Financing the purchase of real estate - the land charge

In many cases, the purchase price is financed in part or in full by a loan from a bank, savings bank or building society. In this case, the buyer takes out a loan from their bank. The bank or savings bank usually requires that the buyer uses the purchased property as collateral and that the bank can proceed with foreclosure in the event that the buyer does not repay the loan. In most cases, a land charge (= lien on the property) is created for the bank for this purpose. The bank is rarely secured by a mortgage. This is probably because the land charge can be reused to secure a new loan once the loan has been paid off. The mortgage, on the other hand, cannot be reused.

Comparatively high land charge interest rates of up to 20% are often agreed in the land charge deed. However, this has nothing to do with the interest rate that the buyer has agreed with the bank in relation to the loan. In this respect, the interest rate agreed with the bank applies. The land charge interest is, among other things, additional security for the bank in the event that the loan is not repaid as agreed and the property has to be foreclosed. 

In addition, the agreement of a high land charge interest rate reserves the right to flexibly reutilize the land charge in the case of higher-interest loans.

The loan agreement does not have to be notarized. The land charge, on the other hand, must be notarized if it contains an immediate submission to foreclosure on the property to be encumbered and/or the borrower's entire assets, which is the rule. If this clause is not included, a notarized signature is sufficient.