Yes, but settlement does not remove the encumbrances. The law expressly states that ending and settling co-ownership cannot prejudice persons holding rights over the property. The bank’s mortgage therefore does not disappear on settlement and continues to burden the property given as security. It must be dealt with separately with the creditor, usually before signing the agreement.
Two siblings inherit a house and one takes out a loan secured on their share. Or former partners bought a flat with a joint mortgage and are now separating. The same applies in both cases: an agreement between them is not enough because a third party also has rights over the property.
The overlooked rule
Termination and settlement of co-ownership may not prejudice persons holding rights encumbering the property.
— Section 142(3) of the Civil Code (unofficial translation)
The sentence is short and its consequence strict. Whatever the co-owners agree and however the court decides, the position of a secured creditor, easement beneficiary or tenant cannot be worsened as a result. Settlement changes relations between the co-owners, not their relations with third parties.
Why a mortgage does not disappear on its own
A security right ends on the grounds listed by law, notably extinction of the secured claim, waiver of the security right, expiry of the period for which it was created or its enforcement (Section 151md(1)). An agreement between co-owners is not among these grounds.
Even after it ends, deletion from the Land Register requires an application, supported by the security provider with a document issued by the secured creditor (Section 151md(2) and (3)); we discuss this in the creditor no longer exists but the security right remains on the title record.
Practical solutions
Repay the loan from the settlement payment. The person receiving the property usually pays out the others, with part of that payment going directly to the bank. The sequence of steps and routing payments through escrow are essential; otherwise one co-owner may cease to be an owner while remaining a debtor.
Assume the debt with the bank’s consent. The bank assesses the new debtor separately and consent is not automatic. Without it, the settlement cannot properly be concluded, even if the Land Register would register the agreement.
Refinance. A new loan to one co-owner repays the original loan and pays out the others. The ranking of security rights must also be addressed, because the new bank wants first priority.
In all three cases, speak to the creditor before signing. A settlement agreement concerning immovable property must be in writing (Section 141(1)), and after the registration application has been filed it can be changed only by an addendum (Section 42(4) of the Cadastral Act).
When the court decides
The court takes encumbrances into account because it is bound by the same rule. When physically dividing property, it may also create an easement over a newly created property for the benefit of the owner of another newly created property (Section 142(3)), addressing access and utilities.
An encumbrance also affects the value at issue in the proceedings. If the property is to be awarded to one co-owner against reasonable compensation (Section 142(1)), receiving it free of encumbrances is different from receiving it burdened. This is where having an expert valuation and legal opinion prepared in advance is worthwhile, rather than improvising at the hearing.
Other points to watch
- Enforcement and tax security rights. The same applies as to bank mortgages; they also often indicate that the other co-owner has problems that may surface in other ways.
- Leases. Leases of the property do not end on settlement, and the new sole owner takes them over.
- Easements benefiting third parties, such as a lifetime right of residence, remain in place.
- Order of entries. If another instrument reaches the Land Register between signing the agreement and filing the application, entries are made in the order of receipt (Section 41(2)).
How we manage the process
Before preparing the agreement, we review encumbrances and annotations and explain which will remain after settlement; this forms part of property legal due diligence. We structure the settlement of co-ownership so that payments, bank consent and registration follow one another. If the secured creditor or ranking of security rights changes, we also prepare the security agreement and related applications.
If a loan is secured on the property, contact us before signing the agreement. Any amendment requires the consent of the parties to the addendum. The bank need not be a party to every settlement agreement; its separate consent must be addressed particularly where the debtor, security or loan terms are changing.
This answer provides general information on the law as at 10 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.
