A mortgage is a very important system. Like the guarantee, it plays a very important role and can provide a more effective guarantee for the creditor to ensure the safety of the creditor’s rights. For banks, mortgages are already a very familiar practice for business personnel, and most loans require mortgages as security. In the following lectures, we will introduce the mortgage system in more detail.
1. Can such “property” be mortgaged?
In October 1995, Company A signed two loan contracts with Bank B to renovate Huaxing Trade City. The contract stipulated that Bank B would lend Company A RMB 6.1 million and USD 1 million respectively. Renminbi borrowings are calculated at a monthly interest rate of 11%, and USD borrowings are calculated at an annual interest rate of 7.2%. The loan period is 4 months and 5 months respectively. Both parties signed two mortgage contracts at the same time. It is stipulated in the mortgage contract: Company A will mortgage and guarantee the two loans with its management rights and lease rights of Huaxing Trade City (with an area of 10,000 square meters). Bank B issued a loan of RMB 6.1 million and USD 1 million to Company A in three installments on the day of signing the contract. After the loan expired, Bank B only recovered the interest of RMB 113,862 and USD 11,243. As of September 1997, Company A owed Bank B a loan of RMB 6.1 million in principal and USD 1 million, with the interest of RMB 1,726,128.3 and USD 146,860. Bank B, therefore, filed a lawsuit in court. According to the investigation, Huaxing Trade City is a facility built by the relevant departments of the city government. During the construction process, Company C, the predecessor of Company A, had invested about 50 million yuan to participate in the construction. The relevant departments of the city issued a document in 1993 to confirm that the property rights of this facility belong to the state, and Company A has a certain amount of investment in the construction part. Long-term use rights and lease rights. The relevant departments of the municipal government agree to the transfer of the long-term management rights and lease rights of Huaxing Trade City to others due to the inability of the current obligee to perform debts.
In this case, the borrower applied for a loan from the bank with his long-term management right and leasing right of certain property as collateral. During the trial, the judges disagreed on whether management rights and rental rights can be used as collateral. Some people think that my country’s “Guarantee Law” does not stipulate that such rights can be used as collateral, so this kind of mortgage is invalid However, some others believe that management rights and rental rights are rights that can generate income. At the same time, the Guarantee Law does not expressly prohibit them, so their validity should be recognized.
This is a problem that banks often encounter, especially in the current economic system reform, and many property rights relationships have not been fully defined. Once the bank’s mortgage rights are not realized, it will pose a great threat to the bank’s assets. There is no doubt that management rights and rental rights are property rights, but whether such “property” can be used as collateral is indeed a question worthy of consideration. Therefore, what kind of property can be used as collateral is a very concerning issue for banks when they engage in lending.
2. What can be mortgaged?
Mortgage means that the debtor or a third party does not transfer the possession of the property, and the property is used as a security for the creditor’s right. When the debtor fails to perform the debt, the creditor shall have the right to repay the property by the provisions of the law or with the price of auction or sale of the property in priority. The debtor or a third party is the mortgagor, the creditor is the mortgagee, and the property providing security is the collateral. The mortgage is already a very familiar concept for bankers. Both the Commercial Banking Law and the General Rules for Loans require guarantees to be provided for granting loans, and credit loans are generally not allowed. The most common form of security is a mortgage.
It is expressly stipulated by law that houses can be used as collateral. For example, Article 34 of my country’s “Guarantee Law” stipulates that “the houses and other fixed things on the ground owned by the mortgagor” can be mortgaged. Houses have a long history as collateral. In fact, in the early stage of the development of the mortgage system, the house was the main mortgage. Because the house is durable, high in value, and will not be easily transferred, the creditor is satisfied; after the mortgage, the debtor can continue to live in the house, and the debtor will not be displaced because of the mortgage, and the debtor is also satisfied. Therefore, the house is used as a mortgage. suitable.
