Legitimacy and Applicability Analysis of Zero Down Payment and Down Payment Instalment- Zhiheng Law Firm

In recent years, under the influence of the COVID-19 pandemic, regulatory policies, and other factors, the real estate industry has continued to slump, and real estate companies have faced many difficulties. Most real estate companies are facing the problem of destocking their existing assets. In order to achieve self-rescue and stabilize and rebound, many cities have begun to reduce the down payment ratio of home purchases. Some developers have even launched measures such as "zero down payment", "low down payment", "down payment loan", and "down payment installment".

For the majority of home buyers, it is difficult to identify risks without understanding the actual nature of relevant measures. Based on this, the author will analyze the legitimacy, compliance, operability and other aspects.

Common operating modes

"Zero down payment, bag check-in" is a promotional advertisement for a real estate in Suzhou that is widely rumored on the Internet. According to online news, in the operation process, it is not necessary to pay a down payment, but to increase the mortgage loan amount that buyers can lend by making the contract price higher, and even suggest that buyers apply for consumer loans such as "decoration loans" to obtain funds to pay the down payment.

In addition to the above methods, there are also some developers who achieve so-called "zero down payment" by providing buyers with down payment financing. In essence, the developer or a third party pays the buyer's down payment for the advance of the house. Many home buyers are unaware that in addition to the legal relationship of house purchase and mortgage loan, there is also a loan relationship of advance funds.

In order to ease the pressure on homebuyers' capital turnover in the short term and speed up the deletion, some real estate companies plan to launch the promotional preferential policy of "down payment installment, delivery and then payment". That is, after the homebuyer signs the subscription document with the real estate company, the down payment will be paid before a specific date, and then the online signature and mortgage will be processed. By extending the payment and mortgage time, the property will be delivered and then paid.

Which of the above market phenomena are contrary to regulatory policies? Which are in legal compliance? Is it operable?

The Lawyer's View

(1) The advance "zero down payment", "low down payment" and "down payment loan" provided by developers and intermediaries violate the relevant regulations on house purchase financing and anti-money laundering.

According to Article (1) of the Notice on Regulating Home Purchase Financing and Strengthening Anti-Money Laundering Work:"It is strictly forbidden for real estate development enterprises and real estate intermediaries to provide down payment financing for house purchases in violation of regulations. Real estate development enterprises and real estate intermediaries shall not advance the down payment for house buyers or use other disguised forms such as down payment installments to advance the down payment, shall not provide down payment financing for house buyers through any platform or institution, shall not induce house buyers to pay down payment through other institutions in any form, and shall not organize" crowdfunding "for house purchases.

The above provisions clearly do not take other forms of disguised down payment. Whether real estate companies provide loans to buyers through equity funds, or induce buyers to pay down payment through other platforms (such as micro-lending institutions) financing, it is a disguised down payment.

In the market, some real estate companies provide financing channels for buyers to solve the down payment, most of which are borrowed. Although it ostensibly relieves the buyer's financial pressure in the short term, it actually expands the amount of debt and forms new loan costs.

In addition, the above-mentioned behavior of paying the down payment through financing and advance payment may also bring about the credit risk of the buyer being rejected and cut off by the bank in the later stage.The "down payment" is the buyer's proof of their ability to buy a house and repay the loan, which needs to be paid by the equity fund.If the bank finds that the down payment is a loan working capital during the review process, it is likely to be rejected.

According to Article 4 of Beijing's Notice on Strengthening Risk Management of Housing Credit Business in Beijing: "Strictly review the source of funds for the down payment of personal housing loansAll kinds of "leveraged" financial products are strictly prohibited from being used for the down payment of house purchases. All commercial banks should strengthen due diligence on house buyers according to the principle of "knowing your house buyers", and carefully check the source of the house buyers' down payment funds.Home buyers who leverage financial products such as "down payment loans" should be refused loans。

At the same time, commercial banks should strengthen the management of consumer loans and other unsecured credit loans.It is strictly forbidden to lend funds in the name of consumer loans, personal business loans, etc. to pay for the down payment for house purchases。”

Therefore, the down payment must be paid by the equity fund, and any "advance payment" or "financing" disguised down payment is contrary to the current regulatory policy.

(2) By making a "low down payment" with a high contract price, there are many legal risks hidden, and in serious cases, it may even violate the criminal law.

In addition to the advance "zero down payment", there are also a lot of ways to increase the mortgage loan amount that buyers can lend by making high contract prices in the market, thereby reducing the down payment. This is one of the operation modes of "low down payment". In order to implement this operation mode, it is often accompanied by the signing of "yin and yang contracts".

