On the issue of loan extension, the first two issues of this official account published two articles by the author, which triggered a lot of discussions, and some readers added my WeChat account to consult me about such a question: Before the loan expires, the collateral is seized by other creditors, and after the collateral is seized, can the loan be extended? Today, we will analyze this issue in combination with legal provisions and relevant precedents.
The origin of the problem
Affected by the "new crown pneumonia epidemic", except for a few enterprises, the vast majority of enterprises have been affected to a certain extent. From the current point of view, catering, hotel accommodation, film, transportation, construction, real estate, offline education and training, automobile industry, manufacturing and other industries and industries have been hit harder. Many enterprises, especially small and medium-sized enterprises, are facing a relatively large debt crisis due to reduced income and depleted cash flow, and the risk of debt default has increased, and some enterprises have even begun to alleviate operating pressure through layoffs.
As many businesses shut down, halted production, and laid off employees, many individuals are also facing the pressure of losing their jobs, cutting salaries, and reducing household incomes, and some families may also face the risk of defaulting on their debts.
From the perspective of banks, due to the impact of the epidemic, banks' existing loans will face greater pressure, and overdue and non-performing loans will definitely increase. As a means to resolve credit risks and alleviate the repayment pressure of borrowers, loan extension is widely used in the credit business practice of banks, and it is necessary to conduct in-depth research and analysis of its legal risks under this special situation.
Regarding the legal issues of loan extension, the first two issues of this official account "Sun Zitong" (WeChat ID: liaofengkong) published two articles by the author, click the link below to view the original article.
Does the guarantor still need to bear the guarantee liability without the consent of the guarantor?
"Will the mortgage continue to be valid if the loan is extended and the mortgage change registration has not been completed?"
According to the General Principles of Loans, if the borrower fails to repay the loan on time, the borrower shall apply to the lender for extension before the loan matures, and the loan may be extended with the consent of the lender.
However, once the borrower's ability to repay the loan fails, there is often more than one creditor of the bank, and there is often a situation where the collateral of the loan secured by the mortgage is seized by another creditor before the loan matures. So, can the mortgagee extend the loan even though he knows that the collateral has been seized?
Analysis of basic concepts
(1) Mortgage guarantee
Mortgage is a common form of security, which means that the debtor or a third party does not transfer the possession of the property and uses the property as security for the creditor's rights. When the debtor fails to perform its debts, the creditor has the right to repay the property at a discount or at the price of auction or sale.
According to article 179 of the Property Law, "if the debtor or a third party mortgages the property to the creditor without transferring the possession of the property in order to guarantee the performance of the debt, the creditor shall have the right to be repaid in priority in respect of the property if the debtor fails to perform the due debt or the mortgage is realized as agreed by the parties." The debtor or third party provided for in the preceding paragraph is the mortgagor, the creditor is the mortgagee, and the property provided for security is the mortgaged property. ”
According to the above provisions, as a security measure, the mortgage belongs to the property security, the mortgagor may be the debtor or a third party other than the debtor, the mortgage security focuses on the exchange value of the mortgage, the mortgagee has the right to be repaid in priority over other creditors over the exchange value of the mortgage, and the core effect of the mortgage as a security right is to be repaid in priority, and the priority right to be repaid is against other creditors. The mortgage right is subordinate and subordinate to the main claim.
(2) On the nature of the extension
As for the nature of the extension, whether it is the legal provisions or the relevant judgments, the mainstream view is that the extension of the loan term is an extension of the loan term by mutual agreement between the borrower and the borrower, which is actually a modification of the original loan contract, and legally belongs to the scope of the modification of the loan contract. The extension of the loan does not create a new creditor-debtor relationship, and is a continuation of the original creditor-debtor relationship.
As for the nature of the rollover, the author has already made an in-depth analysis in the previous two articles, and will not repeat it in this article, but interested readers can check out the previous two articles.
(3) On the legal nature of the seizure
Conceptually speaking, seizure refers to an enforcement measure taken by the people's court and other competent entities in accordance with the provisions of the law to exercise effective control over the movable and immovable property of the corresponding subject of the obligation, so as to prevent the disposition of the subject of the obligation and the creation of other encumbrances, and is an enforcement measure taken by the public power of the state to ensure the smooth enforcement of the corresponding property.
