Introduction
The Notice of the Supreme People's Court, the Ministry of Land and Resources, and the Ministry of Construction jointly issued in 2004 on Several Issues Concerning the Lawful Regulation of Enforcement by the People's Courts and the Assistance of the Land Resources and Real Estate Management Departments (hereinafter referred to as the "Notice") established a pre-seizure and sealing system. Pre-seizure refers to the property preservation measures taken by the court against the real estate that the person subject to enforcement has not yet publicly registered but enjoys the right to expect property rights. Because the pre-seizure system often involves the interests of third parties, there have been many controversies in the practical application of the system. This article discusses in detail the issues of pre-seizure, enforcement and transfer of commercial housing in order to provide guidance for practice.
First, the pre-seizure and sealing of commercial housing
(1) The applicable circumstances of pre-seizure
Pre-seizure measures are mainly applicable to housing and land use rights, because in practice, pre-seizure and enforcement issues related to commercial housing are more common, limited to the length of the article, this article focuses on this situation. According to Article 15 of the Notice, and in light of the different stages of the development and sale of commercial housing, the pre-seizure of commercial housing includes the following circumstances:
(2) Procedures and time limits for the realization of pre-seizure
On the basis of the applicant's application, the court made a pre-seizure ruling on houses that met the applicable circumstances of the above pre-seizure, and issued a notice of assistance in enforcement to the real estate management department, which handled the pre-seizure registration on the basis of the notice and the attached ruling. If, during the pre-seizure period, the house is registered in the name of the person subject to enforcement, the pre-seizure registration is automatically converted to an official seizure registration, and the seizure period begins to be calculated from the date of pre-seizure.
The pre-seizure period is two years, and the period may be renewed once at the expiration of the period for one year. Where there are truly special circumstances that require a further seal, it shall be approved by the high people's court to which the competent court belongs, and the period each time shall not exceed one year. However, in practice, the new rule of three years of seizure period is generally applied by analogy.
(3) Pre-sealed waiting system
The waiting list system is also applicable to pre-seizure. Waiting for seizure refers to the fact that when two or more courts seal the same land use right or house, the relevant departments handle the sealing registration formalities for the court that first served the notice of assistance in enforcement, that is, the "first seal", and the court that handled it later did the "waiting for seizure", that is, after the sealing in the previous ranking was lifted according to law, it was automatically transformed into a formal seal registration. The order of waiting is in the order of service by the court.
In practice, it is common for multiple creditors to submit requests for seizure and repayment of the same subject matter based on different creditor relationships, and in order to solve the problem of the order of seizure and enforcement in this case, China has established a waiting system for seizure. [1] The importance of the order of seizure is that the court in the first place can dispose of the seized property first, and if the seized court has disposed of the property in its entirety, the waiting listed in the next round of seizure automatically lapses.
(4) Methods of pre-seizure
The court's method of sealing real estate is divided into "live seal" and "dead seal". "Dead seal" generally means that when the court seizes the property of the person subject to enforcement, it attaches a seal so that it cannot be used or transferred. The "live seal" generally only registers the property to be enforced, and does not use the form of affixed seal. The seized immovable property can still be used in practice, but restrictions are imposed on the transfer and other dispositions of the person subject to enforcement, such as the housing management department seals the house, and it cannot be transferred or mortgaged, but the house can be inhabited.
After the SPC's Opinions on Further Strengthening the Concept of Good Faith and Civilized Enforcement in Enforcement Work in 2019, the principle of court seizure was gradually changed to "try not to be 'dead sealed' for property that can be 'live sealed'", which also applies to pre-seizure. For example, in the case of pre-sealed commercial housing, if the house purchased by the person subject to enforcement has been leased before the pre-seizure, the court generally will not "die seal", but will allow the lessee to continue to use it without affecting the value of the property.
In addition, if the person subject to enforcement is a developer, when the court pre-seals the commercial housing that it has obtained a pre-sale permit but has not yet sold, it may supervise it to sell the house at a reasonable price within a certain period of time under the premise of ensuring that the price can be controlled.
2. Implementation of pre-seizure of commercial housing
(1) Whether the pre-seizure of commercial housing can be enforced
According to whether the pre-sealed commercial housing has completed the registration procedures for the transfer of property rights in the future, the enforcement procedures are also different, which can be roughly divided into three situations:
First, the commercial housing is registered in the name of the person subject to enforcement, at which time the pre-seizure is automatically converted into a formal seizure. This situation is not substantially different from the real estate involved in the general auction or sale case, and the court may conduct substantive treatment of the commercial housing involved in the case.
