A mortgaged apartment is an asset. Its owner has the right to derive economic benefits from the property. Additional income can be obtained if you rent out an apartment that is secured by a bank, and use the rental proceeds to repay the loan.
But the mortgage loan agreement imposes some restrictions on the rights to dispose of real estate. We will find out whether it is possible to rent out an apartment taken on a mortgage , what this threatens the borrower from a legal point of view, and how to properly rent out the mortgaged property in order to minimize your risks.
Is it possible to rent out a mortgaged property?
The subject of mortgages are land plots, industrial buildings, residential buildings, country houses, parking lots, and sea vessels. The owner of the collateral property has family circumstances that change over time. People move to other cities, get married, move in together, and the apartment ends up without tenants.
While the extra squares are idle, the owner is forced to pay the mortgage and utilities. An excellent solution to avoid losses is to find tenants. Income from rental operations will help cover loan servicing.
The rights and obligations of the borrower are clearly regulated by Russian legislation:
- Use mortgaged real estate for its intended purpose;
- Do not allow the apartment to depreciate beyond physical wear and tear;
- Maintain the good condition of the collateral;
- Cover the costs of maintaining the property until the mortgage is paid in full.
If you purchased housing under a mortgage agreement, then in accordance with Article 29 of the Federal Law “On Mortgage” you have every right to receive income from the property. Renting an apartment with a mortgage does not interfere with its intended use.
But tenants, as a rule, treat their rented living space carelessly. That is, real estate will lose its marketable appearance, as a result, it will depreciate and its liquidity will decrease. Based on these criteria, banks often limit the possibility of renting a mortgaged apartment.
Despite the fact that the borrower owns the property, lenders have different requirements for the collateral. Some easily agree on rental agreements for mortgaged apartments, while others insist on increasing interest rates, revising lending or insurance agreements.
Those who initially purchase housing for subsequent rental should make sure that the mortgage agreement stipulates the possibility of doing this. It is also necessary to legally formalize the agreement for the transfer of mortgaged real estate for rent - to conclude a lease agreement. The document specifies the requirements for the tenant, the amount and terms of payment, the rights and obligations of the parties.
The apartment has a mortgage. Is it considered property?
Yes, and the registration of the buyer’s ownership of the apartment in the mortgage occurs simultaneously with the registration of the mortgage itself. The sales and purchase agreement and the loan agreement are submitted to the registration authority. The registration period for real estate credit transactions in Moscow is 7 calendar days. As a result, you will receive a registered agreement with two stamps of the registry office - on the registration of your ownership of the apartment and on the registration of the mortgage by force of law. In the register of rights to real estate, two rights will be registered for one piece of real estate - your property and the creditor's pledge.
Sometimes there may be 3 or more real estate liens. For example, funds for the purchase of an apartment are provided to a person from two different sources. This happens when a bank provides a military mortgage and at the same time provides funds for a targeted housing loan by Rosvoenipoteka. This means that in the event of an apartment being sold at auction, the amount will be proportionally divided between the state, the bank and the military personnel. This happens when the owner of the apartment is dismissed from the ranks of the Armed Forces.
Thus, if the owner wants to sell such an apartment, registration of the purchase and sale agreement will be refused.
Is it profitable to rent out mortgaged real estate?
Renting out real estate is beneficial for those who have their own living space. Rental income is a source of regular income. It is convenient to use the received payments to pay off the mortgage. This will avoid significant expenses from the family budget.
Rental transactions with mortgaged property are often practiced by people who bought apartments for children. Until the child reaches adulthood, or the moment the child moves in, the apartment will generate income.
Based on the rental rate, the proceeds will compensate for part of the monthly payments to the bank, or will completely cover them. Real estate purchased with a mortgage will pay for itself in 10-12 years. In large cities, this is facilitated by the high demand for rented apartments, in small cities - by the low initial cost of square meters.
Who is the bank?
Many people mistakenly believe that with housing lending, the property belongs to the bank and there is a certain point when the apartment becomes the property of a mortgaged individual. In fact, the buyer is the original owner of the property. Only the owner has all powers of ownership and use of housing. And only if the deadlines for making loan payments are repeatedly violated, the apartment can be foreclosed on.
Having completed mutual settlements with the lender, the property owner must remove the encumbrance and remove the apartment from the mortgage. To do this, you need to obtain a certificate from the bank confirming full repayment of the loan, and a mortgage note with a note on the fulfillment of the obligation. Then you need to go to the registration authority to remove the encumbrance from the apartment. This may be the Rosreestr office at the location of the apartment, but it is more convenient to use the services of the MFC if such a service is provided in your area. To confirm the updates to the register of rights to real estate and transactions with it, you will receive an extract from it with no encumbrance of rights.
The loan agreement and the collateral agreement list the restrictions on apartment ownership. Usually, the owner cannot register persons who are not family members in the apartment without the consent of the bank. It will not be possible to carry out redevelopment or reconstruction of an apartment that is secured by a bank. The fact is that these actions can worsen the consumer properties of the apartment, reducing its market value. If it is necessary to sell such real estate at auction, the mortgagee incurs losses.