In addition to the courts, the subject of seizure also includes administrative organs such as public security, taxation, and customs, but this article only discusses judicial seizure.
In accordance with the relevant provisions of the Provisions on the Sealing, Seizure and Freezing of Assets in Civil Enforcement by the People's Courts (hereinafter referred to as the "Provisions on Seizure") promulgated by the Supreme People's Court in 2004, the people's courts may seal, seize and freeze movable property in the possession of the person subject to enforcement, immovable property registered in the name of the person subject to enforcement, specific movable property and other property rights. The transfer, encumbrance, or other acts that impede enforcement made by the person subject to enforcement of property that has already been sealed, seized, or frozen must not be opposed to the person applying for enforcement.
Can a property that has been mortgaged be seized by the court?
According to Article 55 of the Judicial Interpretation of the Security Law, "if the property that has been mortgaged is subject to property preservation or enforcement measures such as sealing or seizure, the validity of the mortgage shall not be affected".
In addition, according to Article 40 of the Provisions of the Supreme People's Court on Several Issues Concerning the Enforcement Work of the People's Courts (for Trial Implementation) (hereinafter referred to as the "Enforcement Provisions"), "the people's court may take measures to seal or seize the property owned by the person subject to enforcement who has the right of mortgage, pledge or lien. The proceeds from the auction or sale of property shall be used to pay off the creditor's rights of the applicant for enforcement after the mortgagee, pledgee or lienholder has priority in receiving the payment. ”
According to the above provisions, the court may still take measures of attachment of the property that has been mortgaged, but the measures of attachment do not affect the validity of the mortgage, and the mortgagee can still exercise the mortgage right in accordance with the law.
After the collateral is seized, can it still be extended?
(1) Overview of the problem
According to the above analysis, even if the borrower or a third party mortgages the house to the bank, the corresponding house as collateral may be seized by other creditors during the mortgage period. If the loan is not due and the collateral is seized by other creditors, can the lender still go through the loan extension procedures with the borrower?
There are no direct provisions on the above issues in mainland law, and there are very few direct precedents in practice, which leads to certain controversies in practice on this issue.
Let's look at a typical scenario.
Company A applied for a working capital loan of 3 million yuan from Bank B due to business needs, and the two parties signed the Loan Agreement on February 20, 2019, with a loan term of 1 year, from February 25, 2019 to February 24, 2020, Company A provided a mortgage guarantee to Bank B with the real estate under its name, and the two parties signed a mortgage contract and handled the mortgage registration, after which Bank B issued a loan of 3 million yuan to Company A as agreed. On November 5, 2019, Company A had an economic dispute with a third party, and the collateral was seized by the court of a neighboring county. Now that the loan is about to expire and Company A has problems with its ability to repay, it applies to Bank B for an extension of the loan.
In view of the above scenario, there are at least the following questions worth exploring:
First, after the collateral is seized, the lender and the borrower extend the term, is the extension agreement valid?
Second, after the collateral is seized, if the lender and the borrower extend the term, will the mortgage continue to be valid?
Third, if the mortgage continues to be valid, whether the new interest creditor has the priority right to be repaid.
Special Notes:
Mortgage can be divided into general mortgage and maximum mortgage, the maximum mortgage is the guarantee of the claim that will occur continuously within a certain period of time, and the secured claim is not specific until the claim is determined. In accordance with the provisions of Article 206 (4) of the Property Law, in the event of "the mortgaged property being sealed or seized", the mortgagee's creditor's rights shall be determined. According to Article 206 of the Property Law and Article 27 of the Provisions on Attachment, if the lender knows that the maximum amount of collateral has been seized, the claim secured by the maximum amount of mortgage shall be determined.
