A mortgage is the specific in rem right to secure a personal receivable, under which the creditor can demand satisfaction from the secured property.1 A mortgage is a form of property lien, under which a monetary amount (usually interest plus repayment) must be paid on a property. It therefore serves to secure loans. If the borrower does not fulfil his payment obligations, he must submit to foreclosure by the creditor.
In addition to mortgages, a land charge is a key lien in property collateral. A land charge and a mortgage differ in their connection to the receivable under the loan agreement.2 A land charge hand is not accessory and thus not dependent on the existence of a receivable. A mortgage is strictly accessory and only arises when the receivable to be secured has arisen. Furthermore, it only exists as long as the receivable does and only in the amount still outstanding. Each loan repayment thus reduces the mortgage by the amount repaid until it automatically converts into an owner mortgage after full repayment.3
Mortgages can arise by being agreed by the parties and entered in the land register (section 873(1) of the Bürgerliches Gesetzbuch (BGB – German Civil Code)). In certain cases, however, the consent of a third party (e.g. a spouse) is also needed. In this case it is a contractually registered mortgage. By operation of law, a mortgage arises when a claim to the transfer of property ownership is pledged or attached by entry of the new owner in the land register (collateral mortgage). A mortgage can also arise as a result of foreclosure. This is done at the request of the creditor on the enforcement of a monetary claim and execution of arrest to secure a claim. This collateral mortgage is also entered in the land register.4
Mortgages are hardly used any more in modern loan transactions. It is estimated that only 3% of liens are still mortgages. Land charges are today the predominant form of collateral for loan agreements on account of their greater flexibility and the legal characteristics.5