What documents are needed for a mortgage?
Again, it all depends on the requirements of the banks. In general, most will ask for the following:
- Statement.
- Passport.
- A certified copy of the work record.
- Employment contract and document confirming income.
- SNILS.
There are documents that must be provided if available: marriage and birth certificates, driver’s license, education documents, and so on.
You also need a package of documents for real estate, which will serve as collateral for the loan:
- Legal documents.
- Layout and characteristics of residential premises.
- Property value.
- Extract from the Unified State Register.
How to buy an apartment encumbered with collateral
Depending on the conditions, you can buy an apartment in different ways.
With mortgage repayment during the transaction
Conditions: the transaction is carried out with the consent of the bank in which the current owner took out a mortgage; The buyer purchases the property for cash.
The safest scheme. It protects all parties to the transaction: the buyer, the seller, and the bank. Let's look at an example.
An apartment is put up for sale for 3 million rubles. The bank agrees to the transaction and determines the amount of the remaining debt - 500 thousand rubles. Two cells are used for calculations. Before signing the purchase and sale agreement, the buyer’s money is deposited in them: 500 thousand in one and 2.5 million in the other.
The documents for the boxes indicate who can pick up the bills and when. If the purchase and sale agreement is signed and the transfer of ownership is registered in Rosreestr, the bank will be able to withdraw its 500 thousand from one cell, the seller - 2.5 million from the second, and the buyer - the mortgage to remove the encumbrance. If the deal falls through, the buyer will return his funds, and nothing will change for the rest.
Sometimes funds for a loan may be deposited not through a cell, but directly to the bank, but the financial institution is in any case actively involved in the process.
With assignment of debt
Conditions: the transaction is carried out with the consent of the bank, the buyer purchases housing with a mortgage from the same bank.
The buyer submits a mortgage application to the bank, as if buying any apartment. The approval process will be similar and take about the same amount of time. Since he will be the borrower during the purchase, the financial institution will check his solvency and decide whether he is ready to see him as a client.
Here, in addition to the purchase and sale agreement, an agreement on the assignment of rights of claims under the old loan or a new loan agreement is concluded between the bank and the buyer. The encumbrance in Rosreestr is removed and a new one is imposed with the registration of the rights of the next owner.
Tatiana Trofimenko
Leading lawyer of the European Legal Service
This scheme is also quite safe.
With early repayment of the mortgage at the expense of the buyer
Conditions: the bank does not agree to sell the apartment, the buyer purchases the property for cash. Or the buyer gets a loan from another bank.
In this case, the loan is repaid by the buyer. Accordingly, he must have on hand an amount equal to the balance of the debt. The parties enter into a preliminary agreement for the purchase and sale of an apartment, under which money is transferred to the seller to close the mortgage. Then the encumbrance is removed from the apartment, and then the housing is sold as real estate without collateral.
This option is more risky for the buyer, since the money is transferred under an agreement that is not subject to registration with Rosreestr.
Tatiana Trofimenko
Leading lawyer of the European Legal Service
Theoretically, the seller may refuse to register the purchase and sale agreement with Rosreestr. The buyer will be able to get money from it, but only through the court.
What happens if you donate an apartment without the bank’s knowledge?
Is it possible to donate a home without the knowledge of the financial company? Perhaps the borrower will somehow be able to pull off such a transaction, but this will immediately be followed by the actions of the financial company.
- A lawsuit. The bank, through legal proceedings and filing a claim in court, has the right to challenge the deed of gift. And the financial company will be right in this case.
- The bank may also require that loan obligations be fulfilled ahead of schedule. The bank has the right to demand from the borrower that the remaining debt be paid immediately. The bank may also demand that the home be sold regardless of who exactly is its owner.
So, as you probably already understood, it is very difficult to donate housing that is under a mortgage. This can only be done in the following cases:
- If the debt is repaid early.
- If the bank has approved the transaction.
In addition to the fact that you need to obtain the appropriate consent from the bank, the procedure for donating a mortgage is quite complex.
After all, in most cases, the borrower cannot immediately repay the debt, and financial companies do not want to make such transactions.
When does title come into play during a mortgage?
Obtaining a mortgage often raises questions among people about when exactly the apartment becomes their property and how exactly the ownership of this property is determined. Professional lawyers dealing with real estate issues answer here unequivocally - immediately after all the necessary documents are completed, the living space becomes the full property of the buyer. All required papers responsible for this moment are drawn up during the process of concluding this transaction and going through the registration procedure.
However, this problem has a number of pitfalls: in particular, you should not enter into agreements with organizations that issue mortgage loans that limit the rights of a person who decides to use such a program.
You should be wary of companies that do not allow the buyer of an apartment to take full ownership right immediately after purchasing the living space, and seek to postpone the termination of this period for an indefinite period. However, there are certain exceptions to this rule: in particular, even large banks limit this right of a potential owner if the property is purchased in a house under construction. In this case, the new owner becomes the owner of the property immediately after the building is put into operation. In this case, the apartment will not be pledged, although the lender undertakes to make a down payment and begins to repay the loan in monthly payments.
