Foreclosure based on a mortgage often leads to legal conflicts, especially if the property owner considers the underlying claim to be unjustified. But what happens if the mortgage has already been transferred to a new creditor? In this case, the purchaser usually relies on bona fide acquisition, but even then, there are objections that can potentially prevent enforcement.
In a recent decision, the Brandenburg Higher Regional Court has examined the debtor's rights and the limits of good faith in the acquisition of a land charge. The ruling clarifies the conditions under which objections can be raised against the new creditor and when enforcement proceedings are still permissible.
Learn about the legal options available to property owners and how specialist lawyers in banking and capital markets law can help defend against unlawful enforcement measures.
Toleration of foreclosure proceedings on land charges: Important information for property buyers
The question of whether tolerating foreclosure proceedings based on a mortgage affects not only creditors but also property buyers. Mortgages serve as security for loans and continue to exist even after the purchase of a property.
A crucial aspect is the buyer's knowledge: If the purchaser was aware of a possible illegality regarding the mortgage, this may affect their obligation to tolerate the transaction. For this reason, a thorough legal review prior to purchase is crucial to avoid unwanted financial risks.
Careful due diligence and notarial safeguards are essential measures to avoid unpleasant surprises and additional obligations.
Consult a specialist lawyer to correctly assess the legal consequences of existing mortgages.
Enforcement of land charge: bona fide acquisition and legal objections
A protracted legal dispute revolved around the question of whether a plaintiff may enforce a mortgage on a property. The focus was on whether the mortgage was originally registered without legal basis and whether the plaintiff was aware of this at the time of purchase.
Background of the case
The defendant owned a property previously owned by a limited liability company (GmbH). In 2008, two land charges of €25,000 each were registered, which were later assigned to the plaintiff. The defendant claimed that the registrations were made without legal basis to protect the property from an heir. The plaintiff, however, stated that he provided €50,000 as a loan and received the land charges as security in return.
Court decision
The Brandenburg Higher Regional Court upheld the plaintiff's claim for acquiescence in the enforcement proceedings. It found that there was insufficient evidence that the plaintiff knew of the legal invalidity of the land charges when he acquired them. While there were uncertainties regarding the precise agreements, the plaintiff relied on the statements of the intervener and did not ask further questions about the legal details. The court ruled that the plaintiff's bona fide acquisition could not be called into question by subsequent objections raised by the defendant.
Meaning of bona fide acquisition
A central point of the judgment was the question of the bona fide acquisition of land charges. Even if the land charge was originally created without authorization, the purchase generally remains unaffected for the buyer, provided they were unaware of any defects. The burden of proof lay with the defendant, whose arguments, however, were insufficient to impose liability on the plaintiff.
Conclusion of the judgment
The ruling underscores the importance of common law protection in land charges. Objections to bona fide acquisition are difficult to enforce without clear evidence of the purchaser's knowledge of any defects.
What does the ruling mean for property buyers?
Buyers of real estate should carefully review existing mortgages before purchasing. It is advisable to obtain a notarized confirmation that there are no legal objections to the mortgage. Alternatively, the buyer can request that the mortgages be discharged or a contractual release from the seller to protect themselves from possible future foreclosure measures.
(Brandenburg Higher Regional Court, Ref. No.: 5 U 79/14 – Judgment of 27 August 2015)
Toleration of foreclosure: Important information for new property owners
For new owners, tolerating foreclosure means that they must accept an existing mortgage – even if they have not personally entered into the secured claim. This is regulated in Section 1192 Paragraph 1 in conjunction with Section 1147 of the German Civil Code (BGB) and applies regardless of a change of ownership.
What does this mean for new owners?
New owners are obligated to tolerate forced auction or receivership if the creditor asserts his rights. However, they are not personally liable, but only with the mortgaged property. Their remaining assets remain unaffected.
Defenses and protection options
Under certain circumstances, the owner may raise objections to enforcement, particularly in the case of a security mortgage (Section 1192a of the German Civil Code). However, these objections are only admissible if the buyer was aware of the defects at the time of purchase or if they are recorded in the land register.
Example: If Anna buys a house with an existing mortgage on a loan from the previous owner, she must tolerate foreclosure if the previous owner does not pay – even if she is not personally liable.
Risks of foreclosure on a mortgage – Important information for owners
Foreclosure on a land charge entails considerable risks for property owners:
- Loss of property through foreclosure
Properties are often sold below their market value, resulting in significant financial losses. Insufficient auction proceeds can leave you with outstanding debts. - Independence of the mortgage from the claim
Unlike a mortgage, a land charge remains in effect even after the underlying debt has been repaid. Without cancellation, there is a risk that the creditor will continue to initiate enforcement measures. - Assignment of the mortgage to third parties
If the mortgage is assigned to a new creditor, the new creditor can continue the enforcement process – often without knowledge of the debtor's previous defenses. This can result in unexpected claims, even if the original debt has already been paid. - Immediate enforcement clause
Many mortgage contracts contain a subjugation clause that allows the creditor to initiate foreclosure proceedings directly, without prior court proceedings. This significantly complicates the owner's defense. - Low auction proceeds
In a foreclosure auction, the property's market value is often not achieved, meaning the proceeds may not be sufficient to cover the entire debt. This can result in significant financial disadvantages for the owner. - Ranking of mortgages
If multiple mortgages are registered, the higher-ranking creditors will be served first. Subordinated creditors may be left empty-handed if the auction proceeds are insufficient. - High additional costs
In addition to the original claim, there are court costs, bailiff fees and legal fees, which can significantly increase the financial burden for the owner.
Protect yourself from the risks of foreclosure:
Anyone purchasing a property with an existing mortgage or already owning it should be aware of the risks and take early action to avoid financial losses. Our banking and capital markets lawyers are happy to assist you!