One is signed at the actual purchase price, which is a real purchase contract; the other is signed at a high price, which is used as proof when applying for a mortgage loan to the bank.

The act of lowering the down payment by making a high contract price is a serious violation of regulatory regulations. First of all, this is a kind of loan fraud, using false supporting documents to defraud high loans. If the circumstances are serious, it may violate the criminal lawThe Criminal Law stipulates that anyone who obtains a loan from a bank or other Financial Institution Group by deception and causes heavy losses to the bank or other Financial Institution Group shall be sentenced to fixed-term imprisonment of not more than three years or criminal detention. If the circumstances are particularly serious, he shall be sentenced to fixed-term imprisonment of not less than three years but not more than seven years.

At the same time,This is a dishonest behavior that violates the principle of good faith and is not truthfully filed. If the bank verifies it, the loan will be rejected.Even if a loan has been issued, it may be terminated in advance, requiring the buyer to pay off the full loan amount in advance and be liable for default.

In addition,Signing a "Yin-Yang Contract", if there is any dispute between the buyer and the seller of the house during the transaction, the "Yang Contract" may be found to be valid, and the "Yin Contract" may be found to be invalid.It may even be determined that there is a plot of malicious collusion, and the contract is confirmed to be invalid. At that time, the legitimate rights and interests of home buyers cannot be effectively protected.

(3) The installment of the down payment does not violate the mandatory provisions of existing laws and regulations, but there shall be no disguised advance of funds. The source of the down payment funds for the installment payment shall be the buyer's equity fund.

In addition to advanced payment and higher contract prices, some real estate developers have launched the promotion policy of "down payment in installments, hand over the building and then supply the building" to promote consumption by relieving the buyer's early financial pressure. Real estate companies will require buyers to pay a specific amount of money, and the remaining amount of the down payment can be paid in installments one after another before handing over the building.

Subsequent control of online signatures and mortgage time points, mortgage procedures will be completed before the handover, and mortgage payments will begin after the handover.

According to Article 1 of Shenzhen's "Notice on Further Promoting the Stable and Healthy Development of the City's Real Estate Market": "If the buyer's family has no house in this city and no commercial housing loan records or provident fund housing loan records, continue to implement the loan down payment ratio of the minimum 30% policy."

In addition, according to Article 3 of the Notice of the People's Bank of China and the China Banking Regulatory Commission on Strengthening the Management of Commercial Real Estate Credit [Strict Management of Housing Consumption Loans], commercial banks shall request borrowers to truthfully fill in the relevant information on the loan amount used to purchase the first housing in the housing loan contract according to the principle of honesty and trustworthiness, and determine the loan down payment ratio according to different circumstances.

According to the above provisions,Full down payment is a prerequisite for commercial banks to issue housing loansThe time lag for applying for a bank mortgage to the time before the property is to be handed over or ready to be handed over, and the buyer is required to pay the full down payment before the property is to be handed over, which does not violate the legal prohibition.If the delivery time is relatively certain, the mortgage process is smooth, and the operation idea of "down payment in installments, delivery and then payment" is feasible。

In summary, the installment payment does not violate the mandatory provisions of existing laws and regulations, but there must be no disguised advance funds, and the source of the installment payment should be the buyer's equity fund.

(4) Possible legal risks and operational obstacles in the actual operation of "down payment installment".

1. Failure to sign the "House Sales Contract" (pre-sale) in a timely manner, the sales contract relationship between the two parties has not been effectively established, the payment of the down payment has no basis, and the relationship between rights and obligations is also unclear.

Article 26 of the Regulations on the Management of Urban Real Estate Development and Operation (Revised in November 2020) stipulates: "A real estate development enterprise shall, within 30 days from the date of signing the pre-sale contract for commercial housing, go to the real estate development department of the people's government at or above the county level where the commercial housing is located and the department in charge of land management for the record. "

According to the above laws and regulations, within 30 days after signing the "House Sale and Purchase Contract" (pre-sale), real estate developers need to go through the online signing and filing work with the buyer. If the buyer requests to check out or change houses, and does not actively cooperate with the online signing and filing cancellation work, the developer's housing will not be able to buy and sell normally, and the negotiation work will also be in a passive state.

In order to avoid the above situation, some real estate developers adjust the time for signing the "House Sale and Purchase Contract" (pre-sale) until the buyer pays the down payment. At this time, the two parties may only sign the subscription agreement, and the subscription document may not stipulate the payment requirements for the down payment and the liability for breach of contract.

