The apartment is pledged to the bank. Buying an apartment and transferring debt: how to arrange it?

Last update: 06/09/2021

Question:

I want to buy a mortgaged apartment that is pledged to the bank. Is it possible to buy an apartment with a mortgage? How to do this correctly? What are the risks for the Buyer?

Answer:

It is possible to buy such an apartment, and such transactions occur regularly in the real estate market. The Buyer's risks here are small (more about them below) if he understands the features and technology of such a transaction. Let's explain in more detail.

A mortgage is an encumbrance on property rights. At the same time, the ownership right of the apartment owner does not disappear anywhere. There are simply some restrictions on the disposal of your property. In particular, if the apartment is mortgaged by a bank , then it can be bought (sold) only with the consent of the mortgagee (that is, the bank). This is directly stated by the Civil Code (clause 2, article 346, Civil Code of the Russian Federation) and the Law on Mortgage (clause 1, article 37).

But you don’t have to wait for this consent. How so?

The fact is that buying an apartment with a mortgage encumbrance can, in practice, happen in different ways. This depends both on the agreement between the Seller and the Buyer, and on the position of the mortgage bank.

Who can have the right to use the apartment? Surprises for the Buyer.

The apartment is pledged to the bank. Buying an apartment and transferring debt: how to arrange it?

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The expert told how to improve living conditions with an open mortgage

The best option is to pay off the mortgage during the purchase and sale transaction. In this situation, you can sell your mortgaged apartment and buy a new one at the same time. Since the mortgaged apartment is pledged to the bank, permission (consent) for the transaction will be required from the bank.

A financial literacy specialist told Rossiyskaya Gazeta about what needs to be done for this.

Olga Daineko, expert of the financial literacy directorate of the NIFI of the Russian Ministry of Finance:

1) First, you need to clarify with your bank the scheme for early repayment of the mortgage (it may differ slightly in different banks), the timing of the transfer of the mortgage and the preparation of the necessary documents.

2) Apply for a new loan in order to understand what cost of future housing you can expect. However, when considering the application, the bank will take into account the payment on the current mortgage obligation. Different banks have different requirements, but on average, payments on all loans should not exceed 50% of the total (family) income. If your income is not enough, it is better to apply to the same bank where your current mortgage is issued. They may take into account that the existing loan will be repaid before a new one is issued.

3) Next, you need to find a buyer for your home and submit an application to the bank for the voluntary sale of the collateral property to obtain consent to the transaction, attaching to it copies of the passports of the borrower and the buyer, a preliminary agreement for the purchase and sale of an apartment with the buyer, and an agreement on the purchase by the borrower of the apartment being sold. When consent is received, the bank requests a certificate of the balance of the mortgage debt to be fully repaid.

4) Prepare the documents necessary for selling the apartment.

5) Once your new mortgage is approved, find a suitable new home.

6) After all the documents are ready and the new apartment with a mortgage is approved by the bank, you can go ahead with the deal.

7) The buyer of the “old” apartment, using a secure payment system or letter of credit, deposits money for the bank and for the seller. The mortgage debt is repaid, and a little later the encumbrance is removed from the property. This is followed by registration of the transaction in Rosreestr. If, after repaying the mortgage, there is money left for the seller, he will receive it only after state registration of the purchase and sale agreement in Rosreestr (based on an extract from the Unified State Register of Real Estate).

Next comes the purchase of a new home under a new mortgage agreement. After checking all the necessary documents and concluding an agreement, the transaction is registered with Rosreestr. The funds remaining after the sale of the first apartment can be used for a down payment or early partial repayment of the mortgage in order to reduce monthly payments.