Can you buy a flat that still has the seller's mortgage on it? Who pays for the discharge?

Question

José Manuel Alburquerque · Accepted Answer

Yes. It is a very common situation, in which the seller pays off the loan at the signing itself with part of the price, which you hand directly to the seller's bank. But paying the debt does not remove the mortgage from the “Registro de la Propiedad”, the Land Registry, because for that the bank then has to sign a deed of discharge, which must be registered. The outstanding debt and the early repayment charge, if one was agreed, are for the seller to pay. The seller usually also pays for the deed of discharge and its registration, having undertaken to hand over the flat free of charges (encumbrances), but it is best for the deposit agreement (“contrato de arras”), the one signed when the down payment is made, to say so. How it is done at the signing Before signing, the seller asks their bank for a certificate of what is owed on that day, with interest up to that date. At the notary's office, you give the seller's bank the exact amount of the debt, by banker's draft or bank transfer. You pay the rest of the price to the seller. The seller's bank must be present at the signing or have sent what is needed to receive payment at that moment. Otherwise, the mortgage cannot be discharged on the spot. On that day the debt is paid off, but the mortgage remains registered until the bank signs the deed of discharge and it is registered. If nobody deals with it, years later the flat will still show as mortgaged. If the flat has more than one mortgage, the debts on all of them are paid at the same signing. If it also has an attachment (seizure), which is not discharged at the notary's office on the same day, the necessary part of the price is withheld or deposited with the notary until the order to discharge it comes through. If the seller's mortgage had already been paid off but is still registered, how it is discharged is another matter. Who pays what The debt and, if the loan provides for one, the early repayment charge are paid by the seller, because the loan is the seller's. The deed of discharge and its registration are normally also paid by the seller, who undertakes to hand over the flat free of charges. This is almost always what is agreed. To avoid disputes, put it in writing in the deposit agreement. If the discharge is going to be handled by an agency (“gestoría”) of your choice or by your own bank's agency, it can be agreed that its cost is withheld from the price. The law reduces the official notary and Land Registry fees for these discharges, so they are not usually expensive. Another option, taking over the seller's loan You can take over the seller's mortgage loan instead of applying for a new one, which is known as subrogation. For this, the bank has to agree. The bank will assess your creditworthiness and may charge whatever subrogation fee has been agreed. Nowadays this is uncommon, because buyers usually bring their own financing.