What is a mortgage note?

If you intend to purchase real estate, the term “mortgage note” has almost certainly been mentioned to you by your banker, insurer, financial advisor, notary, or broker.

And if you are already a homeowner and think you know enough, do not forget that it is very important to know where it is located. Read on to find out why…!

Definition

To buy your house or apartment, you will likely take out a loan from a bank or an insurance company. This is what is known as a mortgage.

In exchange for the disbursement of funds, your creditor will require a mortgage note which, if the debt is not repaid, will allow them to force the auction of the pledged property. They can then collect the amount still owed to them from the proceeds of the sale.

There can be several creditors on the same note. They are registered by “rank” (1st rank, 2nd rank, etc.) and are repaid in the order of registration in the event of a forced execution.

It is therefore a personal claim secured by a real estate pledge (Article 842 of the Swiss Civil Code).

What does a mortgage note look like?

There are two forms of mortgage notes:

• The paper form, which was commonly used. It is a green-colored security. It is either nominative or bearer. In the latter case, it is crucial not to lose it!
• The virtual form, called a “registered mortgage note,” which is recorded in the Land Register. It is “dematerialized” and therefore cannot be lost or stolen.

How much does a mortgage note cost?

The notary establishes the note at the time of the transaction. Its creation has a cost representing approximately 2% of the guaranteed amount (calculate online the notary fees for creating a mortgage note in Geneva). These fees cover taxes, Land Registry costs, notary fees, and miscellaneous expenses.

This document specifies the amount the creditor (the holder of the title) can claim from the debtor, as well as the property or properties serving as security and the maximum interest rate.

Mortgage notes must always be linked to a property

When a property is sold, the mortgage loan is repaid and the mortgage note is returned by the financial institution to the selling owner. If they own another property at that time, they can transfer it. The notary is responsible for modifying the property designation.

The benefit is being able to reuse it. There is no need to pay again to create one for a future loan (for expansion work or the purchase of another property, for example). If the new loan is higher than the amount on the mortgage note, the notary can increase it, with fees applying only to the additional amount registered.

However, if the seller no longer owns any other real estate in Switzerland, they cannot keep it. They will have the choice between:

• having the mortgage note canceled by the notary (which will incur cancellation fees),
• or transferring it to the buyer, who will use it to guarantee their own loan. Most often, if there has been no price negotiation, it is offered for free (remembering that canceling it would cost the seller). But if the price has been discussed, it becomes part of the negotiation and is often transferred at a preferential rate (generally 1% of the amount shown on it).

I cannot find my mortgage note… Is it serious?

In most cases, your mortgage note is held by your creditor.

However, if you have repaid your loan, received the note during your purchase without having to use it, or if you inherited it with the property, then the note was handed over to you.

If unfortunately you cannot find it, you will need to start the process with your notary to annul it.

This is a lengthy process that generates costs. The notary must file a petition with the competent court. They must publish several notices in the official gazette to ensure that no one else holds the note, which would allow them to assert rights over it. Once the legal deadlines have passed (approximately 6-8 months), it can then be canceled or duplicated.

It is therefore very important to anticipate this issue if you are planning to sell your property.

Indeed, the notary cannot proceed with the sale of a property if a mortgage note is lost. All notes are recorded in the land register, so the notary has the list and is obligated to gather them during the transaction.

This is because they must protect the future owner from any risk. The danger, clearly, is that one day someone might produce this note and demand repayment of the amount shown on it from the owner of the property used as security.

The notary ensures this does not happen and blocks the sale until the matter is resolved. Or, if the sums involved allow it, they execute the sale but withhold from the price, until the end of the procedure, an amount corresponding to that guaranteed by the note plus 3 years of interest at the maximum rate. If no one comes forward and the judge pronounces the annulment of the note, this sum is then paid to the seller.

Discuss this openly with your broker and anticipate this question when putting your house or apartment up for sale, as you could lose your buyers. You could even be liable to compensate them if you have signed a promise to sell with them and they have incurred costs, but you are unable to sign the final sale on the agreed date.

Are there other costs to consider when buying real estate?

Yes, this question will be the subject of a future article. Subscribe to our newsletter and follow us on social media so you don’t miss our upcoming topics.