Most people who sell their family home will do so with a mortgage in place. If you want to sell your home, that mortgage will need to be cleared in full before the purchaser will complete the transaction.
So how do you go about selling with a mortgage already in place?
Taking up the title deeds
When you have a mortgage with a particular bank, that bank will hold the title deeds to your property for as long as the mortgage is in place. The solicitor who acted for you when you bought the property will have sent them on to the bank and they are held by the bank as their security until the mortgage is fully paid off.
The solicitor who acts for you in the sale will need those title deeds to prepare the contract so they’ll need to take them up from the bank.
In order to take them up, you’ll need to sign an Authority Form which tells the bank that you are happy for the title deeds to be handed over to your solicitor.
The Accountable Trust Receipt
But because the title deeds are the bank’s security, they won’t just give them to your solicitor without getting something in return. So your solicitor will sign a document called an Accountable Trust Receipt form. This is a form prepared by the bank and what it means is that when your solicitor takes possession of the title deeds, they’re acknowledging that the deeds are to be used for the purposes of preparing the contract and other documents related to the sale. Your solicitor is only entitled to hold them for the duration of the sale transaction.
The redemption figure
When the sale completes, your solicitor will hand the title deeds over to the purchaser’s solicitor in return for the purchase monies. At that stage they’ll ask your bank for the redemption figure, ie that amount of money that is due to the bank in order to discharge the mortgage in full.
Your solicitor’s undertaking
When the sale is completing, the purchaser’s solicitor will need some assurance that the mortgage on the property is going to be paid off in full so that the purchaser can take possession of a mortgage-free property. The purchase monies won’t be released to your solicitor until this assurance is in place.
Your solicitor provides this assurance by signing a document called an Undertaking. This is written confirmation by your solicitor that they will pay your bank the amount due to them so that the mortgage is fully discharged. An undertaking is a very important document for a solicitor to sign. The Law Society has provided that there are serious consequences for a solicitor who does not comply with an undertaking and for this reason the purchaser’s solicitor can rely on the undertaking as proof that the mortgage will be fully paid.
Discharging the mortgage
Once the purchase monies have been paid over to your solicitor and the sale has formally completed, your solicitor will deal with their undertaking. They do that by using some of the purchase monies to pay the bank due to discharge the mortgage. The amount they’ll pay will be the redemption figure that they have been given before the completion.
When the bank has been paid, they’ll issue a document called a Deed of Discharge to your solicitor. This document confirms that the mortgage has been paid in full.
Your solicitor will send the Deed of Discharge to the purchaser’s solicitor and this means that they have complied fully with the Undertaking they have before the transaction completed.
At that stage, the balance of the purchase monies will be paid to you and your involvement with your original bank will come to an end.
Registering the Deed of Discharge
The purchaser’s solicitor will register this Deed of Discharge in the Property Registration Authority when they are registering the purchaser’s ownership of the property. The Property Registration Authority will then register the purchaser’s ownership without any mention of your mortgage.
Most properties sold at the moment are subject to a mortgage that must be discharged before the purchaser will hand over the purchase monies. The procedure outlined above has been prepared with the intention of keeping transactions running smoothly and with the agreement of the Law Society, Property Registration Authority, and the various banks operating in the country.
Have more questions about mortgages or any other aspect of property transactions? Complete the form below to request a callback and we’ll be in touch within 24 hours.