When investing in loans, we naturally watch the yield. One more question matters just as much: what protects my money the moment a borrower stops repaying?

For property-secured loans the answer is simple: your investment is protected by a lien (zástavní právo). It ties the receivable to a specific asset: a flat, a house or a plot of land, for example. If the borrower fails to meet their obligation and does not return the money, the creditor may under defined conditions use that asset to recover the funds in full or in part.

A lien does not change the owner

A lien does not change who owns the property. The flat, house or land remains the property of its owner. What is more, the owner of the pledged property does not have to be the borrower. The pledge can also be provided by someone else who agrees to it.

What matters for the creditor is that, if the secured debt is not repaid, they may under conditions set by law proceed to enforce the lien. That can lead all the way to selling the property and using the proceeds to settle the receivable.

Your right is recorded in the cadastre

A lien over real estate is always recorded in the Cadastre of Real Estate (katastr nemovitostí). That makes it publicly traceable and tied to a specific house, flat or plot of land. On the title deed you will find it in section C, where restrictions on ownership rights are registered. Alongside liens you may also find easements there, for example.

For an investor, being able to check this matters. You can verify whether the lien over the property is genuinely registered and whether that property really serves as security. The basic data is available to anyone through the public cadastre viewer (Nahlížení do katastru nemovitostí).

What happens when a borrower stops repaying

A lien starts to play its decisive role the moment a borrower fails to repay their debt properly and on time.

In such a situation, the pledged property may be sold. Depending on the specific procedure, this may take the form of an agreement between creditor and borrower, a public auction, or a sale through the court. The money raised from the sale then serves to satisfy the secured receivable.

If the receivable is also covered by a notarial deed with direct enforceability (notářský zápis s přímou vykonatelností), as is usual at Benkee, the creditor can move to recovery faster. They do not have to prove the claim itself in court.

Naturally, one late or missed instalment does not lead to an immediate sale of the property. Enforcing a lien has its own rules and follows step-by-step procedures.

What a pledge can protect and where risk remains

A lien increases how well a receivable is secured. An important role is played by the value of the pledged property at the time of any sale, and also by the size of the debt the property secures. Registering the lien therefore does not determine in advance how much the property will sell for, nor how much of the receivable the proceeds will cover.

For an investor, a pledge represents a protective mechanism in case of repayment problems. When assessing an investment it therefore makes sense to look not only at whether a pledge exists, but also at the value of the property and the size of the loan it secures.

How Benkee works with security

At Benkee, securing loans with real estate is one of the main pillars of every project. For each of them you can also look up the average LTV, that is the ratio of the loan amount to the value of the property. That is what lets an investor form a more concrete idea of what stands behind a given loan and how much they would get back if problems arose.

A lien forms one part of the whole picture. When deciding on an investment it therefore deserves the same attention as the figure quoted for the expected annual yield.

Sources

• Ministry of Justice of the Czech Republic – liens and their enforcement
• ČÚZK – registering a lien in the Cadastre of Real Estate
• Benkee – information for investors and the principle of secured loans

Liens: investors' most frequent questions

What is a lien? A lien is a way of securing a debt with a specific asset, such as real estate. If the borrower does not properly repay the receivable, the creditor may under conditions set by law proceed to enforce the lien and satisfy the receivable from the pledge.

Does a lien mean the property belongs to the creditor? A lien does not change ownership of the property. The property remains the asset of its owner, and the creditor holds a right over it connected to securing the receivable in case the borrower fails to meet their obligation.

When can a creditor use a lien? At the moment the borrower fails to repay the secured debt properly and on time. The creditor may then, under defined conditions, proceed to enforce the lien, which may lead to the sale of the pledged property and satisfaction of the receivable from the proceeds.