In the case of encumbered real estate, the first question to be clarified is whether the purchase price equals or exceeds the amount of the encumbrances of the property. If the purchase price is lower than the total value of the charges, the buyer will ultimately pay a higher amount for the property than the agreed purchase price, since even after paying the full purchase price, the property will not be completely unencumbered. In such a case, the sale and purchase should be considered.
In cases – and this is usually the case – if the purchase price is higher than the total value of the charges, there are several possibilities for relief. The simplest but least recommended solution is if the buyer pays the purchase price (or a part thereof) directly to the seller, and the seller takes care of easement from the purchase price received. In such case, there is a risk that the seller may not relieve the burden on the property or not quickly enough. (For example, the seller uses the purchase price for daily life or to pay off other debts.)
In order to avoid such situations, I always recommend that the buyer pays the purchase price (or a given part of it) directly to the holder of the encumbrance, such as the mortgagee or to the bailiff if the property is under foreclosure. This solution works only if the seller receives accurate information from the bank about the amount required for the easement and to which bank account it must be paid. The procedure is similar in case of foreclosure, since the bailiff provides information on the total amount required to terminate compulsory enforcement procedure. All information necessary for easement shall be exhaustively regulated in the sale and purchase contract.
In possession of the data and information required for easement, the buyer will directly pay to the given creditor (bank, bailiff), which then issues the necessary statement to cancel mortgage or terminate foreclosure.
The above solution also works if the buyer covers the purchase price (or a part thereof) from a bank loan because then the lending bank will pay to the seller’s bank.
If you are about to buy real estate, feel free to contact me, because I provide professional legal services also in complicated sales like the ones above.
