Selling an apartment with a mortgage, a complete step by step guide

Selling an apartment with a mortgage, a complete step by step guide

Selling an apartment that is still encumbered with a mortgage is one of the most common scenarios on the Polish real estate market. Hundreds of thousands of apartments in major Polish cities are mortgaged, and life means they have to be sold. A move to a larger apartment, a change of city due to work, divorce, financial problems, the decision to emigrate. There are many reasons, but regardless of them the procedure is similar. Let us therefore go through it step by step so that everyone facing such a transaction has a clear picture of what awaits them.

Step one, certificate from the bank. The first thing to do is to order a current certificate of the state of debt. The certificate should contain the current loan balance on a specific day, the interest rate, the installment amount, the date of the last payment, the terms of early repayment and the amount of any early repayment commission. Most banks issue such a certificate within 3 to 14 days from the application. The cost is usually 50 to 200 zlotys, sometimes free for premium clients. The certificate has a specific validity period, usually 30 to 90 days, so it is worth ordering it when we are realistically close to the transaction.

Step two, calculating the minimum price. The price we must obtain from the sale is not only the current loan balance. It consists of several elements. First, the loan balance plus interest accrued until the day of repayment. Second, any commission for early repayment. In most Polish banks for mortgages taken after 2017 the commission for early repayment after the first 3 years is not collected, but before this period it can amount to 1 to 3 percent of the remaining balance. Third, transaction costs, meaning real estate agency commission from 2 to 4 percent of the sale price, notarial fee from 1500 to 5000 zlotys depending on the value of the transaction, income tax of 19 percent on income in case of sale before 5 years from purchase. Fourth, the tax on civil law transactions is usually paid by the buyer, not the seller. The sum of all these items is our minimum price below which we cannot go without an additional payment from our own funds.

Step three, mortgage in the land and mortgage register. Every property encumbered with a mortgage has a mortgage entry in favor of the bank in the land and mortgage register. This entry is visible in section four of the register. The mortgage is not removed automatically after repayment. The bank issues a certificate of full repayment, and then the new owner submits an application for removal of the mortgage to the land and mortgage court. The procedure usually takes 2 to 6 months. Until that time the mortgage entry is visible in the register, but the ownership right is already transferred to the buyer.

Step four, finding a buyer and the preliminary agreement. This is the stage in which we list the offer, view with potential buyers, conduct negotiations. After finding a buyer who is ready for the transaction, a preliminary agreement is signed. The buyer pays a deposit, usually 10 percent of the sale price. The agreement specifies the date for signing the notarial deed, most often within 4 to 12 weeks, and conditions, for example obtaining a loan by the buyer.

Step five, the classic scenario of the transaction at the notary. This is the moment when we formally sell the apartment. The notarial deed contains a key clause about the division of payment. The buyer transfers part of the price directly to the seller’s bank account, up to the amount of the current loan balance plus commission. The rest is transferred to the seller’s account. All this happens within 1 to 7 days of signing the deed, most often using an escrow account or a trust account. After the transfer the bank issues a certificate of complete loan repayment, which is the basis for the removal of the mortgage.

Step six, removal of the mortgage. After receiving the repayment certificate, the new owner submits an application for removal of the mortgage to the land and mortgage court. The application can be submitted in person, by registered mail or electronically. The court fee is 100 zlotys. The waiting time for the application to be recognized is 2 to 6 months, depending on the court’s workload. Until that time the new owner cannot take another mortgage loan on the given property because formally there is still the mortgage entry of the previous bank.

What if the sale price is lower than the debt. This is a rare but possible scenario. It happens when an apartment was bought during a period of high prices and the market has now locally declined, or when the bank requires sale due to the owner’s financial difficulties. In such a situation the bank must consent to a sale at a price lower than the balance. The procedure is formally called a sale with additional payment. The seller must repay the difference between the sale price and the debt from their own funds. Sometimes the bank agrees to sign a settlement and spread this difference over installments, sometimes it requires a one off repayment.

Can the loan be transferred to the buyer. Theoretically yes, in practice very rarely. The procedure called assignment or assumption of the loan requires bank consent and full verification of the new borrower, meaning the buyer. Most banks prefer closing the existing loan and granting a new one on different terms. Sometimes, however, especially with a very favorable interest rate of the old loan, it is worth checking such an option.

Additional things worth knowing. First, a sale transaction with a loan usually lasts 1 to 2 months longer than a transaction without encumbrance due to additional banking procedures. Second, it is worth coordinating the sale date with the purchase date of a new apartment if such is planned. A so called bridge loan can help finance the purchase of a new apartment before selling the old one. Third, professional communication between the seller, buyer, agency, notary and bank is necessary in a transaction with a loan. Each of these parties has its requirements, and a poorly managed process can extend significantly.

At Eternel for years we have been guiding clients through the sale of an apartment with a loan. We know what certificates to order, how to formulate clauses in the notarial deed, how to coordinate transfers between banks. For our clients this means peace of mind and certainty that the transaction will be completed smoothly and without unforeseen complications. Selling an apartment with a loan is today an everyday occurrence on the Polish market, but it requires experience that there is no point in acquiring on one’s own.