Even though buying a house and getting a mortgage go together more often than not, the topic still ties some homebuyers in knots. Read on for some key pointers to remember and sorting all issues of mortgages, promissory notes and real estate lien.
If only it were that simple. You find your dream house - agree on a purchase price with the seller and pay it - and move in. The reality is a bit more convoluted: the numerous legal regulations to note, for one thing, as well as the need to get to grips with mortgages whenever financing is relevant. Comb the law books to reference the term ‘mortgage’ and things get even murkier, as Swiss law does not recognise this term. Instead, the Swiss Civil Code (CC) refers to the mortgage certificate.
But what links the two? How are mortgage certificates issued - and why must they remain unpunched? Worry not - making sense of it all is easier than you think. Here’s our roadmap through the jargon jungle!
Rays of morning sun come through the large windows... an enticing balcony view of green hills awaits. The Schweizer family have finally found their dream home and are over the moon. As is normal in Switzerland, the family takes out a mortgage loan with the bank to finance part of the purchase price. This process involves establishing a mortgage on the property and issuing a mortgage certificate as security for the creditor(s). Or in the warm words of the Swiss Civil Code (ZGB) Article 842, Section 1:
A mortgage certificate gives rise to a personal debt secured by a mortgage.
Right. In other words, this means: the land - namely the real estate - constitutes the collateral for the debts. The bank is entitled to seize and sell your home if you fail to pay the interest due on the mortgage loan. However, since the debt is classed as a “personal claim”, you are liable not only to forfeit the property, but also private assets. So rather than a contractual instrument, the mortgage certificate is actually a security that resembles a share: It has a high value and it is tradable. The prerequisites to prepare the deed have already been clearly set out: The notary handles the public notarisation, whereupon the land register issues the mortgage certificate. And while back in the day, all mortgage certificates were actually issued as hard copies, you’re far likelier to see a so-called register mortgage certificate these days. In other words, an electronic entry in the land register (For more on this, see the corresponding subchapter below).
But those of you retaining the paper mortgage certificates should still keep a few more things in mind. And yes, that means pondering what to do if it gets lost or falls into the wrong hands. In that case, the document would have to be declared null and void by the court which would effectively revoke its validity, although this is costly and time-consuming. With all this in mind, you should always safeguard the paper mortgage certificate - ideally in a safe - to protect against fire or theft.
Incidentally, never, ever, consider filing it in a ring binder alongside other key documents - because punching a hole in the mortgage certificate is a definite no! Just like other documents, e.g. the identity card, this would instantly render the mortgage certificate null and void.
The paper mortgage certificate can be issued to different parties. The identity of the recipient dictates whether it is referred to as a registered mortgage certificate or a bearer mortgage certificate.
The registered mortgage certificate is issued in the name of the creditor, which is your bank more often than not. If another bank takes over the mortgage, this must also be noted on the title deed itself.
The bearer mortgage certificate is not issued to a named recipient, meaning that the person physically owning the note is the beneficiary of the lien. However, its days are numbered given the inability to issue this document electronically, unlike the registered mortgage certificate and many cantons now operate electronic land registers.
Since 2012, the mortgage certificate no longer need be a security and can also function as a paperless register mortgage certificate. As the name suggests, the latter constitutes an electronic entry in the land register. The main advantage here is doing away with the invariably costly preparation, storage and transmission of such documents between the notary's office, the holder and the bank and eliminating the risk of loss or theft to boot. Since the electronic register mortgage certificate is issued in the name of the creditor, it remains a registered mortgage certificate at all times. And even those having issued a mortgage certificate dated pre-2012 are not bound to the printed security forever: converting the latter into an electronic (registered) mortgage certificate is feasible. A joint application from the landowner and creditor in writing is needed and templates already in place make the conversion less of a headache.
Although reaching the point where the mortgage certificate is actually established is admittedly an involved process, breaking it down into smaller steps is one of the best ways to make it more manageable.
Well done - you’ve decided to make the plunge and buy a property. The first part of the process is negotiating with the banks and the more you prepare, the easier these discussions will be. This means having the right documents to hand, among other things. As for the exact documents needed, please see our checklist.
Once you reach agreement with the seller and the purchase contract is concluded, the bank draws up the pledge agreement, which is usually included as part of the purchase contract. The notary's office then reviews the pledge agreement and settles any legal issues as required between banks, buyers and sellers. There is often already a mortgage certificate on the property. If so, then your bank can pay off the creditor and take over the existing mortgage certificate. However, all this basically goes on in the background and does not require your input as a buyer. The key thing is to have a good notary at your side.
The procedure also differs from one canton to the next. In Zurich, for example, the canton directly regulates the notary's office. In the canton of Bern, conversely, notaries work privately. In sum therefore, your task is to decide on your contact person of choice, whether state or private. And once you have decided, the notary will embark on the legal tasks involved, which includes handling the transfer of old mortgage certificates or establishing new ones.
The technical term used to refer to the signing of the purchase contract is public notarisation and this happens at an appointment at which the notary, seller and (naturally) you as the buyer are all present. The notary reads out the contract and clarifies any questions or issues. Then, providing all present are in agreement, each party then signs the purchase contract. At this point, reconfirming nothing has fallen through the cracks is top of mind for all the signatories and with that in mind, handling possible stumbling blocks in advance makes sense. We’ve included some pointers to avoid purchase contract issues - read more here:
Caution though, even when you’ve concluded a purchase agreement, this, in itself is not sufficient to make you the owner of the property. Legally transferring the ownership requires a written application to the relevant land register, which can be done as soon as the public notarisation is complete.
The final step involves the issuing of a mortgage certificate. Any need to issue a new title is handled by the land register when entered into the land register.
Finally paid off your mortgage loan? Well done! But even now, keep the mortgage certificate safe and do not discard it. This is rarely a good idea, for several reasons:
Issuing a mortgage certificate in the first place is a costly business, right from the off. In Bern, for example, the fees run to around 800 Swiss francs, depending on the complexity of the case.
Instead, you could instead consider reusing the mortgage certificate for a further mortgage.
Or, thinking ahead down the line, allow your heirs to benefit from any pre-existing mortgage certificate.
Who knows what might happen? Mortgage certificates cover not just house-buying, but also renovating and remodelling property.
Created in collaboration with Protekta.