The majority of Italians purchase real estate with the help of credit facilities, most commonly through voluntary mortgages. Therefore, it's quite common for a property to be put up for sale while the mortgage is still outstanding.
The presence of a mortgage does not prevent a real estate transaction from taking place. However, in cases where there is no provision for the transfer of the loan to the buyer by mutual agreement between the parties and the creditor, assurances are needed that the debt will be paid off and the property will transfer to the new owner free of encumbrances.
There are two ways to protect the buyer's interests:
Complete early repayment of the debt before the notarial deed is signed. In Italy, the right to early repayment of a loan is guaranteed by the so-called Bersani Decree (law 40/2007 - Decreto Bersani). The law also stipulates that with the payment of the last installment, the mortgage securing the loan is automatically extinguished. After the buyer has paid the deposit, the seller pays off the loan and provides a letter from the bank confirming the full repayment of the mortgage. However, this method is only feasible if the remaining loan amount is less than or equal to the deposit amount.
Repayment of the loan occurs simultaneously with the signing of the sale agreement. In this case, the notary acts as a guarantor that everything will be done in accordance with the law, and the funds for repayment of the debt will be received by the credit institution.
Here's what the buyer needs to know:
The notary is prohibited from proceeding with the sale transaction until they have verified the absence of a mortgage or the existence of conditions guaranteeing its subsequent cancellation.
How does the notary guarantee the conditions for removing the mortgage from the property?
The funds for the transaction are received not by the seller, but by a government official, namely the notary, into a special deposit account provided for such cases. Although the account is opened in the name of the notary, the funds deposited there are not their property.
Before the transaction date, the seller provides the notary with a letter from the bank that issued the loan, specifying the exact amount due on the transaction date. The document also indicates the daily interest rate that will be added if the repayment funds are transferred by the notary not on the day of the transaction, but a few days later.
The seller receives the agreed-upon sale amount minus the amount of the paid-off loan after the sale agreement is registered in the State Real Estate Register.
It takes about 2 months for entries regarding encumbrances to be removed from the Register, and all procedures are carried out without the involvement of the buyer.
If desired, after 2 months, the new owner can ask the notary to verify the fact of removal of information about the encumbrance from the state registers.