When Is a Property Mortgaged?
A mortgage is a real right of guarantee that gives the lender the power to seize the property pledged as security for their loan.
A mortgage is created by registering it in the land registry, serving as a form of protection for the lender. It ensures that the lender can recover the value of the unpaid debt through the encumbered property.
In the event of borrower default, the lender can proceed with the forced sale of the property to satisfy the debt, having priority over the proceeds from the sale.
Let’s look at a concrete example to better understand how this works:
A property owner takes out a €100,000 mortgage with a bank to purchase the property, which is then mortgaged.
If the owner fails to repay the €100,000 debt, the bank (the lender) can decide to seize the property to recover the debt. The house is then auctioned and sold for €150,000.
What happens to the sale proceeds?
Since the bank holds the mortgage, it has priority over any other creditors. Therefore, the first €100,000 of the sale proceeds goes to repay the bank.
The remaining €50,000 is then used to satisfy other creditors, if any, or returned to the original property owner.
This priority is guaranteed by the mortgage, which ensures the bank has the exclusive right to recover the loan amount before the remainder is distributed.
Types of Property Mortgages
Mortgages can be classified into three main types, each with specific characteristics:
• Legal mortgage: A form of protection requested by the lender for certain types of claims or legal situations, as provided under Article 2817 of the Civil Code.
• Judicial mortgage: Registered following a court order, such as a judgment or injunction. This type of mortgage is recorded in the land registry only if the lender holds an enforceable title.
• Voluntary mortgage: The most common type, occurring when a borrower requests a mortgage to purchase a property. The property serves as collateral for the bank loan, based on a voluntary agreement between borrower and lender.
The type of mortgage affects the rights and obligations of both the seller and the buyer.
How to Sell a Mortgaged Property
If you want to sell a mortgaged property, there are mainly three approaches you can take.
Selling the Property by Clearing the Mortgage
One of the most straightforward and preferable strategies is to pay off the mortgage before selling the property. This can be done in two ways:
1. Paying off the mortgage in full: The first method involves using your own funds to settle the debt with the bank. Once the mortgage is fully paid, the bank will issue a release and approve the cancellation of the mortgage, allowing you to sell the property free of any encumbrances.
2. Using part of the sale proceeds: Another option is to use a portion of the sale price to pay off the mortgage. In this case, the seller must coordinate with the bank that issued the loan so that the amount needed to clear the debt is transferred directly to the lender during the sale. This process can be completed in a single appointment with a notary, who ensures that the mortgage is released once payment is received.
Selling the Property While Keeping the Mortgage
If paying off the mortgage is not possible, another strategy is to sell the property with the mortgage still in place. This approach requires careful attention to avoid complications:
• It is essential to inform the buyer about the mortgage from the very beginning, especially when signing the preliminary contract. Failing to disclose this important detail could invalidate the sale.
• The presence of a mortgage may discourage buyers, as they risk being involved in a foreclosure process if the seller fails to repay the debt. To overcome this, it may be necessary to offer a reduced sale price or other favorable conditions to the buyer.
Special Agreements and Negotiation
An effective strategy for selling a mortgaged property is to negotiate special agreements between the parties involved. Some options include:
• Tripartite agreement: The seller, lender, and buyer can agree that, once the purchase price is received, a portion is transferred to the lender to cover the debt, and the lender commits to releasing the mortgage. This can be handled in a single notary appointment, ensuring that all parties agree and the property is cleared of the mortgage at the time of sale.
• Renegotiating the mortgage: The seller may negotiate with the bank to obtain more manageable payment terms, such as extending the loan period or temporarily reducing installments. This can make the property easier to sell, as the debt becomes less burdensome and more manageable for the new buyer.
Tips and Precautions for a Stress-Free Sale
Consult Industry Professionals
When selling a mortgaged property, it’s crucial to seek advice from industry professionals to avoid legal and financial mistakes. A real estate lawyer can guide you through the process, ensuring that all formalities are observed and your rights are protected.
A financial advisor can also help manage the debt and identify the most advantageous solution for paying off the mortgage.
A notary is another key professional in this process, as they draft and authenticate the sale deed, ensuring that all parties agree and that the property is cleared of the mortgage at the time of sale.
The notary’s presence is essential for the legal validity of the transaction.
An experienced real estate agent can be extremely helpful when selling a mortgaged property. They can help identify interested buyers, market the property effectively, and negotiate favorable terms that account for the existing mortgage. Their expertise ensures smooth handling of both practical and relational aspects of the sale, providing reliable support throughout the negotiation process.
What to Avoid for a Smooth Sale
Selling a mortgaged property without properly informing the buyer can have serious consequences. If the buyer is not made aware of the mortgage, they may seek to cancel the contract, request a refund, or claim damages.
It is therefore essential that the seller clearly communicates the presence of the mortgage from the earliest stages of the negotiation, preferably at the time of signing the preliminary contract.
Additionally, if the debt is not cleared and the lender decides to foreclose, the new owner could become involved in the enforcement process, even though they are not responsible for the debt.
This scenario can be avoided only if all parties are fully informed and the necessary legal precautions are taken.
Tax Implications of Selling a Mortgaged Property
Selling a mortgaged property also has important tax implications. The seller must consider any capital gains generated from the sale, which may be subject to taxation.
If the property has been used as a primary residence, specific tax exemptions may apply, though the presence of a mortgage does not directly affect these exemptions. It is also important to check for any taxes or fees related to the cancellation of the mortgage.
In some cases, the bank or lender may charge fees for mortgage cancellation, which should be included in the sale price calculation or handled during the transaction.
Why Choose Hasamia to Sell a Mortgaged Property
Selling a mortgaged property may seem complicated, but with Hasamia’s support, the process becomes simple and transparent.
Hasamia is a hybrid real estate agency offering an innovative model that combines the power of technology and digital tools with the on-the-ground expertise of real estate agents. Our goal is to help you manage every stage of the sale without stress.
Accurate Valuation and Personalized Advice:
By working with Hasamia, you benefit from a comprehensive, free property valuation that considers both the market value and any remaining mortgage debt. Thanks to our real estate experience and advanced technological tools, you’ll receive a clear, detailed action plan tailored to your needs. Request your property valuation today.
Managing the Relationship with the Lender
A crucial step when selling a mortgaged property is coordinating with the bank to pay off or transfer the mortgage. Hasamia’s professionals handle direct communication with the lender, ensuring all documentation is correct and that the mortgage is cleared at the time of sale.
Learn more about the documents required for a real estate transaction.
Zero Commissions and Maximum Transparency
Hasamia adopts an innovative approach: we do not charge the percentage-based fees typical of traditional agencies. With a transparent fixed fee, you know exactly what you will pay from the start, with no surprises. This approach helps you maximize your sale proceeds, especially in complex situations such as those involving a mortgage.
See how much you can save with Hasamia’s fixed-price packages.
Full Support for a Stress-Free Process
With Hasamia, you don’t have to worry about managing paperwork or negotiations with buyers. From listing your property on major real estate portals, to organizing viewings, and up to the closing, our team takes care of everything. We also work closely with the notary to ensure a smooth property transfer.
Check out the 4 key stages of a real estate transaction.
By choosing Hasamia, you can approach the sale of your mortgaged property with confidence, turning what may seem like a complex process into a smooth, fast, transparent, and stress-free experience.
