Banks are only allowed to cancel a land charge if certain conditions are met. With the move potentially dealing a severe blow to borrowers, they should not hesitate to consult a specialist banking lawyer.
German banking law recognizes both mortgages and land charges, two types of encumbrances on real property. Despite their similarities, there is an importance difference that needs to be taken into account when concluding a loan agreement, notes commercial law firm MTR Legal Rechtsanwälte.
A mortgage is tied to the bank’s debt claim, decreasing at the same rate as the loan debt. A land charge, on the other hand, remains in place even if the loan has already largely been repaid. Any issues arising in connection with the latter can be addressed by a lawyer specializing in banking law.
In Germany, banks can only cancel a land charge in exceptional circumstances, e.g., where there is a deterioration in the client’s financial situation, their collateral, or the client defaults on payment. The bank might also appeal to provisions set out in its general terms and conditions. Given the potentially very serious consequences for clients of cancelling a land charge – for instance, the property may become the subject of a foreclosure sale – borrowers ought to involve a lawyer.
The law generally seeks to afford greater protection to consumers than businesses, and banking law is no different in this respect. One example of this is the requirement for consumers to be behind on at least two consecutive installments, whether in whole or in part, before a real estate loan and land charge can be cancelled. The client must also be given at least two weeks’ notice to settle their arrears. When negotiating with the bank, it may be advisable to call in an expert in banking law.
Cancelling a loan and land charge may have an adverse effect on the client’s credit rating, which can itself give rise to further negative consequences. To avoid outcomes like this and their attendant repercussions, it is a good idea to discuss the matter with the bank at an early stage, preferably with the support and assistance of a lawyer, with a view to finding a solution.
The team of legal experts at MTR Legal Rechtsanwälte can advise on loans, land charges, and other issues pertaining to banking law.
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