How the discharge of encumbrances in the contract works: encumbrances in sheet C, deletion declaration from the bank, escrow handling and the case of an excessive loan.
BRANDAUER Rechtsanwälte
Salzburg law firm for real estate, property and corporate law
Every matter is handled by a coordinated team of lawyers, legal staff and specialists. In property purchase matters we look at the contract, land register, escrow and tax consequences together.
Anyone who buys a property usually wants to acquire it free of the seller debts. If a mortgage of the financing bank burdens the object, this encumbrance passes to the buyer without a clear provision. The discharge of encumbrances ensures that such entries are deleted before or step by step with your registration.
This post explains which encumbrances can appear in sheet C of the land register, how the deletion declaration from the creditor bank works and why the escrow handling of the discharge step by step with the purchase price payment is so important. The role of the notation of priority ranking and the special case of an excessive loan are also addressed.
From a lawyer perspective the discharge of encumbrances decides whether you ultimately receive unencumbered ownership or buy along foreign debts. The contract must interlock the individual steps cleanly so that money and deletion flow in the correct order.
Answer one or two questions on the encumbrances in the land register and on the settlement. You receive an initial classification of whether your unencumbered conveyance is secured.
Already know you want to get in touch? Go straight to the enquiry form.
Mortgages of the financing bank, easements, real charges or a prohibition on encumbrance and sale appear in sheet C of the land register.
If the land register extract shows no encumbrances in sheet C, you need not obtain any deletion. Still check with an up-to-date extract whether new entries have been added since. Our encumbrances and land register check offers guidance.
Also make sure the contract secures unencumbered conveyance as a duty of the seller, in case entries appear after all.
If the deletion declaration from the creditor bank and the escrow handling are governed, the discharge of encumbrances is well secured. Also check whether the maturity of the purchase price is tied to proof of deletion and whether the notation of priority ranking secures your rank.
Clarify too how easements or real charges that are meant to remain are handled. A short legal review ensures that the order of the steps is correct.
If a clear provision is missing, payment runs without escrow or the outstanding loan exceeds the purchase price, the buyer bears the risk of remaining burdened with the seller debts. Such points can be improved before signing: a deletion declaration from the bank, escrow handling and a maturity tied to proof of deletion.
If the outstanding loan is higher than the purchase price, the seller must raise the difference from own funds so that the bank deletes. Have this coverage clarified in writing before signing.
The encumbrances of a property appear in sheet C of the land register. The most common is the mortgage of the bank that financed the seller purchase or construction. It secures the loan and remains registered until the bank approves the deletion. In addition, easements such as a right of way or a right of residence and real charges such as a maintenance charge can be registered.
A special role is played by the prohibition on encumbrance and sale. It forbids the owner from selling or encumbering the property without the consent of the beneficiary. If such a prohibition is registered, the sale can only be settled effectively with the consent of the entitled person. We explain the individual terms in the entry on the mortgage lien as well as on the real charge and the easement.
Not every encumbrance has to disappear. An easement in favour of the neighbour, for example, often remains and the buyer takes it over deliberately. A mortgage of the seller financing bank, by contrast, the buyer usually should not take over. Which entries are deleted and which remain belongs expressly in the contract. An overview is given by our focus page on the land register and encumbrances.
A mortgage is not automatically released when the seller receives the purchase price. It remains registered in the land register until the creditor bank consents to the deletion. It gives this consent in the deletion declaration, often also called a deletion receipt. Only with this deed can the mortgage be removed from sheet C.
The bank usually releases the deletion declaration only when the underlying loan is covered. This is exactly where escrow handling comes in: the escrow agent first pays the outstanding loan balance to the bank out of the deposited purchase price and in return receives the deletion declaration. The rest of the purchase price it releases to the seller. This way your money does not flow without the deletion being secured.
The contract should expressly make the deletion declaration a condition. The maturity of the purchase price belongs tied to proof that the bank approves the deletion. How payment through an escrow agent runs in detail you can read in the post on paying the purchase price via escrow. The term itself is explained by the entry on the discharge of encumbrances.
