Mortgage: Definition and the most important types

A mortgage is a security right that allows creditors to seize the property in the event of a debtor's insolvency. In Germany, there are three main types of mortgage:

Pension debt: It secures recurring cash annuities, but is of little importance in today's practice.

mortgage: It is tied to a specific claim and expires automatically as soon as it is paid in full.

mortgage: This exists independently of a specific claim and can be used multiple times to secure different loans.

Legal basis of the mortgage: An overview

The mortgage is enshrined in the statutory provisions of the German Civil Code (BGB) and the German Land Register Act (GBO). The key provisions are:

§§ 29-35 GBO: Define the rules for the registration, cancellation and ranking of mortgages.

§§ 1113-1203 German Civil Code: Regulates the mortgage, land charge and annuity debt.

§§ 873, 875 BGB: Determine the conditions for agreement and registration in the land register.

Establishment of mortgages: How it works

A mortgage arises from a real agreement between the property owner and the creditor, which is concluded in accordance with § 873 German Civil Code must be notarized. For the validity of the contract, registration in the land register is also required, which must be § 875 German Civil Code This entry is made at the relevant land registry office, which checks the requirements and publicly records the mortgage in the land register.

Ranking of mortgages: How it is regulated

The ranking of mortgages is crucial when multiple security interests exist on a property. It regulates the order in which creditors can enforce their claims. The legal basis for this is §§ 10, 28 GBO to find.

• principle: “First come, first served” – The first registered mortgage has priority.
• ExceptionsDeviations from this order are possible if creditors agree on a different ranking. This agreement must be recorded in the land register.
• Ranking clause: Such a clause in the land register may give priority to a mortgage registered later over an earlier one.

Enforcement of mortgages: Foreclosure in detail

If the debtor fails to meet his payment obligations, the creditor can assert the mortgage through compulsory enforcement proceedings. The legal basis for this is set out in Section 1147 of the German Civil Code (BGB). In practice, this usually results in a compulsory auction, in which the property is auctioned off by the local court. The proceeds from the auction are then used to satisfy the creditors. Another option is compulsory administration, in which the property is administered by the court, and the creditors receive payments from rental income or other proceeds. Before compulsory enforcement can take place, however, the creditor must present an enforceable title, such as a judgment, writ of execution, or notarial deed, confirming both the claim and the mortgage.

Cancellation of mortgages: How it works

A mortgage does not automatically expire after the claim has been settled. It must be actively deleted from the land register. First, the creditor must obtain a notarized authorization for deletion in accordance with Section 875 paragraph 2 of the German Civil Code The property owner or debtor then applies for deletion at the responsible land registry office. The land registry office reviews the documents and records the deletion in the land register. Only once the deletion is registered does the mortgage finally expire.

Current court rulings on mortgages: Important decisions

There are several important court rulings on the subject of mortgages that are of great importance to both property owners and lenders. In a ruling by the BGH from February 21, 2020 (V ZR 33/19) It was decided that a mortgage remains valid even if the creditor receives the claim only after it has been registered in the land register. In another judgment of the BGH from September 28, 2018 (V ZR 188/17) It was clarified that mortgages do not automatically expire if the property is transferred to the creditor through compulsory auction or transfer of ownership. In this case, deletion from the land register is required. Furthermore, the BGH on March 10, 2017 (V ZR 178/16)that priority agreements between creditors are valid even without entry in the land register if they have been documented in a notarial deed and both parties refer to them.

These judgments underline the importance of precise legal regulations and individual agreements in the area of mortgages.

Our specialized banking law attorneys offer comprehensive advice and legal support in all matters relating to mortgages. Whether establishing, ranking, enforcing, or canceling mortgages – we protect your interests as a property owner, borrower, or creditor and ensure a legally compliant transaction. Trust our expertise to protect your rights!

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Find out under which conditions collateral can be released and what rights you have as a borrower.

Security agreement and overcollateralization risk – What borrowers should know

A security agreement specifies which collateral exists between lender and borrower. However, problems arise when this collateral exceeds the actual loan requirement - a case of so-called over-collateralization. This can have financial disadvantages for the borrower and should therefore be carefully checked.

Initial Overcollateralization – Limits and Legal Consequences for Borrowers

Initial over-collateralization occurs when the value of the collateral exceeds the actual credit risk when the loan is granted. The Federal Court of Justice (BGH) specifies that this limit may not exceed 110% of the loan amount. If this value is exceeded, the loan agreement may be invalid, as this constitutes a violation of common decency in accordance with Section 138 Paragraph 2 of the German Civil Code. A significant disproportion between the service and the consideration may render the loan agreement invalid and should be examined at an early stage.

Subsequent overcollateralization and release clauses – rights and options for borrowers

Over the course of the loan term, there may be subsequent over-collateralization if the value of the collateral provided exceeds the outstanding claim. According to the Federal Court of Justice (BGH), the limit is 150 %. If this limit is exceeded, the collateral provider has the right to release the excess collateral.

