Check for encumbrances of real estate property
Apart from checking the ownership of the property, before the purchase of real estate, its inspection for the so-called "encumbrances" is of equal importance.
What are real estate encumbrances?
The right of ownership consists of the legally recognized and guaranteed right of one or more persons or parties (in case of co-ownership) to control, use, and actually and legally dispose of an item (real estate). Real estate encumbrances are restrictions in favour of a third person – non-owner, over this guaranteed and protected essence of the right of ownership. These can be both limited rights in rem – right of use, right to build, right of trespassing, and registrations in the property’s file related to contractual rights – distraints, mortgages, claims, rulings and other acts subject to registration.
Why is it necessary to check for real estate encumbrances?
If a person or party acquires a real estate for which registrations apply, it may turn out that even though this person or party acquired ownership, they need to suffer restrictions imposed by third parties’ rights, including legal enforcement due to debt of the seller or a prior owner. It may also turn out that there are claims to the property by third parties, who, though not owners at the point of performing the deal before a notary, will obtain the property pursuant to a court ruling. It is also possible that although there is a claim, the resulting litigation has been terminated or closed in favour of the owner and not the third parties, but the claim “remains” as encumbrance (since claims are not deleted). The hypotheses related to real estate encumbrances are multiple and can hardly be exhausted. However, this does not mean that it is impossible to check all registrations that exist for a real estate and state whether it is “free” from encumbrances or not.
It is sufficient for the check to comprise the past 10 years?
One of the common mistakes that buyers, sellers, intermediaries make when performing the deal before a notary, etc. is to request that ownership be checked for the past 10 years – a period equal to the purchase limitation period of an unfair owner. The mistake consists in the fact that if a property was state or municipal property, purchase limitation periods may not apply, i.e. even if more than ten years have passed, the property again would not be owned by the seller and the subsequent buyers, but by the state or municipality. This also means that all structures built on a landed property would become property of the state or municipality, should they claim ownership.
How is the check performed?
The main approach is to request the issuance of a Certificate for entries, records or deletions /non-encumbrance certificate/ from the Property Register at the Registration Agency – the territorial Registration Office, upon payment of the respective fee. Upon requesting such Certificate, one should state the period thereof, which is commonly 10 years – which, as we pointed out, is a mistake. The Certificate would indicate all entries, records and deletions for the property, thus making it possible to track ownership and encumbrances, if any. However, the Certificate may contain abundant and particularly confusing information, and it is therefore often necessary to also obtain the deeds registered for the property in order to clarify the situation.
Another approach which in most cases is sufficient, at least to initiate the check, is to make an electronic check in the electronic property register. However, access thereto is not free and each check is paid for from an account to which money is deposited for the system’s needs, but cannot be reimbursed.
After the reports have been obtained, they need to be “interpreted”, because sometimes they contain more information than expected. Moreover, it may turn out, as it is often the case, that a landed property was formed by combining a number of smaller ones. In these cases, the ownership and registrations for each constituent should be checked and not only for the resulting larger one.
How much time does it take to issue the Certificate and reports thereon?
Depending on the order type, the Certificate for entries, records or deletions is issued within 3 to 7 days. The report on deeds stated therein, however, may take at least the same period, depending on the volume of information, since not all the information is available at the Registration Agency – when a claim needs to be checked, this is done at the respective courts when there are distraints – at the respective bailiff, when there are mortgages – the check is made with the creditor, etc.
Is the check for real estate encumbrances mandatory?
In some cases, the check is not necessary – for instance, when the real estate is purchased with the buyer’s own funds, and the buyer does not insist that such check be performed. In other cases, however, when signing a contract with unknown parties, or when the funds for the property purchase are granted by a bank, the check is absolutely mandatory, and the more detailed it is, the higher the certainty that the right of ownership will be acquired in full.