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Why Germans often leave a Mortgage (Grundschuld) entered in the Land Registry Records even if the underlying bank loan has been fully repaid?

The German word for mortgage is “Grundschuld”, which is the most commonly used form of a German security interest in land, i.e. real property lien (Grundpfandrecht). The relevant German statutes are s. 1113 et seqq. German Civil Code.

Such a Grundschuld is created by notary deed whenever the German property owner wishes to take out a loan (Darlehen) and the bank demands such mortgage as collateral. In case the debtor does not comply with his payment obligations, the bank is able to foreclose, i.e. sell the property. The legal details are, of course, a bit more complicated than that.

What is an “empty shell Mortgage”?

Quite often, the German land registry records (Grundbucheintrag) for a certain plot of German land (Grundstück), show an existing, i.e. active Grundschuld in spite of the fact that the underlying bank long has long been repaid. German property lawyers call this “nicht valutierende Grundschuld“, i.e. the Grundschuld is merely an “empty shell” which is not longer linked to an actual loan debt and thus currently not in use in order to secure an actual loan.

It is not uncommon for German property owners to leave the Grundschuld entered in the land registry records even after the entire bank loan has been repaid. The reason for this is that creating a Grundschuld triggers significant notary costs and land registry fees. So does having a German mortgage (Grundschuld) deleted from the land registry.

Thus, if the owner of a German property thinks that he or she may need another loan at a later time, maybe even decades later, such property owner often decides not to have it removed from the records. The Grundschuld is left in the records as an empty shell for later use which saves notary fees to create a new Grundschuld.

How to evaluate the Risk of a Mortgage?

This can cause considerable distress to the inheritors of German property when they are surprised to find out from the German land registry records that there is a mortgage on the property which they have just inherited. Some inheritors even panic because the nominal amount of such a mortgage is usually in the six digit range. Many clients contact our firm in that situation and ask how they can renounce their German inheritance to avoid being liable for debts, especially the mortgage.

But, as we explained above, the mere existence of a mortgage in the Grundbuch records does not say anything about whether and to what extend there is an actual loan debt linked to such mortgage. This needs to be checked elsewhere, i.e. from the loan documents of the deceased. Immediately renouncing the inheritance just because the German land registry lists an active mortgage may be a bit excessive.

When a German property is sold, especially if it is sold by the heirs or executors of a German estate, any existing mortgage or other real property lien must either be deleted (gelöscht) from the Grundbuch records, unless the buyer explicitly eagree to accept an existing mortgage as part of the property transaction (Übernahme der Grundschuld).

More information on buying property in Germany, the German Land Registry and conveyancing process and the rights and duties of tenants and landlords in Germany is available in these posts:

Or simply click on the sections “Property” or “Conveyancing in Germany” in the right column of this blog.

For more information on cross border probate matters and international will preparation see the below posts by the international succession law experts of Graf & Partners LLP:

The law firm Graf & Partners and its German-English litigation department GP Chambers was established in 2003 and has many years of experience with British-German and US-German probate matters, including the representation of clients in contentious probate matters.

We also advise and represent foreign clients who wish to purchase, sell or lease property in Germany. In case you would like to obtain specific advice on a specific case or need assistance in buying, selling or leasing property in Germany, please contact German solicitor Bernhard Schmeilzl, LL.M. (Leicester) at +49 941 463 7070.