Second, the commercial housing is not registered in the name of the person subject to enforcement, and the developer exercises the right to terminate the contract for the sale and purchase of the house. In such cases, the pre-seizure does not affect the exercise of the right of rescission by the parties to the contract. After the contract is terminated, the court may enforce the purchase price returned by the developer. This view is supported by the Supreme People's Court (2020) Supreme People's Court (2020) Supreme People's Court Minshen No. 2441 Judgment Document[2].
Third, the commercial housing is not registered in the name of the executor, and the developer has not terminated the contract. This situation involves whether the court can directly deal with the commercial housing involved in the case during the pre-seizure period, which is also a difficult issue in the enforcement work. In response to this issue, Article 2 of the Notice of the Supreme People's Court on Forwarding the Letter < of the Ministry of Housing> and Urban-Rural Development on Issues Related to the Registration of Property Rights of Unlicensed Real Estate on the Basis of Assisting in the Enforcement of Documents ((Law [2012] No. 151)) stipulates article 2. According to this provision, the court may deal with the property separately according to the initial registration conditions of the commercial housing:
1. Where the initial registration conditions are met, the court shall issue a "Notice of Assistance in Enforcement" to the housing registration agency to complete the initial registration after disposal;
2. Where the initial registration conditions are not met for the time being, the court shall issue a "Notice of Assistance in Enforcement" to the registration authority after disposal and state that the registration authority shall register the buyer after it meets the initial registration conditions;
3. Where there are no initial registration conditions, in principle, the "status quo disposal" is carried out, that is, the unlicensed status quo is disclosed before the auction or sale, and the subsequent property rights registration matters are the responsibility of the buyer.
As far as the current practice is concerned, many courts directly auction and sell pre-sealed commercial housing without obtaining a real estate certificate in the case of commercial housing only having a pre-sale contract for registration and filing, but the court will generally write down the relevant circumstances in the announcement, and the relevant buyers need to pay attention to the risks.
(2) Judicial assessment and auction procedures for pre-seized commercial housing
When the court evaluates the pre-sealed commercial housing, it shall notify the parties in writing to come to the court to determine the assessment agency after receiving the transfer letter. Where the parties reach a consensus, they shall retain an assessment body agreed upon by both parties. If the consultation fails, the court will determine the assessment body from the roster of the determined assessment bodies by random lottery in the presence of the parties.
The judicial auction procedure for pre-seizure and sealing of commercial housing is basically the same as that of real estate that has been registered for transfer, except that it is necessary to explain on the bidding announcement that the commercial house has not obtained a title certificate, so the bidder should pay special attention to the commercial housing situation listed in the announcement and its corresponding risks.
If the bidding announcement only shows the filing number of the house sale contract, the commercial house may not have applied for the real estate ownership certificate; in addition, some announcements will directly state that the commercial house is a pre-sale in the remarks column. (See figure below for an example)
According to the Provisions on Several Issues Concerning Online Judicial Auctions of The People's Courts issued by the SPC in 2016, the online judicial auction process of the real estate involved in the case is roughly as follows:
Third, the transfer process of pre-sealed commercial housing
(a) The buyer pays the balance
After the auction is successful, the buyer shall pay the final payment of the auction in a timely manner. The auction announcement issued by the court usually sets out a specific time limit, and if it is not paid within the time limit, it is considered a regret and the deposit paid cannot be recovered. The buyer enters the transfer stage after paying the balance of the auction and receiving the Confirmation of Auction Transaction issued by the court.
(2) Lifting pre-seizure and sealing registration
According to the relevant laws and regulations of our country, the effect of pre-seizure is equivalent to formal seizure, so if the pre-sealed commercial housing is to be changed in the right to immovable property, the seizure registration must be lifted. The court's lifting of the seal registration is the premise of the transfer formalities, and the buyer can contact the relevant person in charge of the court to handle the sealing formalities as soon as possible after paying the final payment of the legal auction house.
(3) The pre-mortgage registration is discharged
In practice, there may also be pre-mortgage registration on pre-seized properties. The so-called pre-mortgage registration refers to the buyer's purchase of a pre-sale property from the developer, and then applies for a mortgage loan from the bank with the pre-purchase. In order to ensure the realization of property rights in the future and to exclude third parties from exercising their rights on the property, buyers and banks go to the real estate management department to register the mortgage notice.
According to the second paragraph of Article 30 of the Measures for the Administration of Urban Real Estate Mortgage of the Ministry of Housing and Urban-Rural Development, if the pre-purchased commercial housing is mortgaged, the registration authority shall record it in the mortgage contract. After the mortgagor receives the real estate ownership certificate, the parties shall re-register the real estate mortgage. The pre-mortgage registration obligee becomes the official mortgagee and enjoys the right of priority in repayment of the proceeds of the auction of the house in accordance with the law.
