Mostly, when the decision is made to buy real estate, one of the important items is that the house or apartment is legalized, as well as that the owner has all the necessary documentation. However, the problem for buyers may be that a particular property they want to buy is mortgaged or under redemption. Apartments under redemption represent a very small part of market transactions globally and are very rarely the subject of the purchase process, which doesn’t mean that they don’t exist at all.
Let’s explain how this works so that you don’t turn the buying of real estate into a gambling game (instead, gamble on the best betting sites in Hungary or in any other country – trust us, it’s safer).
Buying an Apartment Under Redemption vs Mortgaged Real Estate
According to experts, you can easily buy an apartment under redemption, but it’s important that you have a good lawyer and an experienced brokerage agency that will check all the necessary documentation. If everything is in order with the contract and other paperwork, the buying and selling process is the same as when the basis of acquisition is an apartment donation contract or purchase. A problem can appear here only if the previous owner is still registered in the cadastre, so the purchase and sale process can take up to several months until the cadastre makes a change. Security isn’t in question here.
Unlike apartments under redemption, mortgaged real estate can be found on the market more often. When you like an apartment that’s already mortgaged, the question arises whether there’s a risk of buying in that case, whether the bank can approve a loan to buy an apartment that’s already pledged. A mortgage is a lien on real estate that authorizes the creditor to collect his claim by selling the real estate, in case the debtor doesn’t pay the debt.
3 Main Ways to Buy an Apartment/House Under a Mortgage
On the other hand, the buyer can also get a loan to buy a mortgaged apartment. First of all, it’s necessary to request a confirmation of the remaining debt from the bank where the apartment is pledged, as well as a letter of intent from that bank to issue a write-off permit after the payment of the remaining debt on the loan. Once the necessary documentation has been obtained, you can apply to the bank for a loan. If you receive an affirmative answer from the bank on the approval of the housing loan, a second-order mortgage is established and after receiving the decision on the registration of the mortgage by the cadastre, the bank approaches the payment of funds.
After the realization of the housing loan, it’s obligatory to delete the first-order mortgage. Also, one of the conditions is that the seller liquidates his mortgage or loan and submits a cancellation permit, issued by the bank so that the mortgage can be deleted from the cadastre register.
You can buy a mortgaged apartment in two other ways.
One of the possibilities is for the buyer to pay part of the agreed price directly to the bank as a mortgage creditor in the amount of its claim. In that case, the seller received a letter of intent from the bank before concluding the contract on the sale of real estate, in which the bank undertakes to issue a permit to cancel the mortgage (deletion card) after settling the entire debt. In addition to the letter of intent, the seller must request a certificate from the bank on the state of the debt in order to determine the total amount of the bank’s claim.
After the verification of the contract on the sale of real estate, the buyer will, following the instructions of the bank, pay a part of the agreed price to the special account of the seller in the bank. After this payment, the seller is obliged to take all necessary actions in the bank to liquidate the loan secured by the mortgage, obtain a permit to delete the mortgage, and initiate a procedure for deleting the mortgage before the competent service for the real estate cadastre.
The third option is the most unfavorable for the buyer and therefore we don’t recommend it. The buyer can pay the agreed price directly to the seller’s account, and the seller is obliged to pay the debt to the bank in full with that money. After that, the procedure for deleting the mortgage is the same. This option isn’t favorable for the buyer because it can happen that the seller doesn’t fulfill his obligation, doesn’t pay the debt to the bank and the buyer acquires real estate that remains encumbered by the mortgage.
The first two options are certainly safer and better.
A Pledge Statement Is Also Required to Purchase an Apartment on Credit
A pledge statement is given by the owner of the apartment that a mortgage is based on his real estate. It’s drawn up by a notary and signed by the seller. When you buy an apartment on credit, a mortgage is established on the property you are buying to secure the bank’s claims. In practice, the pledge statement is made and signed immediately before the verification of the contract on the sale of real estate and it is signed by the seller who’s still the owner of the apartment at that time.
The notary public who made the pledge statement submits it to the competent real estate cadastre service for the purpose of registering the mortgage. After receiving the decision on the registration of the mortgage on the real estate that is the subject of the sale, the bank pays out the funds from the housing loan.
If you’re buying an apartment under construction, you can’t apply the same procedure because such an apartment isn’t registered in the real estate cadastre. A special mortgage registration procedure is applied here so that it’s registered on the land on which the facility is being built. After the construction is completed, the apartment is registered in the real estate cadastre and the mortgage is then registered on that apartment. The mortgage ceases to be yours by withdrawing from the real estate cadastre when the secured claim ceases to exist.