Encumbrance Exemption Declaration  

A legal document commonly used as assurance in property development financing. The assignment of claims from an encumbrance exemption declaration must be agreed upon certain conditions such as the payment of purchase price. This certificate is however, not a confirmation of the availability of the actual collateral.

The encumbrance exemption declaration is the obligation of third parties for deletion of prior ranking charges under certain conditions that need be fulfilled, for example, full payment of the purchase prices. In parallel, the bank requests the registration on an own lien in registry.

 

Some characteristic features of the encumbrance exemption declaration scenarios are:

·        The assignment of claims for an encumbrance exemption declaration is an independent collateral from the lien.

·        An encumbrance declaration certificate can be issued for one or more real estate liens collectively. The decision on whether to issue separate certificates for each real estate lien depends on the decisions in the individual scenarios.

·        If a global land charge is owned by more than one banks (more than one prior charges ), a separate encumbrance declaration certificate must be made for each bank.

 

In the standard system, you can create an assignment of claims of encumbrance exemption declaration and enter:

 

·        The amount of the whole purchase price payment as the nominal value.

·        The already disbursed purchase price payments as the assessment amount.

·        Any other data for an assignment.

Figure1: Scenario for encumbrance exemption declaration

 

The scenario illustrated in the figure can be explained as follows:

 

A buyer wants to purchase a flat in a residential complex that has several other flats. The property developer for the residential complex has a collective charge encumbering all the flats of the residential complex. In such a scenario, the financing bank of the buyer would accept an encumbrance on the flat only if:

·        The property developer discharges the collective charge (prior charge) on the flat.

·        The financing bank of the property developer (or other owners) issues an encumbrance exemption declaration certificate discharging its own charges on the flat from the collective charge.