Regarding whether the right holder of the pre-mortgage registration can give priority to the repayment of the collateral without re-registration of the mortgage of the real estate, the first paragraph of Article 52 of the Interpretation of the Supreme People's Court on the Application of the < of the Civil Code> of the People's Republic of China on the Relevant Guarantee System stipulates in detail that if the pre-mortgage has been registered for the first time for the ownership of the building, and there is no situation such as the failure of the advance notice registration, the right holder of the mortgage registration has the right of priority to be reimbursed.
The so-called first registration of a building refers to the initial registration of the ownership of the building by the real estate development enterprise after the completion and acceptance of the building, rather than the first registration of the mortgagor obtaining the ownership of the building from the real estate development enterprise. [3]
According to the above interpretation, the mortgage advance registration right holder can be reimbursed in priority for the mortgaged property under specific circumstances, which more fully protects the interests of the mortgage advance registration right holder. This also means that if there is a mortgage advance registration on the pre-sealed commercial house, and the registered right holder has the right of priority to be reimbursed, the auction proceeds of the property need to be repaid to the right holder in priority before the mortgage advance registration can be released.
(4) Payment of taxes and fees
After completing the above-mentioned unsealing and release procedures, the corresponding taxes and fees need to be paid before the transfer procedures and the real estate property rights certificate are obtained. Tax bearing has always been a matter of concern to buyers.
First of all, it is worth explaining that as of now, China's laws and regulations and judicial interpretations have not given detailed normative guidance on the issue of tax bearing arising from judicial auctions. In general, the way taxes and fees are borne depends on the agreement on tax liability in the auction announcement. If the auction announcement or the "Confirmation of Auction Transaction" clearly states that the buyer shall bear the taxes and fees by himself, it shall be agreed upon by the buyer. [4]
In addition to the situation where the buyer bears the relevant taxes and fees by himself, in practice, there is also a distribution method for the original right holder and the buyer to bear the tax respectively. The buyer may need to pay the tax to the original right holder first, and after the advance payment, it can go to the court with a valid payment certificate to apply for a refund, but many courts stipulate the refund time, and if it is overdue, it is deemed that the buyer voluntarily bears the burden.
Since the auction policies of various courts are different, it is recommended that the buyer carefully read the auction announcement and contact the relevant institutions to confirm the payment of taxes and fees, so as to avoid the situation that there are still high taxes to be paid when handling the transfer procedures.
(5) Transfer registration and receipt of certificates
After the payment of taxes and fees is completed, the next step is to go to the housing management department to complete the transfer procedures. The court auctions commercial housing and has special advantages over other ways to purchase second-hand houses, that is, the buyer holding the "Confirmation of Auction Transaction", "Enforcement Ruling", "Notice of Assistance in Enforcement", payment bills, personal information and other materials can directly go to the relevant departments to go through the transfer procedures and obtain the real estate property rights registration certificate. It should be noted that in practice, there are cases where the commercial housing is mortgaged and sealed again due to the failure to handle the transfer in time, so the buyer should handle the transfer as soon as possible after the commercial housing involved in the case is unsealed and released.
Conclusion
As a special property preservation measure, the pre-seizure and sealing of commercial housing, combined with the enforcement procedure, provides a new solution path for creditors to realize their claims under specific conditions. If the creditor discovers that the debtor has a house that meets the conditions for pre-seizure, it should apply to the court for property preservation in a timely manner to provide a strong guarantee for the realization of the claim in the future. In addition, bidders or buyers of pre-seized commercial housing should fully understand the relevant information before participating in the auction of such property, and if necessary, consult legal professionals to avoid unnecessary risks.
[1] See Jiang Bixin, ed., "Guidelines for understanding, Applying and Practicing the New Civil Procedure Law", Law Publishing House, 2015, 1st Edition, p. 992.
[2] Defu Supply Chain Management (Hong Kong) Co., Ltd. and He Yan's application for enforcement of the enforcement of the objection lawsuit, Supreme People's Court (2020) Supreme People's Court Minshen No. 2441 Ruling.
[3] Understanding and Application of the Judicial Interpretation of the Guarantee System of the Civil Code of the Supreme People's Court, P459.
[4] See Nanjing Intermediate People's Court (2020) Su Xingshen No. 425 Ruling.
This article was first published on the "Wang Lei Legal Research" public account platform on July 29, 2021: "Research on the Practice of Pre-seizure and Enforcement of Commercial Housing")
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