Most apartment deals in Israel involve at least one mortgage: the buyer’s, who borrows to buy, and sometimes the seller’s, who is still repaying a mortgage on the apartment. For the money to move safely, the banks, buyer and seller must be coordinated.
Before signing: approval in principle
The buyer should obtain the bank’s approval in principle before signing and know the expected loan amount and documents required. A contract requiring a large payment soon, without secured financing, may lead to a breach of contract.
When the seller has a mortgage
The seller’s bank issues a letter of intent: it undertakes to remove the mortgage upon receiving a certain amount. Part of the buyer’s payments go directly to the seller’s bank according to the letter, so the buyer knows the property will be released.
When the buyer has a mortgage
The buyer’s bank asks the seller and buyer to sign an undertaking to register a mortgage, and for a caution note to be registered in the bank’s favour. Only then does the bank transfer the loan, usually directly to the seller or their bank. See also caution note.
A safe payment schedule
- A first payment at signing, after or against registration of a caution note.
- Further payments according to the seller’s bank letter of intent.
- The balance at handover, sometimes with part held in trust until tax and municipal approvals.
The schedule should also fit the bank’s timetable. A bank delay does not necessarily release the buyer from liability for late payment, so it is important to build reasonable time into the contract.
Where do you go from here?
Every deal and every property is different, and a small detail in a contract or registration can be worth a lot of money. At Paz Israel & Co. Law Office we support buyers, sellers, landlords and property owners, from the first check to registration at the Land Registry. For more information see our real estate lawyer page, or contact us to schedule a meeting in Tel Aviv, Jerusalem or Modi’in.
This article provides general information, is correct as of the time of writing, and does not constitute legal or tax advice or a substitute for reviewing your specific circumstances.