The sales contract relationship between the two parties has not been formally established, and the rights and obligations are unclear. If either party breaches the contract, it cannot be dealt with quickly and effectively during the dispute resolution process, which is prone to public opinion or litigation.

In addition, in the actual trial, according to Article 5 of the "Interpretation of the Supreme People's Court on Several Issues Concerning the Application of Law in the Trial of Disputes over Commercial Housing Sales Contracts": "If the agreement on the subscription, ordering, reservation, etc. of commercial housing meets the main content of the commercial housing sales contract as stipulated in Article 16 of the Measures for the Administration of Commercial Housing Sales, and the seller has accepted the purchase payment as agreed, the agreement shall be recognized as a commercial housing sales contract.

"Therefore, if the commercial housing subscription agreement (including supplementary agreement) signed by the developer and the buyer has the main content of the sales contract, it will be identified as the commercial housing sales contract. If a dispute with the buyer is not dealt with in time, or the buyer cannot handle the real estate certificate in the later stage due to non-filing reasons, the developer shall bear the liability for breach of contract.

2. If the buyer signs the "House Sales Contract" (pre-sale) before paying the down payment, it is necessary to complete the online signing and filing work within the limited time limit.If the buyer requests to check out, but fails to actively cooperate with the cancellation of the online house selling system coefficient, it will lead to the inability to buy and sell the house normally。

According to the law, within 30 days after signing the "House Sale and Purchase Contract" (pre-sale), real estate developers need to go through the online signature filing work with the buyer. If the down payment is paid in installments and the time limit is long, the buyer may request to check out due to market changes, changes in the buyer's economic situation and other reasons. At that time, if the buyer fails to actively cooperate with the cancellation of the online signature filing procedures, the listing will not be able to be bought and sold normally.

3.“"Down payment installment" is a big test for the liquidity of real estate developers, and the capital recovery period is long.

The essence of "down payment installment" is: long installment of the down payment, and then apply for the mortgage online signature when the property is about to be handed over. From the practical perspective, although "handing over the property and then supplying the property" is only a postponement of the mortgage online signature, it is a great test of the liquidity of the real estate enterprise. The fund recovery period is too long, and the funds cannot be recovered in time to support the development and construction of the project. In practice, it is also necessary to fully consider the allocation of the project cash flow.

Risk warning

No matter what form the developer collects from the buyer, the pre-sale payment (including deposit, security deposit, down payment, etc.) shall be deposited into the special account for the pre-sale payment of commercial housing.

According to Article 31 of the "Regulations on the Administration of the Pre-sale of Commercial Housing in Guangdong Province": "The pre-purchaser shall directly deposit the pre-sale payment of the commercial housing into the special account for the pre-sale payment of the commercial housing according to the payment time agreed in the contract, and exchange the payment receipt with the pre-seller with the deposit certificate issued by the bank."

And Article 71 (6) of the Shenzhen Measures for the Supervision of the Real Estate Market (2017 Amendment) stipulates: "In violation of these Measures, those who fail to collect the pre-sale funds of commercial houses through the special deposit account for the pre-sale funds shall be ordered by the competent department to make corrections within a time limit, and a fine of 50,000 yuan shall be imposed on each unit according to the number of commercial houses that fail to collect the pre-sale funds through the special account for the pre-sale funds."

Therefore, regardless of the form in which the pre-sale funds for commercial housing are collected, they should be directly deposited into the special account for the pre-sale funds for commercial housing.

Home buyers should enhance their risk awareness and understand relevant laws and regulations, learn to distinguish facts from "attractive" publicity and advertising, do not believe it, and make rational choices based on their actual financial situation, and handle mortgage business in accordance with laws and regulations.

If legitimate rights and interests are infringed, they should promptly defend their rights through legal procedures to avoid triggering a credit crisis.

About the Author

Li Huahong, lawyer

Equity Senior Partner

Executive Director of the Real Estate and Construction Engineering Research Center

Director of the Real Estate Investment and Financing Professional Committee

He has been practicing for more than ten years, focusing on professional fields such as asset restructuring and mergers and acquisitions, real estate project investment and financing, real estate development and construction, corporate governance, and Private Offering Fund. He has led more than 100 real estate and equity investment and financing, asset mergers and acquisitions and restructuring projects.

He has served as a perennial legal consultant and special project legal service consultant for dozens of companies. The service companies include: real estate investment companies/Private Offering Fund investment companies/cultural investment companies/asset management companies/hotels/Beijing municipal parks, scenic spots/yacht clubs/wine planting, production companies/traditional Chinese medicine hospitals/animation production companies, etc.