The creditor no longer exists, but its security remains on our title sheet. How do we remove it?

A typical scenario: you repaid a loan ten years ago, but the bank has since merged or ceased to exist, or the creditor was a company removed from the Commercial Register. No one remembered the security until you wanted to sell the property or offer it as security to a new bank. The buyer will not sign while the encumbrance remains on the title sheet.

A terminated security right and a registered one are different things

The Civil Code first lists the grounds for termination. These include termination of the secured claim, waiver of the security right, expiry of its agreed duration or enforcement of the right (Section 151md(1)). Repayment therefore ended the security in law, but not in the records:

After a security right terminates, it is removed from the register of security rights or from a special register where the law requires registration in that special register for its creation. Removal takes effect on the date stated in the application, but no earlier than the date on which the security right terminated.

— Section 151md(2) of the Civil Code, unofficial translation

The real estate cadastre is such a special register. Removal therefore takes place on application. It will not happen by itself, even after twenty years.

Who must apply?

The law allocates responsibility clearly, although practice does not always follow it:

The secured creditor must apply for removal without undue delay after the security right terminates. […] The security provider may also apply, but must attach written confirmation of discharge of the obligation or another document proving termination of the security right issued by the secured creditor.

— Section 151md(3) of the Civil Code, unofficial translation

The creditor has the duty, but your concern is a clean title sheet, rather than a sanction against the creditor. The law therefore also allows you, as security provider, to apply.

The catch is that the supporting document must be issued by the secured creditor. If the creditor no longer exists, no one is available to issue it. This is usually where matters stall, and most owners put the issue aside until a buyer appears.

If the security was created by a decision of a court or administrative authority and later cancelled, removal is based on the decision of the authority that cancelled it. Whether another public instrument or a court decision can be used must be assessed in light of the specific ground for termination and the cadastral rules.

What can be done if the creditor no longer exists?

The procedure depends on how the creditor ceased to exist, which can be established from the Commercial Register in an afternoon:

1. It has a legal successor, following a merger, consolidation or division. The successor issues the confirmation, and documents proving succession must also be supplied. This is the simplest and most common scenario, especially for banks. See company mergers and updating property ownership.
2. It has no legal successor. Supplementary liquidation under Section 75k of the Commercial Code may be available where genuine unliquidated assets are discovered and the other conditions, including payment of an advance, are satisfied. The need for confirmation of a debt that has already been repaid does not itself constitute such an asset. In the absence of unliquidated assets, the existing documents and an appropriate court route must be assessed. We discuss the supplementary liquidation regime in a company owning property was removed from the Commercial Register. Watch the four-year deadline involved.
3. You have evidence of repayment, but not from the creditor. This might be a bank statement, confirmation of settlement from an insolvency administrator or a court decision. Whether the particular document is sufficient requires assessment. Having it checked beforehand is cheaper than learning the answer through suspended proceedings.
4. None of these is available. The remaining route is court proceedings seeking a declaration that the security right does not exist, provided the procedural requirements are met. The correct parties and procedural route must first be determined; a defunct legal entity cannot simply be named as the defendant.

Why you should not postpone it

Delaying removal can complicate both a sale and financing:

• The sale stops. Neither the buyer nor their bank will accept property carrying someone else’s encumbrance. The signing date falls through, often taking the price with it.
• New financing is unavailable. The new bank wants first priority, which it cannot have while the old security remains.
• Due diligence identifies an issue that results in a retention or purchase price reduction, usually exceeding the cost of resolving it in advance.
• Time works against you. Documents, witnesses and successors become harder to trace each year. If supplementary liquidation is needed, a deadline is running after which it can no longer be requested.

How we handle it

We start by establishing what happened to the creditor and which of the four scenarios applies. This is a short, inexpensive step that determines everything else. Our property legal due diligence includes checking encumbrances that remain on the title sheet without an underlying basis. If a dissolved company needs to be restored, our company liquidation and dissolution work follows. If a claim is necessary, we take on litigation representation.

If you plan to sell or refinance, address this now, rather than in the week before signing when postponement is the only possible outcome.