According to Article 73 of the Detailed Rules for the Implementation of the Provisional Regulations on the Registration of Immovable Property, "when a cause arises that causes the claim secured by the maximum mortgage to be determined, so that the maximum mortgage is converted into a general mortgage, the party concerned shall apply for registration of the determination of the maximum mortgage with the necessary materials such as the certificate of registration of the immovable property and the materials that the claim secured by the maximum mortgage has been determined." ”
In other words, once a cause arises that leads to the determination of the claim secured by the maximum mortgage, the maximum mortgage is converted into a general mortgage. Therefore, if the mortgagee knows that the mortgage has been seized and extends the loan, there is no difference between the maximum mortgage and the general mortgage as to whether the mortgage continues to be valid.
(2) What is the validity of the extension agreement after the collateral is sealed?
According to Article 44 of the Contract Law, "a contract established in accordance with law shall take effect upon its establishment." Where laws and administrative regulations provide that formalities such as approval or registration shall be completed to take effect, follow those provisions. ”
At present, the author has not found any laws and regulations prohibiting the extension of collateral after it has been seized. From the perspective of relativity of contract, the parties to the extension agreement are the lender and the borrower, and as long as the extension agreement is an expression of the true intention of the borrower and the borrower and does not violate the mandatory provisions of laws and administrative regulations, the corresponding extension agreement shall be valid, and both the borrower and the borrower shall perform their respective obligations in accordance with the provisions of the extension agreement.
(3) The impact of the extension on the mortgage guarantee
The extension is an extension of the loan term and a change in the contract. According to Article 12 of the General Principles of Loans, "where an application is made for the extension of a guaranteed loan, mortgage loan or pledged loan, the guarantor, mortgagor or pledgee shall also issue a written certificate of consent." Where there is already an agreement, it is to be implemented in accordance with the agreement. ”
Therefore, if there is a mortgage guarantee, the written consent of the mortgagor should be obtained for the extension of the loan. The author suggests that regardless of whether the mortgagor is the debtor or a third party other than the debtor, the written consent of the mortgagor should be obtained when the loan is extended, and the mortgagor should agree to continue to provide mortgage security for the loan after the extension.
In addition, in accordance with Article 68 of the Detailed Rules for the Implementation of the Provisional Regulations on the Registration of Immovable Property, the extension of the loan term is a change in the performance period of the debt, and the parties concerned shall apply for the registration of the change of mortgage right with the necessary materials such as the certificate of ownership of the immovable property, the certificate of registration of the immovable property, and the change of mortgage right.
Let's put aside the issue of seizure and first analyze the impact of the extension of the mortgage guarantee without seizure. In this regard, the author has made a detailed analysis in the article "Does the Mortgage Continue to Be Valid if the Loan Extension and Mortgage Change Registration Is Not Handled?", and readers can click the link to check it by themselves.
At present, the mainstream view is that if the loan is extended, the corresponding mortgage should be registered as a mortgage change, but the mainstream judgment holds that the mortgage is only extinguished by statutory reasons, and the extension does not create a new creditor-debtor relationship, which is a continuation of the original creditor-debtor relationship, and the mortgage will continue to be valid even if the mortgage change registration is not handled.
(4) If the mortgage is extended after it is seized, will the mortgage continue to be valid?
There is currently no direct legal provision on the extension of collateral after it has been seized. According to the previous analysis, even if the mortgage change registration is not completed after the extension, the mainstream view is that the mortgage will continue to be valid. Will the act of seizure affect the validity of the mortgage?
In the author's opinion, the mortgage should continue to be valid after the mortgage is seized, and we will gradually analyze this issue in combination with the above content as follows:
First of all, according to Article 55 of the Judicial Interpretation of the Security Law, "if the property that has been mortgaged is subject to property preservation or enforcement measures such as sealing or seizure, the validity of the mortgage right shall not be affected". Therefore, if the collateral is seized by the court before the maturity of the loan, the preservation measure does not affect the validity of the mortgage. That is, the mortgage is valid until it is rolled over.
Second, according to privity of contract, the contractual parties to the rollover agreement are the lender and the borrower. If the extension agreement is an expression of the true intention of both parties and does not violate the mandatory provisions of laws and administrative regulations, the corresponding extension agreement is also valid as the main contract.
