How do I get a deposit release
Declaration of exemption in construction financing
If buyers were found for the individual apartments before the construction project was completed, they must make payments before construction is complete. This means that the developer can bear costs for personnel and materials. A bank loan usually has to be taken out anyway, which is then secured by the global land charge. This means that all condominiums are pledged to the bank in the form of a land charge. It serves as security for the builder's bank.
The role of the declaration of exemption
“Global” in this context means that the land charge includes all condominiums, even if they have different owners. In this way, the bank can pledge all apartments in the event of bankruptcy.
But the buyer's banks also have to secure a land charge for their real estate loans. This would mean that the condominiums are doubly secured or only securely secured for the buyer's bank. At this point, the declaration of exemption comes into play in order to avoid a conflict of interest between the buyer's bank and that of the property developer.
In addition, the property developer may only accept payment in accordance with the provisions of the Broker and Property Developer Ordinance if his bank has issued a declaration of exemption. Since he uses the buyer's assets for his construction project, the property developer is subject to special security obligations, which include the exemption of the contractual object from all mortgage liens.
Issuance of the declaration of exemption
The declaration of exemption is issued by the builder's bank. In it, you undertake to forego your security and to release the property from the global land charge. The prerequisite for this, however, is that the buyer has paid the purchase price in full to the developer. By paying the purchase price, the bank no longer has any credit risk with regard to this condominium. In addition, the buyer is now the new owner of the apartment.
Protection for the buyer
If you purchase a condominium during the construction phase, you must make partial payments before completion. For your protection, the property developer may only accept these payments if his bank ensures by issuing a declaration of exemption in accordance with § 3 MaBV that your apartment is released from the global debt after the full purchase price has been reimbursed.
3 Real Estate Agents and Builders Ordinance (MaBV)
Section 3, Paragraph 1, Clause 1, No. 3, Clause 2 MaBV regulates how the minimum content of a release promise should look like. According to these specifications, the release of the contract object from all mortgages must be secured - even in the event that the construction project is not completed.
The exemption is only secured if the real property liens that are not to be assumed are deleted. This is true when
- the construction project is completed and the contract sum due has been paid
- or immediately after payment of the corresponding part of the contract amount, which corresponds to the construction status achieved.
For the buyer, the declaration of exemption means, on the one hand, that he is completely exempted from the global burden, and on the other hand, the bank thereby also undertakes to give priority to the buyer's lien on property in the event of non-completion of the property. This gives the buyer a certain protection if the property is not completed on time or not at all.
Therefore, the buyer's bank will also request a declaration of indemnity before an initial payout is made. Because only when the global land charge is actually deleted by the property developer’s bank, the loan will be disbursed. It is therefore particularly important for the buyer to insist that this declaration be issued. Whatever the intended use, if you are looking for a loan, it is advisable to do a loan comparison first.
Non-completion of the construction project
Should the construction project not be completed in accordance with the contract for reasons for which the buyer is not responsible, the bank can either
- approve the purchase object as soon as the buyer has paid the purchase price to the aforementioned account in accordance with the construction status, or
- reimbursement of the amounts paid in by the buyer, without interest, step by step against deletion of the notice of conveyance and mortgages.
If the parts of the purchase price paid so far by the buyer do not yet correspond to the construction status achieved, the bank can first request payment of the difference before the land charge is canceled or released.
It should be noted, however, that the financing bank can reserve the right to repay the additional payments made up to the proportional value of the unfinished property. The buyer is then left with other payments, such as notary fees or overpayments.
You can protect yourself against this risk with a contract performance bond from the property developer. However, this would increase the financing costs of the construction project - these increased costs would then in turn be passed on to the buyer.
The type of property also often plays a role in the bank's decision:
- Single-family or terraced house
The approval for a single-family house or terraced house is rather unproblematic, because it is then up to the buyer whether he would like to complete the property with craftsmen commissioned by him. Since such units are individual objects, the approval is probably the first alternative course of action for the bank. With the approval, the financing is then ended.
- Apartment buildings
This is much more difficult when it comes to the approval of apartment buildings. Unsold units become worthless to the bank if the property is not completed. The bank is at risk through its developer financing. If the non-completion of the construction project is also associated with construction defects, the buyers can assert purchase price reduction claims against the bank. In such cases, an amicable settlement is advised in order to avoid legal proceedings.
What a priority notice of conveyance does
According to Section 883 of the German Civil Code (BGB), a notice of conveyance ensures the right to transfer ownership of a property under the law of obligations. This protects the property buyer's claims to property until they are entered in the land register. Because this entry is necessary for an effective transfer of ownership from the seller to the buyer.
Since the entry can drag on for a longer period of time depending on the capacity of the land registry, a notice of conveyance is instead noted in the land register. This means that the property cannot be sold to other interested parties.
Paying off the loan
As a rule, your bank will only pay you a loan once it has received the exemption from the builder's bank. This is the only way for your lender to receive security in the form of the building to be financed.
If the loan is only paid out to you when the global land charge has been canceled, you as the buyer are usually dependent on bridging financing. Such a loan can cover the short-term financial requirements of real estate financing. In this way, you can already pay the installments to the property developer before your final loan has been approved.
Depending on how long it takes to issue the declaration of exemption, it can therefore make sense to initially bridge the entire purchase price of the property with interim construction financing.
However, it should be noted that bridging finance for a bank represents an increased risk and additional work. You can usually pay for this with a high interest rate and high fees.
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