However, the house is usually connected with the land. If B mortgages the house to A, and at the same time mortgages the land occupied by the house to C, and B can’t pay the money, both A and C find them and sell the house and the land. There may be disputes, and if one person buys both the house and the land, there may be no problems, but if not one person buys, there may be disputes. As a result, the principle of “houses go anywhere, and land follows the house” was developed, requiring both the land and the house to be mortgaged at the same time, and one cannot be mortgaged alone. my country’s land belongs to the state, so Article 37 of my country’s “Guarantee Law” stipulates that the ownership of land shall not be mortgaged. However, Article 34 of the Guarantee Law also stipulates that the state-owned land-use rights that the mortgagor is legally entitled to dispose of may be mortgaged. Therefore, although the land in our country cannot be mortgaged, the land use right can be mortgaged (detailed below). In my country, the principle of “the house goes with the land, and the land goes with the house” actually requires that the right to use the house and the land be mortgaged at the same time. This is exactly the legislative intent stipulated in Article 36 of the Guarantee Law of our country.
The main reason for choosing land and houses as collateral is that the value of these things is high, and the creditor’s rights that can be guaranteed are correspondingly high. With the development of modern society, some chattels have also become objects of the mortgage due to their high value. The most obvious is the “large items” such as aircraft and ships. A ship may be worth tens of millions, and a Boeing aircraft can easily cost hundreds of millions. These large items are more expensive than some real estate. As collateral, it is enough to make creditors. Relieved. The same is true of some machinery and equipment. A production line may be worth several million. Therefore, items that originally belonged to movable property have also become objects of the mortgage. Therefore, Article 34 of my country’s Guarantee Law also stipulates that “machines, means of transportation and other properties owned by the mortgagor” and “state-owned machinery, means of transportation and other properties that the mortgagor has the right to dispose of” can also be used for to mortgage.
It should be said that there are many types of collateral, and the interests of creditors are easily guaranteed. However, we all know that whether it is the provisions of early Roman law or the latest development of modern security law, the mortgagor usually requires the mortgagor to have the ownership or the right to dispose of the collateral. In other words, for the bank, the borrower as the mortgagor must have the ownership or the right to dispose of the mortgaged property. This is why banks usually require the borrower to provide proof of title, ownership, etc. when issuing a mortgage loan. However, it is difficult to deal with the right of disposal, which is why some people, in this case, believe that the right to manage and lease the trade city cannot be used as a mortgage.
At the same time, this is also the time to issue mortgage loans to state-owned enterprises, which banks feel is a tricky issue and one that has to be treated with great care. Which property state-owned enterprises have the right to dispose of, the bank must be very clear. In 1992, Article 15 of the State Council’s “Regulations on the Transformation of Operating Mechanisms for Industrial Enterprises Owned by the Whole People” clarified the scope of the state-owned enterprises’ exercise of the right to dispose of the property by the law. When a bank makes a mortgage loan, for the collateral provided by a state-owned enterprise, such as key equipment, complete sets of equipment, and important buildings, the bank should require the enterprise to issue a mortgage approval document from the relevant government department before it can issue a mortgage loan. In addition, the real estate mortgage of the state holding company that has completed the restructuring task must comply with the relevant regulations of the “Reply on Several Issues Concerning the Registration of Mortgage Loans by State-owned Enterprises” issued in March 16, 1994. This ensures the security of the loan.
The movable and immovable properties mentioned above are tangible properties, and tangible properties are used as collateral, which can be seen and touched. The mortgagee is very reassured about such properties. However, the concept of legal property is not limited to some tangible things, it may be some intangible things, such as some property rights, can these intangible rights be used as mortgage objects?
3. Can rights be used as collateral?
There is no doubt that land use rights can be used as mortgage objects. Article 34 of the Guarantee Law stipulates that the right to use state-owned land may be mortgaged. The way of obtaining the right to use state-owned land in our country is different, so the situation of mortgage is also different. The right to use state-owned land obtained through assignment or transfer by the law may be mortgaged. That is to say when obtaining the right to use state-owned land, the consideration is paid, and if it is obtained with compensation, it can be mortgaged. But if land-use rights are obtained through administrative allocations, banks must be careful. Some people think that, according to the principle that the house goes with the land and the land goes with the house, if the house on the land is mortgaged, the land use right will also be mortgaged. Therefore, if the land is allocated administratively and the house on the ground is mortgaged, the land is mortgaged with it. Only when the mortgage right is realized, the mortgagee has the priority to receive payment after paying the amount equivalent to the land use right transfer fee that should be paid by the law. This view is logically correct. However, if the bank does this, it will bring great risks, because since the disposal of land use rights is restricted, the mortgage rights are also flawed. Banks should be especially cautious when mortgaging their land-use rights.
