I bought an apartment with an encumbrance
What to do if you found out after buying that a mortgage or other encumbrance is registered on the apartment.
What to do
When you learn after the purchase that a mortgage, a recorded dispute, a right of first refusal, or some other third party's right exists on the apartment that the seller did not disclose to you, the first task is to document the situation: obtain a fresh extract from the real estate register and compare it with the situation as shown at the time of purchase. The Law on Contracts and Torts (Zakon o obligacionim odnosima) regulates this situation as the seller's liability for legal defects in the property, better known as protection against eviction (Art. 508-515) - the seller is liable if a third party's right existed on the sold property that excludes, diminishes, or restricts the buyer's right, and the buyer was not informed of it and did not agree to take the property with such an encumbrance.
The next step is formally notifying the seller. The law requires the buyer to notify the seller without delay of the existence of a third party's right and call on them to remove that right within a reasonable time, unless the seller was already aware of it anyway. It is advisable to send this notice in writing (by registered mail or with confirmation of receipt), because the deadline within which you can seek court protection starts running from the moment you learn of the encumbrance.
Depending on whether the encumbrance fully or only partially restricts your right to the apartment, different forms of protection are available: in case of total eviction (the apartment has been taken from you, or the encumbrance is such that it practically prevents you from using it as owner), the contract terminates by operation of law; in case of partial eviction, you can choose between terminating the contract and a proportional price reduction, with the possibility of damages in either case. If it is a mortgage for a debt the seller has since settled, the fastest solution is often to obtain a deed of release from the creditor (bank) and have the encumbrance administratively removed from the land register, without the need for a dispute.
When to contact a lawyer
It is worth seeking legal help as soon as you discover an unexpected encumbrance - before sending any notice to the seller, since the content and timing of that notice affect your later ability to seek court protection. A lawyer can assess whether it is a case of total or partial eviction, whether your deadline for protection is still running, and which combination of claims (termination, price reduction, damages) is most sensible given how usable the apartment still is for you.
It is especially important to consult a lawyer if the seller is unreachable, disputes that the encumbrance existed at the time of sale, or if a third party (e.g., a bank as mortgage creditor) is already initiating enforcement proceedings against the property - in these situations the deadlines for reacting are short, and the choice of legal route determines whether you will keep the apartment or have to return it in exchange for your money back.
Sources
What to do
- Immediately obtain an up-to-date extract from the real estate register (cadastre extract) for the apartment, to establish exactly what encumbrance is registered, when, and in whose favor - this is the basic evidence for all further steps.
- Notify the seller in writing (registered mail, with proof of receipt) that an encumbrance you were not informed of is registered on the apartment, and call on them to remove it within a reasonable time.
- Check the sale contract and the handover record - whether the seller expressly warranted that the property was free of encumbrances, and whether you, as the buyer, knew or should have known of the encumbrance before signing (this affects the scope of protection).
- If the seller does not remove the encumbrance, consider which remedy to seek: termination of the contract with a refund of the price, a proportional price reduction while keeping the apartment, or damages - the choice depends on whether the encumbrance fully or only partially restricts your use of the apartment.
- If the encumbrance is a mortgage for a debt that has already been settled, check whether the creditor (bank) merely needs to issue a deed of release (brisovna dozvola) - in that case the solution can be simpler and faster than a dispute with the seller.
- If no agreement is reached, the claim is filed with the competent basic court, either where the property is located or where the defendant resides/has its seat, depending on the legal basis of the claim.
What it costs
The cost depends on whether the matter is resolved out of court (a warning letter and negotiation with the seller, possibly obtaining a deed of release) or by lawsuit. In litigation, besides the attorney's fee, court fees (depending on the value of the dispute) and any expert-witness costs are also charged. Out-of-court resolution is generally limited to drafting letters/warnings and reviewing the documentation.
Basis for the attorney fee: Tariff item 13 of the Tariff on Attorneys' Fees and Expense Reimbursement (Tarifa o nagradama i naknadama troškova za rad advokata) (claim for protection against eviction in civil proceedings with a monetary value - fee based on the value of the dispute); item 15 for representation at a hearing and item 81 for a warning letter to the seller before suing (50% of the fee for the claim).
FAQ
Does it matter whether the seller knew about the mortgage or other encumbrance?
No - whether the seller knew or did not know that a third party had a right to the property does not affect the basis of the seller's liability for legal defects. The seller's knowledge can matter for the question of damages and for whether the parties could contractually exclude or limit this liability in advance.
Does the encumbrance have to be registered in the cadastre for the seller to be held liable?
No, it doesn't have to be. Liability exists as soon as a third party's right exists that excludes, diminishes, or restricts the buyer's right, and the buyer was not informed of it and did not agree to take the property burdened with that right - regardless of whether that right was formally registered at the time of purchase.
What if I saw the cadastre extract before the purchase and the encumbrance didn't exist at that time?
That is important evidence that you did not know and could not have known about the encumbrance at the time the contract was concluded, which supports applying the rules on liability for legal defects. Keep that extract as evidence for when you notify the seller or start a dispute.
Can I seek both termination of the contract and damages at the same time?
The law provides for a right to damages alongside termination of the contract or alongside a price reduction, depending on the type and extent of the defect; exactly which claims are justified in a specific case depends on the circumstances (whether the eviction is total or partial, whether you suffered additional damage), so that is a matter for individual assessment.