The real loan falls under the category “collateral in the context of lending”. In concrete terms, the real loan describes a loan that is supposed to reduce the risk for the lender with a certain type of collateral, namely with real objects. This gives rise to the term “real loan”, because security is a real-world thing that is also tangible. The form of the real loan is divided into real loans with movable objects such as cars or machines, and immovable objects, i.e. real estate, mostly land and buildings. The law also provides for some regulations for real loans. Real estate loans in the form of movable objects are also called “mortgage loans”, and collateral in the form of real estate differentiates between mortgages and land charges.
A movable thing as security: the security transfer credit
This form of real loan provides for movable property as security in the context of lending. As the lender, usually a commercial bank, is informed about what should be done with the money from the loan, a transfer of ownership is often agreed. This looks so that the borrower buys the specified item with the money from the loan. The borrower may keep this object and fulfill the corresponding purpose, he or she is now the owner of the object or thing. The ownership rights allow the object to be used for the intended purpose, but exclude other rights such as sales rights.
The lender becomes the owner of the thing or object. If the loan is repaid as agreed, the previous owner of the item also becomes the owner. However, if there is a default, the lender can exercise his rights as the owner and sell the item in order to settle his claims. This form of real credit is often used to finance motor vehicles, here the vehicle registration remains in the hands of the bank. The security transfer credit is popular because the difference between owner and owner is not recognizable from the outside when the loan is repaid correctly, and the borrower is hardly restricted when it comes to repaying the item as planned.
A moving thing as security: the mortgage and the mortgage
The mortgage and the land charge are also referred to as mortgages, but there is a difference between the mortgage and the land charge. The mortgage is entered in the local land register. The land register enjoys public trust, meaning that what is noted in it is considered binding. If the loan is concluded, the agreed property is entered in the land register as a mortgage. Similar to the transfer by way of security, the registered mortgage expires at the last installment, which makes the loan repayment complete. If there is no default, the property remains in the borrower’s possession all the time and can be used by the borrower. However, if there is a default, the debtor’s private assets are initially used when agreeing the mortgage, since the debtor is primarily personally liable.
If this is not enough to repay the rest of the loan, the property that was specified as a mortgage will be auctioned or sold, and the borrower’s real liability will apply. If the proceeds of the property are greater than the value of the remaining debt of the loan, the difference between the proceeds of the sale and the residual debt of the loan is paid to the borrower. The mortgage presupposes the existence of a claim between the borrower, who must also be the property owner, and the creditor, as the lender.
The mortgage stands in contrast to the mortgage. Just like the mortgage, the land charge is entered in the land register when a loan is concluded. If the borrower can no longer pay the loan, the property, which is encumbered as a mortgage, is sold or auctioned.
Here there is already a difference to the mortgage: While with the mortgage the borrower is personally liable with his or her private assets and only afterwards with the real liability of the property, the real liability alone is the real liability. If the mortgage does not default, however, the mortgage is not automatically deleted from the land register, as is the case with the mortgage. The mortgage is the abstract form of mortgages compared to an accessory mortgage. So if there is no longer a claim against the borrower, the property remains in the land register as encumbered. However, the borrower can no longer sue the property because he no longer has a claim against the borrower. This property is often used in reality by long-term contractual partners, since there is mutual trust and there is no longer any need to agree on security, since security is already in place, one speaks of the “land charge without a cause of guilt”.
Legal requirements for mortgages and land charges
Like all businesses in which land plays a role, a notarial certificate is required. The notary has the task of checking as an independent body whether everything is right. The mortgage and the land charge only exist when they have actually been entered in the land register. The information in the land register is absolutely binding. The legislator also provides that built-up and undeveloped property must be insured against damage as standard. In addition, the value of the property must be checked regularly as the value of the property can go up and down. A decline in value could be a toxic load on the floor or dilapidated parts of the building. Unexpected raw material discoveries can increase the value of a property, as can the development of the surrounding area. In addition, mortgages may only be concluded for commercial or residential real estate.