortgage. The remaining purchase price will then be transferred to you.
To ensure a smooth transaction, the notary will contact your bank to inquire about the outstanding balance. They will then inform the buyer of the amount to be paid and to whom. The bank, in turn, will send the release authorization directly to the notary, who will then initiate the cancellation of the mortgage with the land registry.
Prepayment penalty
Prepayment penalties are a topic you should address early on
. Banks charge these penalties when existing contracts are terminated prematurely. For example, if your loan agreement was for 15 years and you now sell the property after 10 years, the bank incurs a loss of interest income as well as additional administrative costs. This is the basis for the prepayment penalty. The amount depends on various factors.
You should speak with your bank advisor before even starting your sales process to discuss how to terminate the existing contract and what costs you will incur. This is the only way to get a clear picture from the outset of how much money you will have left after deducting all costs from the sale of your property.
The total amount, consisting of the outstanding loan balance and the prepayment penalty, is usually paid from the sale price, as discussed in the previous section.
Financing confirmation
Banks typically issue a confirmation of financing options in advance. The loan documents are usually sent directly to the borrower, as are the documents for registering the mortgage, which are sent to the notary.
The safest way is to arrange for the mortgage registration to take place immediately after the purchase agreement is notarized. You can then check with the notary's office before the appointment to confirm that the documents have been received.
Speak to experts about the different aspects of financing. Consult with your bank about repaying the loan if your property is not yet fully paid off.
Our final recommendation: Don't hesitate to ask the buyer about their financing. After all, it's about the security of the purchase price payment. A reputable buyer will be happy to provide you with this information. At Immobilien Kontor Saarlouis, we qualify prospective buyers for our clients, thus protecting them from costly mistakes.
