Snapshot: real estate financing in Switzerland
financing
Secured lending
Discuss the types of real estate security tools available to lenders in your jurisdiction. Who are the typical real estate finance providers in your country? Are there any restrictions on the financing options?
Mortgages are usually entered in the land register as collateral for real estate financing. Most of the financing in Austria is provided by banks.
In addition to mortgages, the following security instruments exist: pledging shares, accounts or movable assets as well as assignment of receivables.
Lease finance
Is land (or main) lease finance available in your country? How does financing differ from financing real estate transactions?
In Austria it is not customary to finance basic or main rental agreements. However, should this be a topic that should be discussed, there are certainly a few options.
Form of security
How is a security interest in real estate created and perfected?
To establish a mortgage, the pledgee and the pledgee must sign a written mortgage agreement. For the entry of the mortgage in the land register, the signatures of the parties to the mortgage contract must be notarized.
valuation
Do lenders need third-party real estate appraisals for lending? Are there government or industry-specific standards for ratings? Do appraisers need to have specific qualifications or required state or industry-specific certifications? Who has to order the report?
Valuation professionals require specific training to obtain their license. When looking for such a specialist, the responsible court register can be a helpful source, as many specialists are usually registered as court-appointed experts.
Most banks require a property valuation to be able to grant a loan. The valuation of the property can be carried out by the bank itself; alternatively, the services of valuation professionals can be used. Valuation experts can be appointed by the pledgee or the bank.
Legal requirements
What would be the consequences if a lender from another jurisdiction took out a loan secured by collateral in your jurisdiction? What type of Pfandbrief do you have in your jurisdiction? What other problems would you notice for your customers?
In principle, lenders from other jurisdictions can grant loans on the same terms as Austrian lenders. The prerequisite is that these lenders have a banking license recognized in the European Union. Loans from foreign lenders can also be secured by Austrian real estate collateral.
In Austria, a notarized Pfandbrief deed is required to have a lien entered in the land register. The fee for an electronic application for the entry of a lien in the land register is € 47. In addition, a registration fee of 1.2 percent of the value of the right is charged.
Lending rates
How are commercial and high quality home loan interest rates set in general (in relation to LIBOR, central bank rates, etc.)? What is the illegal interest rate in your country and what are the consequences if a loan exceeds the legal interest rate?
The interest rates are usually determined on the basis of the EURIBOR. Which interest rates are legally permissible must always be determined on a case-by-case basis, taking into account the circumstances of the loan. Fees and lender costs are not taken into account when calculating the legally permissible interest rates.
In Austria, credit or loan interest is subject to the immorality limits of the Austrian Civil Code. Accordingly, too high an interest rate could be immoral, which would result in either the interest rate agreement contained in the loan agreement or the entire loan agreement becoming invalid.
Loan Default and Enforcement
How are legal remedies enforced against a defaulting debtor in your jurisdiction? Is one action enough to realize all types of collateral? What is the timeframe for foreclosure and under what circumstances can a lender initiate foreclosure proceedings? Are there any restrictions on the types of lawsuits that lenders can bring?
If a claim is not paid on time or is not paid in full, the obligee has the option of taking legal action against the debtor. Satisfactory existing properties significantly increase the immediate chances of success in debt collection. In court, the obligee has the option of obtaining an enforceable title. With an enforceable title, at the request of the business creditor, a right of lien on the property of the obligated party or a share of the property belonging to him can be established. Acting quickly is particularly important because the land register follows the principle of “first come, first served”.
With the foreclosure auction, the property becomes money. Nevertheless, a significantly better economic result can often be achieved if the property is sold by way of a legal transaction (possibly in agreement with the business creditor).
Claims for lack of credit
Are lenders entitled to collect a monetary judgment against the borrower or guarantor for a lack between the outstanding loan balance and the amount collected on foreclosure? Are there any time limits for a lender to apply for a deficiency judgment? Are there any restrictions on the amount or the method of calculation of the deficiency?
The difference between the amount collected in the foreclosure and any outstanding balance remains an outstanding obligation. In principle, this obligation can be enforced immediately, as the enforceable title already exists.
Protection of collateral
What steps can a lender take to protect their collateral until they are in possession of the property?
The lender’s collateral can be secured by a lien. This requires the conclusion of a pledge agreement, which must meet certain requirements. Certain publications are also required under Austrian law (e.g. book entry, etc.).
Recourse
Can security documents provide for access to all of the borrower’s assets? Is the recourse usually limited to the collateral and is that relevant in the case of a bankruptcy or insolvency petition? Is personal recourse to guarantors limited to actions such as filing for bankruptcy, selling the mortgage or pledged property, or additional financing encumbering the pledged or pledged property or ownership interest in the borrower?
Recourse to the entire assets of the borrower is not provided. The “principle of specialty” (Specialty principle) is applicable. This means that only certain elements can be accessed. In addition, the use of collateral is limited.
A lien acquired before bankruptcy even gives the obligee the right to separate the pledged assets from the other assets of the debtor.
If the insolvency proceedings are already pending, no lien can be entered in the land register for the duration of the proceedings.
Cash management and reserves
Is it typical for a cash management system to be required and lenders usually take on reserves? For what purposes are reserves usually required?
It is not typical in Austria to ask for a cash management system. Likewise, lenders generally do not make provisions for real estate financing.
Credit improvements
What other types of credit enhancements are common? What about forms of guarantee?
Personal collateral, letters of comfort, and cumulative debt relief are common among other types of credit enhancement.
Loan agreements
What covenants are usually required by the lender in loan documents?
This question can not be answered generally. The covenants of a loan agreement depend on the respective project and other related factors, such as the results of the due diligence carried out.
Financial requirements
What are typical financial covenants required of lenders?
The financial covenants can vary depending on the loan amount. Another important factor is the loan-to-value ratio. For example, debt restrictions and restrictions on the borrower’s purchase of new assets, changes of control, and use of financial funds are common.
Secured movable (personal) property
What are the requirements for the establishment and completion of a security interest in movable (personal) property? Is a “Domination Agreement” required to complete a security interest, and if so, what is required?
The security interest in personal movable property can be protected by a lien.
A lien on movable property arises from a lien. Certain publications are also required under Austrian law (e.g. book entry, notification of third-party debtors, etc.).
Single Purpose Society (SPE)
Do Lenders Require Every Borrower to be an SPE? What are the requirements to set up and maintain an SPE? Is there a concept of an independent director of SPEs and if so what is the purpose? If the independent director is in place to prevent bankruptcy or bankruptcy filing, has the concept been upheld?
SPEs are very common in real estate transactions. There are no special rules for setting up an SPE.