How to sell an apartment with mortgage in Bulgaria

So-called mortgage apartments appear on the Bulgarian real estate market quite often. These are studio-, one-bedroom and two-bedroom apartments that were bought with a mortgage, but for a number of reasons, their owners are no longer interested in keeping them and are putting them up for sale. Apart Estate will be happy to assist you to sell mortgage real estate in Bulgaria. We will also help you make a well-thought decision if you plan purchasing an apartment with a mortgage profitably. In this case our agency will show you all the risks and advantages, so you will be able to purchase an apartment with a mortgage in Bulgaria, without the risk of financial loss.

Features of a sales deal for a Bulgarian mortgage apartment

The main terms of buying mortgage real estate and selling such apartments in Bulgaria are regulated by the Law on Obligations and Contracts, art. 149-155 and art. 166-179. 
In accordance with this Law, apartments and houses in Bulgaria can be bought with a mortgage. However, there is an unspoken restriction applied by banks. They are ready to issue loans to foreigners, but in practice reject mortgage applications. Currently only citizens of Bulgaria have a chance to get a loan for purchasing a flat. Foreigners, residents of Israel, Ukraine, Kazakhstan, and Russia practically cannot get a credit to buy real estate. Also, they cannot transfer an existing mortgage for the apartment they want to purchase. The loan for such real estate must be repaid before the sale transaction is registered.

The procedure for buying a mortgage property in Bulgaria is as follows:

• The buyer confirms his desire to buy an apartment or cottage. With the help of Apart Estate specialists, the parties prepare a preliminary contract, where they carefully indicate all the details regarding payments, transfer of ownership, as well as security removal.
• The seller prepares all documents, including the Bulgarian property register extract, which indicates that the real estate is pledged.
• The parties visit the bank where the mortgage was issued and discuss all the nuances of repaying the debt, withdrawal of the security or reissuing the loan to the new buyer.

Following are two options:

1. The money which was paid to the seller by the buyer is used for closing the mortgage. If it is decided that the debt to be repaid from the property sales value amount, the bank determines the final value of the debt. This amount is transferred to the special account which was originally opened to serve the mortgage. This must be done prior to the registration of the transaction at the notary. The bank withdraws the pledge within three days after confirmation of the full payment receipt.
2. Remortgaging. If the buyers are Bulgarian citizens and their funds are not sufficient to pay off the debt, the real estate they are interested in can be remortgaged. As a rule, this procedure is associated with several difficulties. Both loans must be issued in one and the same credit institution, it will not be easy to get a credit greater than the value of the pledged property.

• When all the details are determined, it is time for you to go to a notary for signing the deal. Please note that in a deal when you apply for a mortgage, the corresponding agreement should be signed along with a notary deed. 
• For those who would like to buy an apartment in Bulgaria on credit, but cannot do this due to some limitations, there is an option to purchase property in installments. In this case, a contract gets signed between the buyer and the seller. The buyer regularly makes payments equivalent to mortgage monthly amounts. The seller remains the person who owns the apartment and makes the loan payments. As soon as the mortgage debt is repaid, a notarial act is issued confirming the transfer of ownership. 
• This option is very risky. On the one hand, the seller can withdraw from the contract at any time. On the other hand, there is no guarantee that the loan will be paid using the money received from the buyer. In this case, if a debt arises, the bank may put the property up for auction.

Advantages of purchasing an apartment with mortgage

The key advantage of acquiring an apartment which was originally mortgaged is the relatively low price. As a rule, the seller hurries to sell the property due to a lack of financial ability to cover the loan.
Because of the deal’s features, certain risks, and the desire to sell the apartment as quickly as possible, it is easier to bargain with the seller. This gives an opportunity to get an additional discount.
Another advantage is the legal purity of the transaction. Usually, the documents for real estate with a mortgage and their cleanliness are carefully checked by the bank officers.

Risks of buying an apartment with mortgage in Bulgaria

In the history of real estate transactions in Bulgaria, there were several high-profile cases when a developer took out a loan for the construction of a residential building secured by future apartments, sold them without withdrawing the pledge, and made a profit. At some point, he became bankrupt, unable to answer for his debts. A bank or other credit organization went to court and took the apartments from the new owners, who actually paid the developer or seller in full for them.

In this regard, one of the biggest risks when buying a mortgage apartment is absence of information that it is mortgaged. Nowadays, this risk has become much less, because before each transaction, the property gets checked for encumbrances in the Bulgarian property register. Apart Estate experts clarify the real estate history, and help the seller to obtain a certificate of the absence of encumbrances. This allows the buyer of a mortgage apartment to be confident in the deal’s reliability.
In some cases you can meet unscrupulous sellers, who would inform you about the mortgage, but having received the payment from you, will not pay off their debts.

Such a situation may arise in the following cases: 

• The seller insists that the buyer transfers the money for the property to a non-mortgage account. The money will be received by the seller, he will use it for his own  purposes, but will not repay the loan.
• While the deal has been negotiated, a bank or other credit organization claims on the property and is preparing to put it up for public auction due to non-payment.
• The property documents are incorrect or not properly verified. During the process of buying an apartment, your lawyer, broker or notary checked the cleanliness of the documents, made sure that there were no encumbrances, but did not check the plot of land on which the living building was constructed. If the land is mortgaged, there is a risk that the buildings erected on it are subject to restrictions.

Following may help you avoid the risk of not getting the real estate:

• Sign a preliminary sales contract, indicating all the steps related to the payment for the apartment and the mortgage repayment. If the purchase price is higher than the loan amount, the payments can be divided – some part will be used for repayment, while the other part goes to the seller's account. Be sure to indicate how much of the payment will go to pay the principal debt, and what amount should cover the interest.
• Cooperate with the bank that issued the loan and is the mortgagee. The creditor will provide full information on the loan amount and the terms of its payment, the current debt and special conditions. Bank employees will also help to draw up a sales contract correctly.
• Include the seller’s penalty for violation of the contract terms.

The Apart Estate agency will help you sell or buy a mortgage apartment in compliance with your interests and all legal requirements. We will check the encumbrances, contact the bank, help determine the optimal structure of the transaction and will draw up a preliminary agreement taking into account all the details.