Residence rights - the spring of debtors' evasion of mortgage-like claims?

Author | Lawyer Guo Xiangfeng

Article 154 of the Civil Code stipulates that a civil juristic act that damages the legitimate rights and interests of others is invalid if the perpetrator conspires with the other party in bad faith.

Mortgage is an important means for creditors to ensure that debts can be repaid. However, when the mortgagor deliberately sets up the right of residence on the real estate out of malice, it may cause serious damage to the rights and interests of the mortgagee.

First, the legal provisions and value functions of mortgage and residence

Article 394 of the Civil Code of the People's Republic of China (hereinafter referred to as the "Civil Code") stipulates that if the debtor fails to perform the due debts or realizes the mortgage right as agreed by the parties, the creditor has the right to be paid first for the mortgaged property. Therefore, the value function of the mortgage right lies in the priority of the secured creditor's right to be paid.

Articles 366 to 371 of the Civil Code stipulate that the person with the right of residence has the right to possess and use the usufruct of other people's dwellings in accordance with contractual agreements or wills to meet the needs of living and living. Therefore, the establishment of the right of residence helps to solve the housing problem of disadvantaged family members such as the elderly or minor children, so that they can live and live, and their lives are basically guaranteed.

II. The impact of residence rights on the value of mortgaged property and the interests of mortgagees

Mortgage belongs to the category of security interest, while residence is a usufruct, both of which must be created by signing a contract and take effect from the time of registration.

Although the powers involved in the mortgage and the right of residence are different, and there is no conflict in the process of establishing the right, the mortgage is an extension of the rights and interests of the real estate owner, while the right of residence is a long-term and substantial burden for the real estate owner. Unless otherwise agreed by the parties, the right of residence does not need to pay any consideration. In principle, it is established without compensation. Its power period starts from the time of registration with the registration agency until the expiration of the right of residence or the death of the right of residence.

Therefore, once the residence right is registered and established, it can be opposed to the mortgage guarantor, the pledge guarantor, and even the owner unless it is revoked or cancelled for statutory reasons. For example, the residence right established through registration is not affected by the disposition of the house, and even if the house is auctioned according to law due to the realization of the mortgage, the residence right of the occupant can also be opposed to the new owner.

Therefore, the establishment of the right of residence will inevitably affect the mortgage value of the house, and then damage the interests of the mortgagee.

III. Jurisprudence Analysis of "Arrive First, Live Later" and "Arrive First, Live Later"

In extreme cases, the "live-in-then-come" residency may be set to permanent residency status, and the impact of this situation on mortgage rights is self-evident.

In the case of "first arrival and then residence", the term of the right of residence is often based on the expiration time of the creditor's right. In judicial practice, the premise of the exercise of the mortgage right is often based on the accelerated maturity of the creditor's right in the case of debt default. At this time, because of the need to protect the residence rights of the occupant within the agreed time, the mortgage house may not be able to complete the transaction smoothly, and the feasibility and realization value of the mortgagee's disposal of the mortgage will inevitably be adversely affected.

Fourth, residency may become a legal way for debtors to evade debt

Before the implementation of the Civil Code on January 1, 2021, banks' real estate mortgage contracts rarely involved the content of residence rights due to the lack of express provisions in the law. After the implementation of the Civil Code, although the legal concept of residence rights has been clarified, the relevant legal provisions have not made any specific provisions on the conflict between it and the mortgage.

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The above-mentioned "non-share" demand can be met by setting up residency rights on the house bought by himself: after the mortgagor lends the principal of the mortgaged property and the value-added part of the house in full, he sets up permanent residency rights for the family on the house. After the loan is cut off, no matter who owns the house is taken away, the family's residency rights are permanently protected by Article 3

70of the Civil Code.

In order to deny the above absurd point of view, the author closed himself in the office on a Friday night after get off work and spent about 10 hours searching in multiple ways and channels, but the whole network did not find a "Civil Code" After the implementation of the public legal precedent on revoking the debtor's malicious establishment of residence rights.

