In today's article from the series "Tuesday Mornings for Construction Professionals," we continue our series on mortgages. Today, we'll explore the legal aspects of selling mortgaged real estate, including the mortgagee's consent to the unencumbered sale of real estate in the context of developer sales.
I. Sale of mortgaged real estate
The sale of mortgaged real estate requires consideration of a number of civil law provisions, particularly the Civil Code and the Act on Land and Mortgage Registers. A mortgage, as a limited property right encumbering the property, influences the terms of its sale and entails specific obligations for both the seller and the buyer. The key legal aspects related to such a sale are outlined below.
General rules
First of all, it should be noted that a mortgage entered in Section IV of the land and mortgage register maintained for the real estate being sold, constituting an encumbrance, is not automatically deleted from the land and mortgage register as a result of the sale of the real estate. The mortgage encumbers the real estate, and its purchaser becomes a debtor in rem vis-à-vis the creditors listed in the land and mortgage register. Therefore, the sale of a mortgaged real estate makes the purchaser its new owner, but the mortgage does not expire unless the debt is repaid and the creditor consents to the deletion of the mortgage from the land and mortgage register, which will result in the deletion of the mortgage. Deletion of a mortgage from the land and mortgage register is constitutive, meaning that as long as the entry remains, the mortgage continues to encumber the real estate.
Satisfaction of the mortgage creditor
The regulations provide several ways to regulate this issue:
- Repayment of debts by the debtor before the sale of the property (e.g., after concluding a preliminary agreement) – before the sale of the mortgaged property, the seller may repay the debt, and the mortgagee is obligated to issue a certificate confirming the expiry of the mortgage security. Subsequently, on this basis, the mortgage may be deleted from the land and mortgage register.
- Mortgage cancellation by the buyer – upon signing the sales agreement, a portion of the purchase price is transferred directly to the account designated by the mortgagee, and only the remaining amount after repayment of creditors is transferred to the seller's bank account. This provides the buyer with the assurance that the debt has been repaid.
Pursuant to Article 92 of the Land and Mortgage Register Act, in the event of the sale of a portion of a mortgaged property, the seller or buyer may request that the creditor release that portion from the encumbrance if it is relatively insignificant and the value of the remaining portion of the property provides the creditor with sufficient security. At the creditors' request, the proceeds from the sale should be paid to them in accordance with the priority of their mortgages .
It should be remembered, however, that before signing the agreement, declarations from all creditors will be required regarding the total debt amount, indicating the basis for the entry, the costs and conditions of early repayment of the debt, the account number for repayment, and the so-called promise, i.e. a declaration by the creditor that after the debt is fully repaid, he will issue permission to delete the mortgage from the land and mortgage register kept for the property.
Deletion of a mortgage from the land and mortgage register
Pursuant to Article 94 of the Land and Mortgage Registers and Mortgages Act, a mortgage expires upon satisfaction of the claim . To delete a mortgage from the land and mortgage register, an application for deletion of the encumbrance must be submitted to the land and mortgage register court. The application must include appropriate evidence of debt repayment (a so-called "letters duzalny" [a discharge letter], a document issued by the bank after the mortgage loan is repaid), such as a certificate from the creditor confirming full repayment of the debt and consent to deletion of the mortgage. A court fee of PLN 100 is payable for a single mortgage deletion application.
It is important that the creditor's consent to deletion be at least in writing, with a notarized signature. In the case of a bank, consent may be issued pursuant to Article 95 of the Banking Law.
Risk involved in purchasing a mortgaged property
Purchasing a mortgaged property involves risks that should be considered by the buyer. The buyer of the mortgaged property may be obligated to repay the debt. Therefore, mortgaged properties are typically acquired in several steps:
- examining the legal status of the property and obtaining a certificate from the mortgage creditor regarding the debt status from the seller,
- conclusion of a sales agreement in which part of the price in the amount equivalent to the debt under the loan secured by a mortgage established on the real estate is paid by transfer directly to the mortgage creditor's account indicated in the certificate, in order to fully repay the debt,
- the difference between the agreed sales price of the property and the above-mentioned amount of the claim will be paid by transfer to the seller's account immediately after the submission of a certificate from the mortgage creditor, which shows that the claim has expired due to its full repayment and the creditor consents to its deletion from the land and mortgage register maintained for the property in question.
- submitting an application to the land and mortgage register court to delete the mortgage from the land and mortgage register, attaching the required documents.
II. Consent to the unencumbered sale of real estate in development agreements
For developers, the regulations contained in the so-called Developer Act are of great importance in the context of their investments, which are often financed with bank loans.
Pursuant to Article 25 of the Act on the Protection of the Rights of Purchasers of Residential Premises or Single-Family Homes and the Developer Guarantee Fund (the "Development Act"), a developer commencing sales is required to obtain the consent of a bank, credit union, or other mortgage creditor to establish, without encumbrances, separate ownership of the residential premises and transfer ownership to the purchaser upon payment of the full purchase price by the purchaser . It is also permissible to require the mortgage creditor to provide this consent prior to entering into the sales agreement.
The consent or the obligation to grant it constitutes an annex to the development agreement.
If the developer fails to comply with the requirement to obtain consent or to provide it, the buyer may withdraw from the development agreement under the terms of Article 43, paragraphs 1-5 of the Development Act. Furthermore, failure to obtain such consent will result in criminal liability for the developer. Furthermore, liability rests not only with the developer but also with entities acting on their behalf or in their interest.
From the buyer’s point of view, the right to request the transfer of ownership of the premises without a mortgage encumbrance is also important in a situation where the entry of the claim under the development agreement was submitted to Section III of the land and mortgage register earlier than the application to establish a mortgage.
In summary, mortgages on real estate are of significant importance to potential buyers of entire properties, parts of properties, or individual units. As a law firm, we advise clients on every step of the real estate acquisition process, including securing buyers of mortgaged properties.
This article is for informational purposes only and does not constitute legal advice.
Legal status as of April 7, 2025
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