Owner’s land charge

An owner's land charge is a land charge that is registered in the land register in the name of the owner of the property. The owner of the property is therefore both the owner and creditor of the owner's land charge.

How an owner land charge comes into being?

An owner land charge arises in 3 possible ways:

1. In the event of contractual repayment of a loan secured by a mortgage on the property, the land register owner has the option of having the mortgage converted into an owner's land charge.
2. If, after a loan has been repaid in full, the mortgage registered as security in the land register is not cancelled, it becomes an owner's land charge by operation of law. The reason for this is that the mortgage, as a so-called accessory security, is closely linked to the existence of an underlying claim. Once the debt is paid off, the mortgage is extinguished and converted to an owner's land charge under Civil Code section 1177.
3. A land register owner can also have a land charge registered in his name himself.

What are the benefits of an owner land charge?

By registering an owner's land charge, the owner can already secure an attractive ranking in the land register in the event that a loan is taken out at a later date. In addition, the registration of an owner's land charge saves registration fees compared to the classic land charge registration by the banks, as the owner's land charge always remains in existence and can therefore always be used for numerous different financing collateralizations. In this case, the fee for deleting old land charges and registering new ones is waived for the financing institutions in each case. The owner land charge is a quick security. It is already registered in the land register and only an assignment to the future creditor is required. Thus, the owner has a quick and flexible security.

Structure of the owner land charge

The owner land charge can be registered as a book land charge or as a land charge by letter. In the case of a land charge with letter (letter land charge), a land charge letter is issued, but not in the case of a book land charge. The letter land charge is the legal rule, but in practice rather a rarity. The owner's land charge (so-called land charge without a letter) is very popular in practice due to its simplified handling. In this case it is not necessary to keep a land charge certificate in the original. However, in contrast to this, the land charge by letter offers the advantage that the assignment to a third party can take place by handing over the land charge certificate without entry in the land register. This means that land register readers do not get to know about an assignment.

What role does an owner's mortgage play in financing?

In the case of financing, for example, of real estate, the collateralization plays a very important role. In addition to creditworthiness, banks also check collateral for the realization of a financing request. In addition, every time a financing is obtained, a rating and therefore a credit rating of the prospective borrower is carried out. Full value collateral, combined with an impeccable credit rating of the loan applicant, results in a very favorable interest rate. Conversely, a weak credit rating combined with low value collateral leads to a higher interest rate. This risk-adjusted interest rate system, combined with the expectation of customers to be offered the lowest possible interest rate, leads banks to regularly take a land charge as collateral. In this context, it is also possible to assign an owner land charge to the bank or financing institution. The assignment of a book mortgage is evident in the land register, but the assignment of a letter mortgage is not.