How the bank finances a property purchase through a mortgage lien: mortgage, rank, notation of priority ranking, discharge of encumbrances and registration fee.
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.
Most buyers do not finance the purchase price of a property from their own funds alone but through a mortgage loan from a bank. The bank, however, does not hand over the money without security: it requires a mortgage lien on the purchased property. This mortgage lien is registered in sheet C of the land register and gives the bank the right to satisfy its claim from the property in case of default.
For this to work, several steps must fit together: the registration of the mortgage lien in the right rank, the deletion of the seller old mortgage through the discharge of encumbrances and the payout of the loan through the escrow handling. Anyone who does not coordinate these steps risks delays or, in the worst case, ownership that does not become unencumbered.
This post explains from a lawyer perspective how financing is secured through a mortgage lien, what the priority ranking means and which costs the registration fee causes. The focus is on the interplay of bank, escrow agent and land register.
Answer one or two questions on the loan, the rank and the discharge of encumbrances. You receive an initial classification of the most important points.
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A mortgage loan is secured by a mortgage lien that is registered in sheet C of the land register.
If you pay from your own funds, no mortgage lien is registered in favour of a bank. The discharge of encumbrances nonetheless remains important: an old mortgage of the seller bank must be deleted before or step by step with your registration. Check the encumbrances in the encumbrances and land register check.
This way you acquire unencumbered ownership, even without your own financing.
If rank security and discharge of encumbrances are coordinated with the escrow handling, the financing is well secured. Also pay attention to the notation of priority ranking for the intended encumbrance, the mortgage deed with a certified signature and the registration fee for the mortgage. This way the bank pays into escrow and your ownership is registered free of encumbrances.
A short review ensures that the mortgage and the acquisition of ownership fit together in the right rank.
Open encumbrances, an unclear rank or a missing notation of priority ranking can mean that the bank does not pay out. Banks usually require the first rank for their mortgage lien. The seller old mortgage must therefore be deleted through the discharge of encumbrances before or while your new mortgage is registered.
Have the financing coordinated with the escrow agent so that rank and discharge of encumbrances interlock.
If a bank finances the purchase price through a mortgage loan, it secures itself with a mortgage lien. This mortgage lien, often simply called a mortgage, is registered in sheet C of the land register. It burdens the property and gives the bank the right to satisfy its claim from the proceeds of the property in case of realisation. What appears in the land register and how it is structured is explored on our focus page on the land register and encumbrances.
Two forms are to be distinguished. With a fixed-amount mortgage a fixed sum is registered that corresponds to the loan amount. With a maximum-amount mortgage a maximum sum is registered up to which the property is liable. The maximum-amount mortgage also covers interest, charges and future drawdowns and is therefore common for loans. Which form the bank requires follows from the loan agreement.
The basis of the registration is the mortgage deed with a certified signature of the property owner. Only this deed allows the land register to register the mortgage lien. We also explain the term in the glossary.
In the land register the rank decides which entry has priority. Entries are ordered by the time they arrive. For the financing bank the rank is decisive, because in case of realisation it is satisfied before lower-ranking creditors. Banks therefore usually require the first rank for their mortgage lien.
To secure this rank, the notation of priority ranking for the intended encumbrance serves. It reserves the rank for the future mortgage lien of the bank for a limited time. This ensures that no other creditor obtains a better rank in the meantime. How this notation works is explained in the glossary.
The rank of the mortgage lien is closely linked to the discharge of encumbrances. So that the bank obtains the first rank, the seller old mortgage must be deleted. How to read the encumbrances in the land register is shown in the post on how to read a land register extract correctly.
In practice the financing runs through the escrow handling. The buyer bank does not pay the loan amount directly to the seller but into the escrow account of the escrow agent, usually a lawyer or notary. The escrow agent releases the amount only once the agreed conditions are met. More on this on our focus page on escrow and the purchase price.
A central condition is the discharge of encumbrances. If an old mortgage of the seller bank still burdens the property, it must be deleted. To this end the escrow agent obtains a deletion declaration from the seller bank and ensures that the buyer new mortgage lien can be registered in the desired rank. We explain the process in the post on paying the purchase price via escrow and in the glossary.
This is how the steps interlock: the buyer bank transfers into escrow, the escrow agent pays off the old mortgage and arranges its deletion and the new mortgage lien is registered in the first rank. Only afterwards does the seller receive the remaining purchase price. Our checklist on the purchase price and escrow offers guidance.
These points decide whether the mortgage lien and the acquisition of ownership fit together cleanly. Clarify each one with the bank and the escrow agent.
| Building block | Recommended | Possible risk |
|---|---|---|
| Mortgage lien Registration in sheet C | Maximum-amount mortgage covers interest and charges | An unclear form of security delays the registration |
| Rank First rank for the bank | Notation of priority ranking for the encumbrance | A lower rank endangers the payout |
| Discharge of encumbrances Old mortgage deleted | Deletion declaration of the seller bank secured | Open encumbrances prevent the first rank |
| Escrow Payout via escrow account | Release only after secured registration | Direct payment bypasses the securing |
| Registration fee 1.2 percent of the secured amount | Factor the cost into the financing early | An overlooked fee strains the budget |
The registration fee for the mortgage is 1.2 percent of the secured amount and is added to the registration fee for ownership. The exact figure depends on the loan amount.
Caution with rank security: If the bank new mortgage lien is not registered in the right rank or the seller old mortgage is not deleted in time, the bank may refuse the payout. Have the financing, the priority ranking and the discharge of encumbrances coordinated before signing. Booking an initial consultation (72 euro) can quickly bring clarity.
Registering the mortgage lien costs money. For the registration a registration fee of 1.2 percent of the secured amount applies. With a maximum-amount mortgage the fee is measured by the registered maximum sum, which can exceed the pure loan amount. This fee is added to the registration fee for the right of ownership and is a separate cost factor of the financing.
In addition to the registration fee further costs arise: the certification of the signature on the mortgage deed, any processing charges of the bank and the effort of the escrow agent for the discharge of encumbrances. You should know these items early so that your financing sum covers the entire need. Our incidental costs calculator gives an overview of the purchase side costs.
Before the new mortgage lien is registered, a look at the existing encumbrances is worthwhile. Which mortgages and other encumbrances appear in the land register you check with the encumbrances and land register check. This way you recognise early what must be deleted for the bank first rank.
The mortgage lien in the first rank secures the bank, because in case of realisation it is satisfied from the property before lower-ranking creditors. That is why an old mortgage of the seller must be deleted through the discharge of encumbrances. The notation of priority ranking for the intended encumbrance reserves the rank for the future mortgage lien of the bank.
With a fixed-amount mortgage a fixed sum is registered that corresponds to the loan amount. With a maximum-amount mortgage a maximum sum is registered up to which the property is liable. The maximum-amount mortgage also covers interest, charges and future drawdowns and is common for loans.
The registration fee for the mortgage is 1.2 percent of the secured amount. With a maximum-amount mortgage it is measured by the registered maximum sum. This fee is added to the registration fee for the right of ownership and should be factored into the financing early.
How the land register is structured and which encumbrances affect your ownership and your mortgage lien.
How handling through an escrow agent secures the payout of the bank.
How the escrow agent coordinates the discharge of encumbrances and the registration of the mortgage lien.
What sheets A, B and C mean and where the mortgage lien is registered.
When buying property, the contract and the land register decide. Call us directly or send an email, callback within one business day.
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