A bank may make drawdown of the loan conditional on security over the property being bought, yet the buyer becomes the owner only upon registration in the cadastre. A security right may be created over an asset owned by the security provider, who need not be the debtor, so the bank may ask for the seller’s signature or for an agreement over property the buyer will acquire in the future. The risk for the seller is that their property secures someone else’s loan before they have been paid. Before signing, therefore, agree when and how the security right will end if the purchase does not go ahead.
You are selling a flat to a buyer who is financing it with a mortgage. Shortly before signing, the bank sends a draft security agreement in which you are named as the security provider, even though you are not the one taking the loan. The law permits such an arrangement, and it follows from the way ownership and security rights are registered for property. For the seller, however, it is not risk-free, and it is worth dealing with that in the agreements before you sign them.
Why the bank needs the seller’s signature
The buyer does not become the owner of the flat by signing the purchase agreement, but upon registration in the cadastre (Section 133(2) of the Civil Code). A security right over property likewise arises only upon entry in the cadastre (Section 151e(2)). If the bank does not want to release the money before it has security, the law offers two routes.
The first is a security agreement with the seller. A security right may be created over an asset owned by the security provider (Section 151d(3)), and the security provider need not be the debtor; an owner may secure another person’s debt with their own asset. The seller therefore encumbers what is still their flat in favour of the buyer’s bank. After the transfer, the security right takes effect against the new owner, who assumes the rights and duties of the security provider (Section 151h(1) and (2)).
The second route is a security agreement made directly with the buyer over property they have yet to acquire:
A security right may also be created over an asset, a right, another item of property value, a flat or non-residential premises that the security provider acquires in the future, including where the asset, right, other item of property value, flat or non-residential premises comes into existence in the future or where its creation depends on the fulfilment of a condition.
— Section 151d(4) of Act No. 40/1964 Coll. (unofficial English translation)
Such a security right arises only when the security provider acquires ownership (Section 151f(2)). Which route the bank takes is determined by its drawdown conditions.
Where the risk lies for the seller
If you sign the security agreement as the security provider, your flat secures the buyer’s loan at a time when you are still its owner and the purchase price is not in your account. So long as the transaction proceeds as planned, nothing happens. The problem arises if the bank ultimately does not make the drawdown, the buyer withdraws from the agreement, or registration of the ownership right does not go through: the security right remains registered against your flat and its removal depends on the bank. A security right ends, for example, where the secured creditor waives it, or in a manner agreed in the agreement creating the security right (Section 151md(1)(c) and (h)); where the security provider applies for removal from the cadastre, the application must be supported by a document issued by the secured creditor (subsection (3)).
What to agree before signing
- Termination of the security right if the purchase does not go ahead: agree in the security agreement, or in a separate undertaking by the bank, that it will waive the security right and issue the document needed for its removal if the loan is not drawn within a specified period.
- The loan goes directly to you: provide in the purchase agreement that the bank pays the purchase price into your account, and set a deadline by which it must be drawn, with a right for you to withdraw from the agreement if that deadline passes in vain.
- The order of filings: the purchase agreement and the security agreement are two documents and each goes to the cadastre in a separate application (Section 30(5) of the Cadastral Act); rights are entered in the order in which the documents were delivered (Section 41(2)). Who files what, and when, should be set out in the agreement.
- Costs and cooperation: who pays the fees for registration and removal, and who obtains the documents from the bank.
How we can help
We align the purchase agreement with the drawdown conditions and review the bank’s security agreement so that it protects the seller as well, as part of our buying a property with a mortgage service. We carry out a separate assessment or preparation of a security agreement as our security agreement service. Why the period between signing and registration is sensitive for both parties is explained in when do I become the owner of a property?. If your own mortgage still encumbers the flat you are selling, the procedure for repaying it out of the purchase price is described in the article buying a flat with the seller’s mortgage.
This answer provides general information on the law as at 12 September 2026. It does not constitute legal services or replace an assessment of an individual case. The details of your situation may differ. Book a consultation to discuss them.
