Clifford Chance
Consent fee to second-ranking mortgages
2 June 2014
On 20 March 2014, the German Federal Court of Justice rendered a judgement on payments which are made to second ranking mortgagees who are – based on the property's value – out of the money. Although these creditors would not receive any proceeds in the context of a compulsory auction, they would have to agree to the deletion of their mortgage if the property value were due to be realised in a private sale. While these second-ranking creditors would theoretically have a legal obligation to consent to the cancellation without receiving any payment, they will, in practice, often receive a consent fee in order to avoid any litigation and to allow for the quick sale of an unencumbered property. The court in the recent judgment held that insolvency administrators cannot claim back the consent fee if the payments are made to the sole detriment of first-ranking creditors who renounce their right to also receive this part of the proceeds in favour of those creditors. This judgement might have an impact on negotiations between insolvency administrators and secured creditors regarding the private sale of an insolvent debtor's property.
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Consent fee to second-ranking mortgages
