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What are the typical providers of real estate financing in your jurisdiction? Are there any restrictions on who may provide financing?
In general, real estate financing in Switzerland is provided for by banks or insurers. Within the framework of self-regulation, banks have decided to finance up to only 80% of a property’s value. The mortgage debtor must therefore raise a minimum of 20% equity capital, half of which must comprise cash or account balances.
What are the most common structures used to secure real estate financing and how are these security interests perfected?
In general, the bank or insurer grants the landowner a loan, which is secured by a mortgage (ie, mortgage bond or mortgage deed) on the property. The security right over real property is created by a publicly notarised contract and its registration in the land register. A registered security right over real estate remains in force until it is deleted from the land register. If the debt is paid, the owner can demand the deletion of the security right over real property in the land register. Subject to cantonal regulations on the maximum interest rate, the interest rate for the secured property can be set as desired.
What covenants are typically made in financing agreements?
The mortgage loan contract usually specifies the mortgage amount, the interest rate and the repayment term as well as the collateral arrangements of the mortgage loan covered by the pledged object (ie, real security).
Enforcement of security
How are security interests enforced in the event of default?
In the event of a default in payment, the securities may be enforced by a court order through compulsory enforcement proceedings. In this case, the creditor can initiate the enforcement of real estate lien liquidation. If the debtor raises a legal objection against the claim or lien, the creditor may apply for the judicial removal of the legal objection. If the payment deadline given to the debtor has elapsed unexecuted, the creditor may request enforcement of the property’s sale. The property is auctioned publicly and the creditor is reimbursed from the payment proceeds.
What is the typical timeframe for the enforcement of security?
An application for the enforcement of a security right over real estate may be requested no earlier than six months and no later than two years after the commencement of debt collection (ie, the date from service of the order for payment). Upon receipt of the application for enforcement, the property will be publicly auctioned off between one and three months afterwards. Enforcement proceedings are therefore expected to take at least seven to nine months and are prolonged by the duration of the procedure for the removal of the legal objection, if any.
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