The German Grundschuld

Abstract

The original model of the “euromortgage” was based on the Swiss land charge (Schuldbrief) which is a form of security lacking accessoriness. Proponents of the model stressed the advantages of this lack of accessoriness. In 2008, however, the German legislator was forced to make the land charge (Grundschuld) accessory to prevent investors making misuse of the lack of accessoriness. This non-accessoriness meant that investors who bought portfolios of mortgage claims were able to enforce the land charges for a larger amount of money than the claims due by the borrowers. It may seem surprising that it was possible for German law to adopt a form of mortgage with such an important weakness that enabled mortgagees to make such misuse. The article shows how and why non-accessory land charges were developed and what the impact is of the 2008 amendment.