What Is a Construction Mortgage?

Construction project mortgage refers to the mortgage of all or part of the house and land use right under construction during the construction of the house.

Construction Mortgage

Right!

Construction project mortgage refers to the mortgage of all or part of the house and land use right under construction during the construction of the house.

Chinese name

Construction Mortgage

Definition

Use rights set up in whole or in part

Content

Housing and land use rights

Classification

economic

The general process of construction project mortgage is: ^[1]

I. Issues related to construction project mortgage ^[2]

[Case] ^[2]

On February 8, 2001, a county bank of Agricultural Bank of China signed a Mortgage Guarantee Loan Contract with Borrower Company A. The contract stipulated a loan amount of 1.5 million yuan and the loan period was from December 8, 2001 to March 2002. On the 8th, the borrower A provided mortgage guarantee for the loan with all its commercial buildings completed on November 30, 2001. Both parties completed the mortgage registration procedures. After the contract was signed, the county branch issued a loan of 1.5 million yuan to Borrower Company A in accordance with the contract. Because the borrower A could not repay the loan after the loan expired, the county branch filed a lawsuit to the court on April 5, 2002. After the company B, the construction company of the collateral, learned that a county branch sued Company A, it sued Company A to the court on May 10, 2002 on the grounds that Company B owed its engineering money, claiming that Company A was used to report to a branch The collateral of the mortgage loan was undertaken by Company B. Company A currently owes 1.6 million yuan to Company B's construction project. Company B has the priority to receive compensation for the collateral according to law.

In the trial of a county branch v. A company and B v. A company, the court formed two different opinions: One opinion held that company B could not receive priority compensation for the collateral in this case. The main reason is that the mortgage is a priority, and the relationship between Company B's and Company A's debt owed to the project is another legal relationship, which belongs to ordinary claims and cannot be prioritized for the construction project. Another opinion was that Company B had the priority to receive compensation for the collateral in this case. The legal basis is Article 286 of the "Contract Law" "... the construction project price shall be preferentially compensated for the project discount or auction price." And "The Supreme People's Court's Reply on the Priority of Construction Project Payment Right" (Interpretation of Law) [2002] No. 16) Article 1 "I. In the trial of real estate disputes and handling of enforcement cases, the people's court shall determine the priority of compensation for contractors of construction projects in accordance with Article 286 of the Contract Law of the People's Republic of China Rights are better than mortgage rights and other claims. "Finally, after verifying what Company B claims is true, the court ordered Company A to return the principal and interest of the loan of a county branch; There is a right of priority in compensation. Given that Company A has no other property except the collateral, the loss of creditor's rights of a certain branch is serious.

[Comment]

The court's decision was correct.

For a long time, most of the loans issued by the Bank are secured by mortgages. Among the methods of mortgage guarantees, construction projects take an absolute majority of mortgages. As in the above case, when the mortgages are considered to be valid, the Bank can exercise the mortgage right first. The mortgage or discount will be paid first. However, according to the recently released relevant laws and judicial interpretations, the court failed to support our bank's claim, which eventually led to the loan issued by our bank being a credit loan. Once the borrower has no other property to repay the debt, it will cause our bank's creditor's right to be vacant. For this reason, the legal risk prevention of construction project mortgages needs our attention.