Can a developer in Peru mortgage the land your home is being built on?

Yes, the developer can mortgage the land

When you buy an apartment off-plan, the developer usually owns the land. The Civil Code lets an owner mortgage their property. Article 1099 lists this as the first condition for a valid mortgage:

“1.- Que afecte el bien el propietario o quien esté autorizado para ese efecto conforme a ley.”

(The owner, or someone legally authorised, must be the one who mortgages the property.)

Article 1097 explains what the lender gets:

“La garantía no determina la desposesión y otorga al acreedor los derechos de persecución, preferencia y venta judicial del bien hipotecado.”

(The owner keeps possession, but the lender gets the right to pursue the property, priority, and a court-ordered sale.)

So the developer keeps the land and keeps building, but the lender can go after the property and ask a court to sell it if the debt is not paid.

Why the mortgage sits on the land, not on your apartment

Your apartment does not yet exist as a separate property. Article 1106 is short:

“No se puede constituir la hipoteca sobre bienes futuros.”

(A mortgage cannot be created over future property.)

So the mortgage is registered on the land, which does exist. Sunarp’s Reglamento de Inscripciones del Registro de Predios (art. 116) also allows the deed to state that the building is mortgaged too, even before the building is registered.

Even if the deed says nothing, article 1101 extends the mortgage “a todas las partes integrantes del bien hipotecado” (to all integral parts of the mortgaged property), and article 887 defines an integral part as “lo que no puede ser separado sin destruir, deteriorar o alterar el bien” (what cannot be separated without destroying, damaging or altering the property). Our reading is that a building on the land fits that definition. The Code does not say so in those words.

Paying for your unit does not free it

This is what most buyers miss. Article 1102 says:

“La hipoteca es indivisible y subsiste por entero sobre todos los bienes hipotecados.”

(A mortgage is indivisible and stays in full over all the mortgaged property.)

What you pay the developer is between you and the developer. The developer’s debt to the bank is a separate matter. Until that mortgage is released, your unit stays encumbered. Article 1117 adds that the lender can claim from “el tercer adquirente del bien hipotecado” (the third-party buyer of the mortgaged property) and can enforce against property “que esté en poder de un tercero” (held by a third party).

Not knowing does not help either. Article 2012 presumes, “sin admitirse prueba en contrario” (with no proof to the contrary allowed), that everyone knows what is registered. Article 2022 gives priority to the property right registered first. If the mortgage was registered before your purchase, it generally comes first.

What happens to the mortgage when your unit gets its own entry

When the building is finished and each unit gets its own registry entry (independización), article 58 of the registration rules says:

”[…] en la partida que se genere se procederá a trasladar las cargas y gravámenes vigentes […], salvo que no afecten al predio inscrito en dicha partida.”

(Existing encumbrances are carried over to the new entry, unless they do not affect that property.)

In practice, if the land mortgage is still in force, your new entry starts with a traslado de hipoteca (carried-over mortgage). The order of these registry steps is explained in building declaration, internal regulations and unit subdivision.

How the mortgage on your unit is released

A mortgage ends, among other causes, when the secured debt is extinguished or by the “renuncia escrita del acreedor” (the lender’s written waiver) (art. 1122). To cancel it in the registry, article 118 of the registration rules requires the lender’s declaration:

“En ningún caso la declaración unilateral del constituyente dará mérito para cancelar el asiento de una hipoteca, salvo el caso en que se haya registrado la constitución de una hipoteca unilateral y no conste en la partida del predio su aceptación por el acreedor.”

(A one-sided declaration by whoever granted the mortgage never suffices to cancel it, except for a registered unilateral mortgage the lender never accepted.)

The developer cannot release it alone. The bank has to sign.

The good news is that release can be unit by unit. Article 119 lets the applicant limit the request “al levantamiento de la hipoteca de la partida matriz o al de ésta y al del asiento de traslado de hipoteca de una o más de las partidas independizadas” (to the parent entry, or to it plus the carried-over mortgage on one or more unit entries). And article 1115 of the Civil Code allows lender and borrower to reduce the mortgage amount by agreement, with effect against third parties only once registered.

When the bank agrees to release each unit, and on what terms, is set by the contract between the bank and the developer. No rule we read fixes it.

What the developer must tell you

Ley 29571 requires a real-estate supplier to inform you about the “inscripciones registrales del terreno” (the land’s registry entries) (art. 76.2) and to give you, “de manera previa y gratuita a la suscripción de un contrato” (before signing and free of charge), the registry entry showing it owns “del inmueble matriz del cual se independizará el producto ofrecido” (the parent property from which your unit will be split off) (art. 77.2, point a). A registered mortgage appears in that entry. Ask for it and read it before signing. If you are not sure how, see Sunarp copia literal and registry certificates.

What to demand in the contract

This is practical advice, not a right the law gives you by itself. Before signing, ask for the contract to say:

• That the developer must hand over your unit free of the land mortgage, with the release registered on your unit’s entry.
• When: for example, before delivery or before signing the public deed of sale.
• Who pays the notary and registry costs of the release.
• What happens if it does not: a penalty, or your right to terminate the contract.

If it is a standard-form contract with clauses that shift the developer’s responsibility onto you, see adhesion contracts and unfair terms. For everything else to check before buying and how to complain, see buying a home in Peru.

What this page does not cover

We did not review SBS rules on real-estate project financing, or trusts, bank guarantees or other arrangements banks use with developers. Nor Indecopi decisions or court rulings on unreleased mortgages. The auction process is in mortgage foreclosure in Peru. A mortgage you take out yourself to finance your purchase is a separate topic.