One of the most confusing aspects of a property sale is the cancellation of the mortgage.
One of the most confusing aspects of a property sale is the cancellation of the mortgage.
We will try to explain it in the simplest way possible.
When we sign a deposit agreement, there is a clause stating that the property will be purchased “free of encumbrances”. The mortgage is one such encumbrance.
On the day of signing at the notary's office, the buyer makes two payments:
one to the seller's bank to cancel the existing mortgage and another payment of the remaining amount to the seller.
However, this is NOT the end of the process, and this is where the confusion arises.
The cancellation of the mortgage debt must also be registered in the Land Registry.
When we sign a mortgage, we sign a mortgage deed that is registered in the Land Registry and appears as an ‘encumbrance’ on the property.
This registration is what we must cancel, and it must be done once the mortgage has been cancelled. If it was cancelled on the day of the sale, this means that this procedure must be done afterwards.
This is because we are obliged to transfer the property ‘free of encumbrances’, and this registration is another encumbrance.
It is important to explain that when the entire mortgage debt is paid off, this encumbrance does not automatically disappear. We are obliged to take the following steps:
1) Request a zero debt certificate for the mortgage from the bank.
2) Take the certificate to the notary to draw up the mortgage cancellation deed.
3) Register this deed in the Land Registry.
All these procedures are at the seller's expense and are mandatory. They usually take about two months and involve a cost that is borne by the seller.
Therefore, in the act of sale, when there is a mortgage, a retention of an amount is made, which can vary depending on the case, around one thousand euros, which will be returned when the seller presents a new simple note free of encumbrances. In some cases, it will be the buyer, through their representatives, who will carry out these procedures with the provision of funds from the seller.
If you have any questions about these procedures, we have a legal department to provide support to our clients.