Thirdly, according to the legal principle of property rights, the mortgage right is extinguished only by statutory reasons, and neither extension nor seizure is the statutory circumstance for the extinction of a security interest as stipulated in article 177 of the Property Law, so the mortgage should continue to be valid if it is extended after seizure.
However, there is a view that, according to Article 184 of the Property Law, "property that has been sealed, seized or supervised in accordance with the law cannot be mortgaged", so if the mortgage is extended after being sealed, the mortgage should be deemed invalid.
However, in the author's opinion, this article is aimed at the creation of new mortgages, while we are discussing the issue of extension of the mortgage after it has been seized. As far as we are concerned, when the court seals up, the mortgage has already been established in accordance with the law and legally exists, and subsequent seizure does not affect the validity of the mortgage. The extension is the continuation of the original creditor's rights and debts, and the mortgage rights shall continue to exist legally before the main creditor's rights are extinguished, if there are no other statutory reasons for the extinction of the mortgage right.
To sum up, the author believes that the mortgage continues to be valid after the mortgage is seized.
(5) Does the mortgagee have priority over the interest after the extension?
According to the above analysis, neither seizure nor extension is a legal cause for the extinguishment of the mortgage right, therefore, the extension of the mortgage after the mortgage is seized does not affect the validity of the mortgage, and the mortgage right continues to exist legally. However, there is some controversy as to whether the interest after the rollover is within the scope of priority repayment. There are two main points of view:
Point 1:
As the mortgagee, the bank still extends the loan even though it knows that the collateral has been seized, and subjectively has the intention to allow the loss to expand, thereby harming the interests of other ordinary creditors or subordinate mortgagees.
Point 2:
Whether the interest after the extension is within the scope of priority repayment depends on whether the extension increases the mortgagor's security liability, thereby reducing the interests of other creditors when disposing of the collateral.
The purpose of the extension is to extend the loan term so that the borrower can overcome the difficulties as much as possible and achieve the purpose of normal repayment. If the extension of the loan extends the original loan term, the borrower shall pay interest in accordance with the extension agreement. If the loan is not extended, if the borrower is unable to repay the loan, the overdue penalty interest will be applied, which is generally higher than the normal interest rate level during the loan period, so the extension of the loan does not increase the mortgagor's liability, but reduces the mortgagor's mortgage liability, and the mortgagee has the right to claim the priority of repayment of the interest during the extension period.
There is currently no specific legal provision on this issue, and the author has only seen one relevant case, which adopts the opinion of point 2.
Typical precedent: Agricultural Bank of China Co., Ltd. Dehua County Branch, Zheng Shengyan Financial Loan Contract Dispute, Quanzhou Intermediate People's Court (2017) Min 05 Min Zhong No. 3694
The Quanzhou Intermediate People's Court held that although the loan involved in the case was extended after the collateral was seized, this was an agreed change of the performance period between the parties to the contract, and did not constitute a waiver of the lender's right to pursue the borrower's liability for breach of contract. In the original trial, Dehua Agricultural Bank claimed that Zheng Shengyan had not paid the interest in full on a monthly basis, and that the collateral involved in the case had been seized by the people's court due to other cases, and that the realization of the creditor's rights and security rights had been affected, and the appeal for rescission of the contract and recovery of the loan should have been supported, but the original trial court erred in refusing to support it.
Zheng Shengyan and Zeng Qiaoying voluntarily provided real estate located in Dehua County to provide security for the debts involved in the case, and went through the mortgage registration, and the mortgage was established in accordance with the law. According to Article 10 of the Judicial Interpretation of the Guarantee Law, after the termination of the main contract, the guarantor shall still bear the guarantee liability for the civil liability that the debtor should bear. Therefore, Dehua Agricultural Bank advocated that the collateral should be repaid in priority, which was supported by the law.
Risk Warning: In view of the lack of clarity in the legal provisions on the above issues, and the author has only retrieved the above case, there is a certain uncertainty as to whether the lender has a priority right to repay the interest after the extension, and it is recommended to make its own judgment on the basis of consulting the local court. However, in the author's opinion, the principal and interest that have been incurred before the extension should be within the scope of the mortgage guarantee, and the lender should enjoy the priority of repayment, which is not much controversial in practice.