Protection measures for new owners against unlawful foreclosure
As a new property owner, there are various legal strategies available to protect yourself from unlawful foreclosure based on a mortgage. A careful review of the land registry before purchasing is crucial. Review all registered encumbrances, especially mortgages, and determine whether the underlying claim still exists or has already been satisfied.
If there are legitimate doubts about the legality of a mortgage, an objection should be entered in the land register to inform the creditor of any potential deficiencies at an early stage. If foreclosure is imminent, an application for a temporary stay can be filed with the competent court to gain time for necessary legal action.
It is also important to check the enforcement documents for formal or substantive errors that could allow for a challenge to the enforcement. If the underlying claim has been extinguished, for example, through payment or waiver, an action to prevent enforcement can be filed under Section 767 of the Code of Civil Procedure (ZPO) to prevent the enforcement.
A thorough due diligence should be conducted before purchasing. Have the seller provide you with complete documentation of existing encumbrances to avoid liability risks. Contractual safeguards can also be put in place that obligate the seller to settle outstanding liabilities before the purchase or to have existing mortgages discharged.
Preventive measures to avoid foreclosure include having all contractual agreements reviewed by a notary to avoid future disputes. Legal advice from an experienced banking and capital markets attorney is advisable to identify risks early on and implement appropriate protective measures. In complex cases, it may be advisable to reach an out-of-court settlement with creditors to protect the property from foreclosure.
Protect yourself from the risks of foreclosure:
To protect yourself as a new owner from unlawful foreclosures, thorough pre-purchase inspections and early legal action are essential. Professional advice from a banking and capital markets attorney can help minimize financial risks and provide legal certainty.
Good faith acquisition of encumbered property: risks and protective measures
Good faith plays a crucial role in the purchase of a property encumbered with a mortgage, as it determines whether the buyer must tolerate the foreclosure proceedings or can defend themselves against them. According to Section 1192 (1) in conjunction with Section 1147 of the German Civil Code (BGB), the purchaser is generally obligated to tolerate the foreclosure proceedings if the mortgage is registered in the land register.
A bona fide acquisition occurs when the buyer has no positive knowledge of possible defenses or legal defects. It is not enough that the buyer should have known something – what matters is whether they actually knew about the defects. In this case, the provisions of Section 1157, Sentence 2, in conjunction with Section 892 of the German Civil Code (BGB), which provide legal protection for the buyer, apply.
An example of the importance of good faith is the case where a property owner creates a mortgage to secure a loan that has never been disbursed. If the creditor assigns the mortgage to a bona fide purchaser, the purchaser can pursue foreclosure even though the claim does not exist. The new owner cannot invoke a defense in this case.
Good faith is particularly relevant in the case of security mortgages. According to the Federal Court of Justice's case law, mere knowledge that a security mortgage is involved is not sufficient to prevent bona fide acquisition. The buyer must be aware of specific defenses to successfully defend against enforcement.
For creditors, bona fide acquisition is advantageous because it provides them with the security that existing defenses will not affect their rights. The legislature strikes a balance between the interests of the owners and the protection of the general public to facilitate the smooth trading of land charges.
Protection measures for buyers
Buyers of mortgaged properties should take their due diligence seriously to avoid future financial and legal disadvantages. A solid understanding of good faith is essential to minimize the risk of unexpected foreclosure. We would be happy to assist you in reviewing and protecting your investment!
Legal steps against foreclosure – How to defend yourself effectively
Foreclosure proceedings can have significant economic and legal consequences. The choice of appropriate legal remedies depends on the individual situation and the reasons for the objection. As experienced lawyers specializing in banking and capital markets law, we support you in protecting your rights and taking the appropriate steps.
The Enforcement reminder According to Section 766 of the Code of Civil Procedure (ZPO), this is the appropriate remedy when formal or procedural errors have occurred in the enforcement process. For example, the debtor can claim that non-seizable items were seized or that the bailiff acted improperly. This reminder can be filed at any time with the competent enforcement court (local court of the place of enforcement) and does not require a deadline.
One Counter-enforcement action Pursuant to Section 767 of the Code of Civil Procedure, an action may be considered if the debtor can prove that the creditor's claim has been extinguished after the judgment, for example, through payment or waiver. This action must be brought before the court that issued the original judgment.
To prevent further enforcement measures, a Application for temporary suspension Enforcement can be filed under Section 769 of the Code of Civil Procedure (ZPO). This application is appropriate if the debtor is threatened with irreparable disadvantages as a result of enforcement and, at the same time, there is a high probability of success for a counter-enforcement action.
For third parties affected by enforcement proceedings – for example, if items belonging to them are seized – there is the possibility of Third-party action according to Section 771 of the Code of Civil Procedure (ZPO), in order to assert their property rights and to ward off enforcement.
Decisions of the enforcement court can be appealed immediate complaint The appeal must be filed with the regional court (Section 793 of the Code of Civil Procedure). This must be submitted within two weeks of service of the decision.
If you have recently purchased a property with an existing mortgage, you can Objection to the reservation assert if the buyer was unaware of existing defenses at the time of purchase. A prompt legal review is crucial in this case.
Important steps to take when foreclosure is imminent:
React quickly, as legal remedies do not automatically stop enforcement proceedings – a separate application for a temporary stay is required. Check all enforcement titles for errors and possible defenses. Timely legal advice in the area of banking and capital markets law protects you from financial losses and safeguards your rights.
Conclusion:
If you are facing foreclosure proceedings, seek advice early on to maximize your chances of success and avoid financial loss. Contact us today! Our banking and capital markets lawyers will help you protect your rights.
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