Escrow handling interlocks payment and deletion step by step. The escrow agent, usually a lawyer or notary, receives the purchase price and releases it only once the agreed conditions are met. These include proof that the encumbrances are deleted and that your registration is secured. In this way the buyer does not pay in advance for an uncertain result.
The notation of priority ranking for the intended sale serves to secure the rank. It reserves the rank for your registration and prevents new encumbrances from pushing ahead of your right in the meantime. Especially when old mortgages still need to be deleted, the priority ranking ensures that your ownership receives the agreed place in the land register.
Unencumbered conveyance is a duty of the seller. He owes you the ownership free of those encumbrances whose deletion was agreed. If he does not comply, you have contractual rights. How to check the land register status in advance is shown by the post on reading the land register extract correctly. Our checklist on the land register and encumbrances also offers guidance.
These points decide whether you receive unencumbered ownership. Check each one before you sign.
| Point | Recommended | Possible risk |
|---|---|---|
| Encumbrances in sheet C Fully recorded | Each entry reconciled with the contract | Overlooked mortgages remain on the object |
| Deletion declaration Promised by the bank | Deletion of the bank mortgages secured by contract | No deletion without the bank consent |
| Escrow handling Payment step by step | Loan redemption and deletion through the escrow agent | Direct payment without securing the deletion |
| Priority ranking Notation entered | Rank reserved for your registration | New encumbrances push ahead of your right |
| Amount of the loan Coverage clarified | Difference to the purchase price raised by the seller | Outstanding loan exceeds the purchase price |
If the outstanding loan exceeds the purchase price, the bank releases the deletion declaration only if coverage is otherwise secured. This question belongs clarified before signing.
Caution with a higher loan: If the seller outstanding loan is higher than the purchase price, your money alone is not enough to delete the mortgage. Without secured coverage the bank does not release the deletion. Have this point reviewed before signing. Booking an initial consultation (72 euro) can quickly bring clarity.
A delicate case arises when the seller outstanding loan exceeds the agreed purchase price. Then the deposited purchase price is not enough to cover the loan balance and to move the bank to delete. Without additional funds the bank refuses the deletion declaration and the mortgage would remain.
In this situation the seller must raise the difference from own funds or agree another solution with the bank. The contract should provide that the deletion is secured before the purchase price flows. Otherwise the buyer risks paying and still receiving an encumbered property. A first assessment of the encumbrances is enabled by the encumbrances and land register check.
Have the coverage confirmed in writing before signing. A clause is sensible that lets the contract fail or postpones the maturity if the bank does not promise the deletion against the purchase price. This way the risk does not stay with the buyer. How the individual payment steps through the escrow agent interact is deepened by the focus page on escrow and the purchase price.
Discharge of encumbrances means that the encumbrances of the seller registered in sheet C, above all the mortgage of the financing bank, are deleted so that you acquire unencumbered ownership. The contract should tie the deletion to the purchase price payment and handle it through an escrow agent.
A mortgage remains registered in the land register until the creditor bank consents to the deletion. It gives this consent in the deletion declaration, also called a deletion receipt. Only with this deed can the mortgage be removed from sheet C. The bank usually releases it once the loan is covered.
If the outstanding loan exceeds the purchase price, the purchase price is not enough to delete the mortgage. The seller must raise the difference from own funds or find a solution with the bank. The contract should ensure that the deletion is clarified before you pay.
Our focus page on how the land register is structured and which encumbrances can affect your ownership.
How handling through an escrow agent secures the deletion of the encumbrances against the purchase price.
How the escrow agent redeems the outstanding loan and receives the deletion declaration.
What sheets A, B and C mean and how you recognise the registered encumbrances.
When buying property, the contract and the land register decide. Call us directly or send an email, callback within one business day.
Address
BRANDAUER Rechtsanwälte GmbH Giselakai 51 5020 Salzburg
Phone
+43 662 6280000