German Land Charges: Creation and Differences from Mortgages

How is a land charge ordered?

The order is made by notarization or certification and registration in Section III of the land register. Usually it is Book property debt (only in land register) vis-à-vis the basic letter debt (additionally securitised). Almost always it is ordered with foreclosure submission in rem – the creditor can then execute without a prior judgment. The costs for notary and land registry are roughly between 0.5 and 1% of the basic debt amount.

Basic security debt and declaration of purpose

In financing practice, the land charge is transferred via a Purpose statement associated with the loan: it determines which claims the land charge secures. Because the land charge itself is independent of claims, it can be reused for new financing after repayment – a considerable cost and time advantage in Rescheduling and refinancing. After full repayment, the owner is entitled to cancellation or restitution; alternatively, it remains as a property debt and holds the Ranking occupied.

land charge vs. Mortgage – The Difference

• Accessories: The Mortgage is strictly bound by the secured claim and expires with it; the land charge continues to exist independently.
• Flexibility: The land charge can secure future or changing claims, making it suitable for credit facilities, loan renewals and changes of collateral property.
• Practice: 90 % of German real estate finance is now secured by land charge; the mortgage is the exception.

For professional structures, the rank architecture counts above all: first-ranking land charge for the Senior loans, subordinated credit protection for: Mezzanine tranches – regulated by creditor agreements.