To avoid over-collateralisation, release clauses can be agreed in the loan agreement. These allow the bank to regularly check the collateral and release it if the collateral value exceeds 150 % of the claim or the realisable value is more than 10 % above the remaining debt. This ensures that the remaining collateral corresponds to the outstanding loan amount.

Banking and capital market lawyers can assist borrowers in such cases to enforce claims and reach a fair solution.

Legal consequences of refusal to release collateral – options for borrowers

If a bank refuses to release collateral despite over-collateralization, this can have serious legal consequences. In this case, borrowers have the right to claim damages. Refusal to release collateral can be viewed as an impermissible appropriation of an owner-like position, which leads to a breach of the contractual obligations under the security agreement.

Affected borrowers can claim compensation for losses incurred or unnecessary expenses. Compliance with overcollateralization limits and the agreement of transparent release clauses are crucial for legally secure loan processing. A balanced collateral strategy ensures the protection of both the interests of the bank and the financial flexibility of the borrower - a right guaranteed by the Basic Law.

If banks do not release collateral despite over-collateralization, you are entitled to legal claims. Our specialist lawyers for banking and capital market law will enforce your rights - competently, purposefully and with many years of experience. Get advice now and secure your financial balance!

FAQs – Frequently Asked Questions

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With In its judgment of 9 September 2021, the European Court of Justice (ECJ) Consumer rights in credit agreements and car loans have once again been strengthened (case numbers C-33/20, C-155/20, and C-187/20). This ruling is a true blessing for car buyers, not only in the diesel emissions scandal. A valid revocation not only results in the rescission of the credit agreement, but also of the vehicle purchase agreement. Car dealerships usually arrange the car loan, a so-called related transaction, so that if the car loan is revoked, the vehicle purchase agreement is also rescinded.

Cancel car loan

As part of the cancellation process, the borrower returns the financed vehicle and no longer has to pay any loan installments. The question of depreciation during car loan cancellation is very important. This determines how much money you get back—or how much money the bank is entitled to.

The Loss of value is to be determined using the comparison value method. When calculating the loss in value, the net sales price agreed in the purchase contract generally serves as the starting point. When the vehicle is returned, the objective market value at the time of handover is assessed. The objective market value of the vehicle, taking into account the installments you have already paid, ultimately forms the basis for determining how much money you or the bank are still owed. This must be considered on a case-by-case basis.

Use your right of withdrawal now!

We will check for you free of charge, without obligation and objectively, whether revoking your car loan contract is economically worthwhile for you. Benefit from our free service to check your contracts for errors and evaluate your chances of success. This is especially true for drivers who are affected by the emissions scandal If you have to expect high losses in value, revoking the car loan may be a particularly interesting option. 

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Consumers can revoke almost all credit agreements

The European Court of Justice (ECJ) has ruled on 9 September 2021, case numbers C‑33/20, C‑155/20…

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The ruling not only strengthens consumer rights, but also represents a slap in the face for the Federal Court of Justice. The ECJ's ruling was issued following a referral order from the Ravensburg Regional Court – bypassing other German courts.

The proceedings before the Ravensburg Regional Court concerned the cancellation of car loan agreements with Volkswagen, Skoda, and BMW Bank, whose cancellation periods had long since expired. The Ravensburg Regional Court wanted to know how specific mandatory information in consumer loan agreements should be interpreted.

How can loan agreements be revoked?

When concluding a loan agreement, consumers must be informed whether and, if so, how they can withdraw from the agreement. The basis for this cancellation policy The so-called European Consumer Credit Directive from 2008 serves as the foundation of the current consumer protection law. If this mandatory information is not included in the loan agreement or is not clearly worded, the two-week cancellation period will not begin to run.

The Federal Court of Justice (BGH) had previously refused to refer these questions of interpretation to the ECJ, considering the facts so clear that a referral to the ECJ was unnecessary. Furthermore, under German law, it would be an abuse of law for a consumer to rely on false mandatory information.

However, the ECJ's ruling makes it clear that the situation is not at all clear. In particular, the mandatory information regarding the default interest rate is incorrect; an absolute number should be stated here. The calculations for the early repayment penalty are also not formulated clearly enough. The specific type of loan must also be specified.

Use the “cancellation joker”

Do you understand all the clauses in your loan agreement? No? Then your chances of successfully revoking the contract are very good. If the contract clauses aren't formulated clearly and in a way that's understandable to the consumer, you can revoke the contract entirely. Even long after the standard 14-day revocation period has expired. 

This new case law affects practically all Consumer credit agreements, such as car financing concluded after June 11, 2010. These agreements contain, without exception, the wording criticized by the ECJ. Important: The new ruling does not apply to real estate loans. 

Take your chance and revoke your loan agreement!

We will check for you free of charge, without obligation and objectively, whether revoking your loan agreement is possible and economically viable. Benefit from our free service to check your contracts for errors and assess your chances of success. We also calculate whether revoking your loan agreement is economically viable for you. makes sense. Afterwards, you can decide at your leisure whether you want to appoint us as your legal representative and whether we should recover your money for you.

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Eternal right of withdrawal when buying a car

Have you, as a consumer, purchased a vehicle through financing? Then the chances are…

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