(6) Handling the registration of mortgage alteration
According to Articles 26 and 68 of the Detailed Rules for the Implementation of the Provisional Regulations on the Registration of Immovable Property, the extension of the loan term is a change in the period of debt performance, and the owner of the immovable property shall apply to the immovable property registration authority for the change of registration. However, it is a pity that many real estate registration departments do not register mortgage changes for extension at all. As for the consequences of not being handled, the author has already elaborated in the article "Does the Mortgage Continue to Be Valid if the Loan Extension and Mortgage Change Registration Is Not Handled?", and will not be repeated here.
If the mortgage is extended after being seized, it is also necessary to go through the mortgage change registration in accordance with the above provisions.
However, according to Article 26 of the Provisions on Attachment promulgated by the Supreme People's Court in 2004, "the transfer, encumbrance, or other acts that impede enforcement made by the person subject to enforcement shall not be used against the person applying for enforcement if the property has been sealed, seized or frozen." ”
In addition, Article 22, Paragraph 1 of the 2004 Notice of the Supreme People's Court, the Ministry of Land and Resources, and the Ministry of Construction on Several Issues Concerning the Regulation of Enforcement by the People's Courts and the Assistance of Land and Resources and Real Estate Management Departments in Enforcement stipulates that "the land and resources and real estate management departments shall not go through the registration formalities for the change or transfer of ownership such as mortgage or transfer of land use rights and houses that have been sealed or pre-sealed by the people's courts in accordance with the law." ”
According to the above-mentioned provisions, during the period of seizure of the mortgage, the registration department will generally not go through the registration procedures for the change or transfer of ownership such as mortgage and transfer, including the registration of change.
For example, in the article "Can the Seized House Be Registered for the Change of Mortgage Due to the Extension?" (published on the official account "Liu Shoujun Real Estate Registration Research and Consulting Studio" on December 11, 2019), the author believes that "even if the mortgage is seized, the registration agency can handle the registration of the change of mortgage right that does not affect the priority of the seizure registration and increases the burden of the seized house." ”
Summary and Risk Warning
To sum up, the author believes that if the mortgage is extended after it is seized, if there are no other circumstances that determine that the main contract is invalid and the mortgage is invalid, the extension agreement is valid and the mortgage continues to exist legally, but there is a certain uncertainty as to whether the mortgagee can be repaid in priority as to whether the new interest after the extension can be repaid. Regarding the issue of the extension of the collateral after it has been seized, please note the following risks:
First, since the law does not directly stipulate this issue and there are few relevant cases, there is a certain uncertainty as to whether the author's above-mentioned views can be supported by the court where you are located, and it is recommended to make a decision on the basis of understanding the local judicial views.
Second, the extension only occurs when the borrower is unable to repay the loan on time, and in most cases, the borrower is often more than one creditor of the bank. The lender should carefully analyze whether to extend the loan on the basis of understanding the borrower's situation, and may also consider restructuring the loan through restructuring methods such as reducing the quota and borrowing new money to repay the old one, and of course, it can also directly collect the loan through litigation or non-litigation means.
Third, the risk of insufficient value of the collateral. If the borrower's business conditions continue to deteriorate after the loan is extended, and the various interest, penalty interest and liquidated damages after the loan extension continue to increase, the total amount of debt incurred may exceed the value of the collateral.
Fourth, the risk of not being able to handle the registration of mortgage change. Even if it is not sealed, many registration departments do not handle the registration of mortgage changes after the extension, not to mention the situation where the mortgage is seized. If the change registration is not processed, although the current mainstream judgment believes that the validity of the mortgage will not be affected, in any case, it also increases a certain risk.
Fifth, the risk of failing to assert the mortgage in a timely manner. The mortgagee shall, in accordance with Article 202 of the Property Law, claim the mortgage within the statute of limitations for the principal claim in a timely manner. If the written consent of the third party is not obtained, it is recommended that the mortgagee must claim the mortgage in a timely manner within the three-year statute of limitations after the initial loan expires (the loan term before the extension expires) with reference to Article 30 of the Judicial Interpretation of the Security Law.
