Is it possible to sell bare ownership when an active mortgage exists?

The legal answer is yes: it is entirely legal to proceed with the transfer of bare ownership when a prior mortgage encumbrance exists. A mortgage is a real right that attaches to the property regardless of who its owners are. Therefore, the encumbrance remains linked to the property irrespective of whether full ownership is divided between the bare owner and the usufructuary.

However, in standard real estate market practice, buyers and investors require the property to be completely free of financial encumbrances at the time of sale, or for the debt to be settled at the exact moment the public deed is executed. Unless expressly agreed otherwise, the buyer or investor acquiring the bare ownership does not assume the position of debtor towards the bank. For this reason, to structure the sale viably, a mechanism must be arranged to clear the debt with the lender using part of the funds generated by the sale itself.

Main options for managing the mortgage encumbrance in the transaction

When considering how to sell bare ownership with an outstanding mortgage, several operational routes can be structured to resolve the financial charge. The choice of option will depend on the remaining loan balance, the liquidity of the parties and the terms negotiated with the buyer.

1. Financial and registry cancellation simultaneous with the sale

This is the most common and secure procedure. It involves allocating a portion of the agreed price for the bare ownership to fully clear the outstanding mortgage loan balance at the moment of notary completion.

To carry out this option, the attendance of the lender bank is coordinated at the notary office on completion day. The buyer of the bare ownership pays part of the agreed price by banker's draft or Banco de España transfer (OMF) issued to the financial institution to clear the outstanding principal, accrued interest and relevant fees. The remainder of the agreed payment is handed directly to the seller. At that same moment, the bank's representative signs the deed of mortgage redemption, allowing the property to be cleared of the encumbrance in the Land Registry.

2. Mortgage transfer (subrogation) to the buyer

This alternative involves the buyer assuming ownership of the existing mortgage, taking the position of the original debtor. Although legally valid, this option strictly requires the prior express consent of the lending bank, following an evaluation of the new debtor's creditworthiness according to the bank's risk assessment criteria.

In the field of bare ownership, subrogation is uncommon, as most buyers seek to acquire the real right free from financial debt to avoid financing costs or pre-existing banking obligations.

3. Prior cancellation using own funds or bridge financing

If the seller has other assets, savings or access to alternative capital, there is the option to redeem the mortgage before starting the sale process of the bare ownership. Clearing the property of registry charges beforehand significantly streamlines negotiations, avoiding bank involvement during completion before the notary.

Step-by-step procedure to complete the transfer

The correct execution of a bare ownership sale with a prior encumbrance requires rigorous planning to guarantee legal protection for both seller and buyer. The fundamental steps include:

1. Technical and legal valuation of the property: The market value of the property is determined, and the precise allocation of value between the life (or temporary) usufruct and the bare ownership is calculated. This calculation is performed using tax rules based on the age of the usufructuary or the established duration of the usufruct.
2. Request for redemption certificate: The borrower must request from their bank an outstanding balance certificate for early redemption, specifying a fixed date aligned with the day the public deed is executed.
3. Verification of financial adequacy: It must be objectively verified that the value assigned to the bare ownership exceeds the amount required to fully settle the mortgage loan and the costs associated with notary and registry cancellation.
4. Drafting of the deed and notary coordination: The draft public deed for the sale of bare ownership with reservation of usufruct is prepared, incorporating clauses that specify the method of payment and the simultaneous discharge of the mortgage encumbrance.
5. Tax settlement and registration: Payment of the applicable taxes is arranged, and both deeds (transfer and mortgage cancellation) are submitted to the Land Registry for registration.

Tax implications when selling bare ownership with a mortgage

The presence of a mortgage encumbrance does not alter the basic tax structure of selling bare ownership, but it influences the net liquidity received by the seller. The main taxes to consider are detailed below:

Personal Income Tax (IRPF)

The transfer of bare ownership generates a capital gain or loss under IRPF. This alteration in capital is calculated as the difference between the transfer value assigned to the bare ownership (deducting costs associated with the sale) and its proportionally adjusted acquisition value.

It is worth highlighting that if the seller is over 65 years old and the property is their main residence, the capital gain derived from the sale of bare ownership is completely exempt from IRPF. This exemption applies automatically, without requiring the reinvestment of proceeds into another property or an annuity.

Tax on the Increase in Value of Urban Land (Plusvalía Municipal)

The seller remains liable for Plusvalía Municipal regarding the increase in land value corresponding to the transferred bare ownership. For its calculation, local councils apply the regulated percentage to the cadastral land value attributable to the bare ownership based on the duration of ownership.

Registry cancellation expenses

The expenses arising from notary, registry and administration fees for cancelling the prior mortgage are borne by the seller or mortgage debtor, unless agreed otherwise. These items include notary fees for the cancellation deed, Land Registry fees for clearing the entry, and any early repayment or cancellation fees specified in the original loan contract.

Subsidised Housing (VPO) in the Comunidad de Madrid

If the mortgaged property for which bare ownership is to be transferred is classified as Subsidised Housing (VPO) and is located in the Comunidad de Madrid, the procedure requires compliance with specific administrative conditions.

It is essential to check the public protection regime and the date of definitive classification. If the property is within the legally established protection period, the transaction will require prior notification to or authorization from the regional administration of Madrid, as well as strict adherence to the maximum sale prices fixed by applicable housing regulations. Alternatively, if regional requirements are met, the procedure for voluntary declassification of the property can be processed before formalising the transfer of the real right.

Specialised legal and professional advice

Structuring transactions that combine the division of ownership, the settlement of mortgage loans and property taxation requires detailed technical analysis. Proper legal support prevents setbacks at notary completion and ensures that the remaining liquidity obtained by the seller is fully protected.

At Sky Real Estate, we offer a comprehensive service in designing estate solutions for real estate assets. Our legal division, linked to Sky Law, has received recognition at the European Legal Awards in the 2023, 2024 and 2025 editions, demonstrating deep technical knowledge in resolving complex encumbrances. Furthermore, we are registered with the Banco de España as a Real Estate Credit Intermediary under code D-286, ensuring strict compliance with financial regulations and maximum transparency in managing mortgage liabilities.

If you wish to explore your property's possibilities and resolve the clearance of your loan to access immediate liquidity, you can find full details through our bare ownership sales service.