When a forgotten mortgage blocks the transfer of ownership

In practice, it may happen that the transfer of a property suddenly cannot go ahead because a mortgage that has never been deleted is still registered in the public registers. The reason for this is sometimes surprisingly simple: the mortgage was taken out on behalf of a company that no longer exists. As long as that registration remains in place, transfer or refinancing is effectively impossible. This raises the question of how this can be resolved so that the property can still be transferred on time, thereby avoiding a contractual penalty.

Broadly speaking, there are two possible routes. The first is to reopen the dissolved company so that liquidation can still take place and the mortgage can be canceled. However, this is a process that takes a lot of time and money and is often undesirable in practice due to the transfer deadline. The second option is to have the mortgage declared worthless, so that the registration loses its meaning and can be canceled.

In many cases, the latter route is more in line with the need to cancel the mortgage quickly, but this route also has its pitfalls. After all, the mortgage holder no longer exists, the company has been dissolved and deregistered from the Chamber of Commerce, and there is no liquidator or successor who can cooperate. Sometimes, the (sole) director has also passed away. Although the mortgage no longer has any material significance, it formally remains in place and continues to apply in relation to third parties.

From a legal perspective, this immediately raises questions. A mortgage does not automatically disappear from the register and, as long as it remains registered, it constitutes an obstacle to the transfer of the property. But how can you bring proceedings against a counterparty that no longer exists? In principle, this leads to inadmissibility and the case will not be assessed on its merits by the court. 

In practice, this problem is often solved through summary proceedings. However, before a court can declare a mortgage worthless, it is essential that the status of the mortgage is carefully investigated in advance. The mere fact that a company no longer exists does not automatically mean that the mortgage no longer has any value. In practice, it must therefore be ascertained whether there are still creditors who may have an interest in the mortgage. The manner in which the company was dissolved is also important. In the event of bankruptcy, a trustee may have been involved in the liquidation of the estate and may be able to determine whether or not there are any outstanding rights or claims. Only if this thorough investigation shows that there are no longer any entitled parties and the mortgage no longer serves any purpose can it be stated with sufficient certainty that it is indeed worthless.

What is striking is that in cases such as these, the court is prepared to look beyond the formal objections. Although procedural law does not in principle offer a solution for proceedings without an opposing party, it is recognized that strict application would lead to an undesirable and practically untenable situation.

The court therefore gives considerable weight to the factual circumstances. If it is plausible that the company has definitively ceased to exist, that there are no longer any interested parties and that the mortgage no longer has any real significance, the request for a declaration of worthlessness may be granted. Even if there is no opposing party, the court will still proceed to a substantive assessment and may declare the mortgage worthless. 

These issues are therefore a good example of the practical side of the law prevailing over the technical legal side. The court will then rule that your request is inadmissible, but will declare the mortgage worthless. In this way, you can still deliver the property on time without incurring unpleasant penalties. 

Do you need help canceling a mortgage? Please contact Lennart Hordijk or Erwin den Hartog.