A contractual lien is a tool for securing a debt in case the debtor is unable to repay their obligations properly and on time. A lien is usually created on the basis of a contract. That is why it is called a contractual lien.
Nowadays, financing a property purchase with a mortgage loan is common. So let’s go through some information about how a contractual lien arises and ends, and what it means.
Contractual Lien
A contractual lien is a right in rem over someone else’s property. It is used most often with mortgage loans and acts as a safeguard in case the debtor (the pledgor) is unable to repay their debt to the bank (the secured creditor). This way, the bank protects its money.
The bank provides the client with a loan. To make sure it does not lose its money, it sets up a contractual lien on the property. If the client stops making repayments, the property is sold and the money is used to pay off the debt to the bank.
How a Contractual Lien on a Property Arises
A contractual lien is created on the basis of a lien agreement. This must always be in writing. It is most often an agreement between the creditor and the owner of the property. The agreement must specifically state what is being pledged and which debt it secures. It must contain mandatory details such as the identity of the pledgor, the secured creditor, the object of the pledge (the property) and how the lien arises. The parties can also include other terms in the agreement, for example contractual penalties and sanctions. The creditor does not have to be a bank. It can be any natural or legal person.
The object of the pledge can be the property being bought, any other property owned by the debtor, a property owned by a third party (relatives), but only with the third party’s consent, or a property under construction.
The lien agreement, with the officially certified signatures of all parties, together with an application for entry and a stamp duty worth 2,000 CZK (about 92 USD), is submitted to the land registry office. The land registry office has 30 days to register the contractual lien in the title deed for the relevant property. The contractual lien is shown in the title deed in section C, restriction of ownership rights. This is so that the owner cannot deal with the property without the bank’s knowledge. Another reason is that, if the property is sold, the future owner knows that it carries a mortgage. Once the loan is repaid, the lien is removed from the title deed in the land registry and the owner can deal with the property freely.
Even though a contractual lien is set up on the property, the client remains the sole owner of the property throughout, not the bank. The owner has a duty to keep the property in a condition that does not reduce its value. At the same time, the owner may not rent it out or otherwise encumber it without the bank’s consent.
Liens are governed by Act No. 89/2012 Coll., the Civil Code, in Sections 1309 to 1394.
Judicial Lien
Setting up a judicial lien is a special way of enforcing a court decision. Setting it up does not directly affect the debtor’s assets, but for the secured creditor it only has a securing function. It arises on the day the application to set up a judicial lien is filed with the court, not when it is entered in the land registry.
Bailiff’s Lien
A bailiff’s lien is entered in the land registry. It is set up to secure a claim and does not lead directly to the sale of assets. Once the debtor has paid off their entire debt, including the costs of enforcement, the bailiff issues a decision partially stopping the enforcement. The bailiff’s lien itself is only removed once the decision becomes final (once it has been served personally on the parties to the proceedings). The bailiff’s lien is then removed from the land registry.
Future Lien
The Civil Code allows a lien to be set up on an object that is not yet owned by the debtor, or that does not even exist yet. Before the pledgor acquires the item, the future lien can be entered in a public register or in the register of pledges. This future lien turns into an ordinary lien once the debtor becomes the owner of the pledged item.
Being able to use a future lien makes the mortgage lending process simpler. The secured creditor signs an agreement with the future owner to set up a future lien on a property that is still owned by the seller. The seller must agree to this. The future lien is entered in the land registry. This gives the bank certainty that, at the moment of sale, the property will be pledged in its favour. This kind of agreement can be used for movable and immovable property, tangible and intangible property, and property both entered and not entered in a public register.
Contractual Lien from the Creditor’s Perspective
If the client stops making repayments and is unable to repay the debt any other way, enforcement proceedings can follow, and the property subject to the contractual lien will be sold at a public auction. The secured creditor’s claims are paid out of the sale proceeds first.
Ways to Repay the Bank in Full
The most common cases of repayment are:
- Regular repayment of the mortgage, once the entire debt is repaid, the pledge will be removed from the land registry.
- Sale, selling a property that carries a contractual lien is common practice nowadays. The current owner applies to the bank for a statement of the amount due and repays their debt to the bank from the sale of the property. This leads to the removal of the contractual lien. The new owner can take out a new loan on the property.
Removing a Lien from the Land Registry
Once the client has repaid the amount owed, including interest, the bank issues a Confirmation of Termination of the Lien. This document is used to remove the contractual lien from the title deed. The confirmation, together with an application for entry in the land registry (KN), is submitted to the land registry office. Including a fee of 2,000 CZK (about 92 USD). The land registry office then opens proceedings to remove the lien. If the document, including the application for entry, contains all the necessary information, the land registry office approves the entry and the contractual lien is removed from the title deed. This means the property no longer carries any debt, and the owner can deal with it freely.
Selling a Property Subject to a Lien
Have you ended up in a difficult situation and need to sell your house? It is possible. Your best option is to put the sale in the hands of an experienced estate agent. They will help you with the whole process and plan each step so they follow on from one another.
If you are considering selling a property that carries a contractual lien, you must inform the secured creditor. They will state the amount still owed on the loan and may impose a penalty for early repayment. Certain reasons, such as divorce, can reduce that penalty. The loan is repaid from the purchase price.
A Mortgage on a Property with an Easement
If it is an easement of way and passage, or one in favour of utility companies (electricity poles), the bank’s contracted appraiser should not significantly reduce the value of the property. A problem can arise if the property carries a life-tenancy easement. In that case, it is very hard to get a mortgage on the property. For this reason, it is a good idea to cancel this easement or to pledge a different property.
If the appraiser reduces the value of the property and you cannot get the mortgage you applied for, you have several options. First, you can finance the shortfall from your own resources, or from other sources such as a building savings loan or a bridging loan. If that is not an option, pledging another property is possible, for example your parents’ house or a cottage. When setting the maximum mortgage amount, the bank takes the value of all the properties into account.
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USD amounts are approximate, converted at the Czech National Bank rate of 21.80 CZK per USD on 2 October 2026.