Generally speaking, rural collectively-owned land use rights cannot be mortgaged. Therefore, Article 37 of the Guarantee Law stipulates that collectively-owned land use rights such as arable land, homestead, private land, and private hills cannot be mortgaged. However, this is not absolute. To encourage contracted management, the “Guarantee Law” also holds that the land use rights of barren hills, barren ditch, barren hills, barren beaches and other wasteland contracted by the mortgagor by the law and mortgaged with the consent of the contract-issuing party can be mortgaged; The right to use shall not be mortgaged separately. If the buildings such as factory buildings of township and village enterprises are mortgaged, the land use rights within the scope of their possession shall be mortgaged at the same time.
Therefore, rights, as a special kind of “property”, can still be used as the subject of mortgage. my country’s “Guarantee Law”, when stipulating which properties can be mortgaged, leaves a live opening: “other properties that can be mortgaged according to law” can be mortgaged. However, it also stipulates that “other properties that cannot be mortgaged according to law” cannot be mortgaged either. What exactly is a property that can be mortgaged not only needs to be further clarified by other laws, but also a problem that needs to be solved by the development of practice. The case mentioned at the beginning of this lecture is an interesting example.
As a kind of property rights, long-term management rights and rental rights are undoubtedly rights with certain income. The law does not stipulate whether such rights can be mortgaged. Therefore, when evaluating whether such rights can be used as collateral, it must be Be careful. The Legislative Affairs Committee of the Standing Committee of the National People’s Congress explained in the explanation of the “Guarantee Law”: the key to the mortgage guarantee is the scope of the collateral, which can be used as collateral. As collateral, it must be a property that can be transferred, because only in this way can the purpose of security be achieved. According to this principle, the property that can be mortgaged must meet the following conditions: First, it must be a property that the mortgagor has the right to dispose of. Therefore, the mortgaged property should be owned by the mortgagor, and if it is state-owned property, it must be the mortgagor who has the right to dispose of it according to law. Property whose ownership and right of use are unclear or in dispute, and property that has been sealed up, seized, or taken other compulsory measures according to law, shall not be mortgaged. Second, the transfer must be permitted by law. Third, the creditor’s rights guaranteed by the mortgagor shall not exceed the value of the collateral. Fourth, it is easy to manage and implement.
Therefore, the key to becoming a mortgage is to be able to transfer, requiring the mortgagor to have an ownership or the right to dispose of the mortgage. In this case, Huaxing Trade City is a state-owned asset. The long-term management rights and lease rights enjoyed by Company A should be said to be flawed at the time of disposal and transfer, and they do not fully meet the transferability required by law. However, the city government officials issued a document during the court hearing, agreeing that Company A would transfer these rights to others for exercise. Based on this, the court made a final judgment, holding that such long-term management rights and lease rights are property rights that can bring benefits to the obligee, and the result of exercising the rights can fully achieve the purpose of guaranteeing the performance of debts. The use of such usufruct for a mortgage is not expressly stipulated in the law, but there is no express prohibition, and the owner of the Trade City agrees to the transfer of usufructuary caused by the mortgage. Therefore, this mortgage is valid and legal.
The judgment of the court is correct, but for banks, it does not mean that they can lend money with confidence and boldness when encountering similar things in the future. Under the current circumstances, banks have to be very careful in choosing collateral. When determining the collateral, the bank should measure it according to the above-mentioned principles, especially whether it is transferable, and be especially careful about the state-owned property, and should require the mortgagor to provide the approval and consent of the relevant departments. It is best not to wait until after the trial, as in this case, to go through the formalities.