V. Application of law in the event of a conflict between residency and mortgage

(1) Legal remedies for mortgage claims being maliciously established as residency rights

The perpetrator and the counterparty maliciously collude, and a civil juristic act that damages the legitimate rights and interests of others is invalid.

Article 538 of the Civil Code stipulates that if the debtor disposes of the property rights and interests without compensation by giving up his creditor's rights, giving up the guarantee of creditor's rights, transferring property without compensation, etc., which affects the realization of the creditor's creditor's rights, the creditor may request the people's court to revoke the debtor's behavior.

Article 539 of the Civil Code stipulates that if the debtor transfers property at an obviously unreasonable low price or acquires another person's property at an obviously unreasonable high price, which affects the realization of the creditor's claim, and the debtor's counterpart knows or should know the situation, the creditor may request the people's court to revoke the debtor's behavior.

With reference to the above two provisions, the establishment of the right of residence also affects the realization of the creditor's claim, and may become a means for the debtor to evade debt. In the absence of express provisions in the current law, the author suggests that the above provisions can be applied to the cancellation of malicious residency in the dispute resolution.

(B) the legal effect of residence in mortgage disputes

As mentioned above, the Civil Code does not make specific legal provisions on this issue. However, in terms of power functions, the right to live is similar to the right to rent a house, both to meet the needs of the right holder for possession and use, and need to be established or strengthened through contracts and registration.

Article 405 of the Civil Code stipulates that if the mortgaged property has been leased and transferred to possession before the establishment of the mortgage, the original lease relationship shall not be affected by the mortgage.

Article 66, paragraph 1, of the Interpretation of the Supreme People's Court on Several Issues Concerning the Application of the Guarantee Law of the People's Republic of China stipulates that if the mortgagor leases the mortgaged property, the lease contract shall not be binding on the transferee after the mortgage is realized.

Referring to the above conflict handling rules between lease right and mortgage right, if the residence right conflicts with the mortgage right, if "live first and then settle", the residence right will not be affected by the mortgage right; if "live first and then live", the residence right will not be binding on the transferee after the mortgage right is realized.

VI. Proposals on Strictly Preventing Mortgagor from Maliciously Establishing Residence Rights

The right of residence has long-term and exclusive legal characteristics. Borrowers may use the right of residence system to establish the right of residence for others without compensation, in order to maliciously evade the execution of the mortgage, resulting in increased difficulty in realising the mortgage and reduced efficiency in disposal. To this end, the mortgagee should take the following preventive measures before and after the loan:

(1) Strengthen the verification of residency rights before borrowing money

When the creditor accepts the mortgage, in addition to inquiring about the ownership of the real estate, judicial seizure, establishment of mortgage, etc., he should also inquire whether the house has registered the right of residence or whether there is a situation in which the will establishes the right of residence.

(2) Adding a mortgage contract clause prohibiting the establishment of residency rights without consent

At present, most local governments have not yet issued regulations on the registration of residence rights, and the actual registration of residence rights may not consider the order of establishment of the mortgage rights. In practice, there are exceptions where the mortgage right has been established but the residence right can be established without the written consent of the mortgagee. Therefore, it is recommended that the mortgagee go to the real estate registration department to check the registration information of the mortgage in a timely manner, find out whether the mortgagor or the occupant has breached the contract in a timely manner, and add relevant clauses restricting or prohibiting the establishment of residence rights in the mortgage contract as soon as possible.

(3) Once the act of maliciously establishing the residence right is discovered, the mortgagee shall immediately take legal action to seek the revocation of the residence right and prevent the execution of the residence right.

Debtors may continue to evade debts beyond our imagination. Maliciously setting up residency rights against mortgages not only violates the principles of the law, but also damages the legitimate rights and interests of mortgagees. The residency system is entirely possible to be used by debtors with the intention of evading debts, and the legal system should provide effective remedies to prevent such unfair acts from happening.

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Lawyer Guo Xiangfeng

Senior Partner of

Main attack: final execution + insurance refusal

WeChat: 15338767776

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