Perspective | Determination of Developers' Phase-specific Guarantee Responsibilities
Published:
2024-11-14
The developer's phased guarantee responsibility refers to a type of guarantee provided by the developer to assist the buyer in applying for a loan from the bank during the process of buying a house. The developer assumes a phased joint guarantee responsibility through a resolution of the shareholders' meeting, until the property ownership certificate for each homeowner is completed and mortgaged to the financial institution or the mortgagee designated by the financial institution. If the borrower defaults, the financial institution has the right to require the developer to assume the guarantee responsibility. In judicial practice, it is common for homeowners to default on repayments, leading to the developer assuming joint guarantee responsibility. Therefore, whether the developer enjoys an exemption from phased guarantee responsibility under specific circumstances is worth contemplating.
The developer's phased guarantee responsibility refers to a type of guarantee provided by the developer for the buyer to apply for a loan from the bank during the house sale process. The developer assumes phased joint guarantee responsibility through a resolution of the shareholders' meeting, until the property ownership certificate for each homeowner is completed and mortgaged to the financial institution or the mortgagee designated by the financial institution. Once the borrower defaults, the financial institution has the right to require the developer to assume the guarantee responsibility. In judicial practice, there are common cases where homeowners default on repayments, leading to the developer assuming joint guarantee responsibility. Based on this, whether the developer enjoys exemption from phased guarantee responsibility under specific circumstances is worth pondering.
1. Nature of the phased joint guarantee contract
In the pre-sale transaction of commercial housing, in order to facilitate the transaction and solve the problem of the bank having no credit enhancement measures during the period from the loan disbursement date to obtaining the property mortgage certificate, the developer is willing to provide joint liability guarantees during this period. Once the bank obtains the mortgage certificate, the developer will no longer bear the guarantee responsibility, thus the phased guarantee comes into being. From the original intention of establishing the phased guarantee system, it is to solve the problem of loan risk exposure period and accelerate the process of house sales. Therefore, the phased joint guarantee contract is a contract with a condition for release, meaning that once the mortgage registration is completed, the developer is exempt from guarantee responsibility, rather than a contract with a time limit, where the developer must bear the guarantee responsibility within that time.
2. Whether the bank's failure to handle the pre-mortgage registration can lead to the fulfillment of the exemption condition for the phased guarantee.
1. Circumstances for the exemption of the developer's guarantee responsibility
According to Article 158 of the Civil Code, "Civil legal acts with conditions for effectiveness take effect when the conditions are fulfilled. Civil legal acts with conditions for release become invalid when the conditions are fulfilled."
The bank has the natural contractual obligation to handle the mortgage registration in a timely manner when the conditions are met. Not imposing strict responsibility on the bank is akin to allowing it to abuse its rights, which violates the basic principle in the Civil Code that "rights must not be abused" and also violates the principle of fairness. Therefore, in this case, the developer's guarantee responsibility should be exempted. In the judgment (2021) Ji 0108 Min Chu 1234 of the People's Court of Yuhua District, Shijiazhuang City, Hebei Province, and other related judgments, it was stated that "Regarding whether the defendant *** company should bear the guarantee responsibility, this court believes that according to the agreement of the 'Personal Commercial Housing Loan Contract' signed by the three parties, if the guarantor provides phased joint liability guarantees, from the date the borrower completes the mortgage registration procedures for the house purchased under this contract and the lender receives the other property certificate, the guarantor no longer bears new guarantee obligations and responsibilities under this contract. The original intention of establishing the developer's phased guarantee system is to solve the problem of loan risk exposure period, reduce the risk of debt repayment due to incomplete formal property registration, and promote the developer to complete construction, acceptance, and delivery of the pre-mortgaged property in a timely manner, thus accelerating the process of real estate transactions. This is a guarantee with a condition for release. In this case, the defendant *** company completed the construction, acceptance, and delivery of the property involved to the defendant Wang **, and the house has met the conditions for mortgage registration. According to the contract, the parties responsible for handling the mortgage registration are the plaintiff, Bank of China Shijiazhuang Branch, and the defendant Wang **. The plaintiff took the relevant materials for handling the mortgage registration from the defendant *** company on November 26, 2020. The defendant *** company has no obligation regarding the mortgage registration matters. The failure to handle the mortgage registration of the property involved is not due to the defendant *** company. Later, the plaintiff returned the materials on December 3, 2020. The plaintiff's failure to handle the mortgage registration should be regarded as the fulfillment of the exemption condition for the defendant *** company's phased guarantee responsibility, and the phased guarantee responsibility of the defendant *** company should be exempted. Therefore, the court does not support the plaintiff's request for the defendant *** company to bear the guarantee responsibility."
2. Difficulty in exempting the developer's guarantee responsibility
In judicial practice, most cases do not reach the circumstances mentioned above, as the mortgage registration materials are not complete. In the absence of evidence proving that the bank delayed the mortgage registration, it is difficult to exempt the developer's guarantee responsibility. For example, in cases (2022) Jin 0106 Min Chu 8642 and (2023) Jin 0106 Min Chu 6262, the court generally believes that "the guarantee period stipulated in the contract is the guarantee responsibility of the guarantor for the borrower's debts that expire after the formal mortgage registration procedures are completed." In the absence of formal mortgage registration, it is difficult to exempt the developer's guarantee responsibility.
3. Whether the property involved has undergone pre-mortgage registration.
According to Article 52, Paragraph 1 of the Supreme People's Court's interpretation on the application of the Guarantee System under the Civil Code of the People's Republic of China: "After the parties handle the pre-mortgage registration, if the pre-registration right holder requests priority compensation for the mortgaged property, and it is found that there are circumstances such as the first registration of the building ownership not being completed, the pre-registration property being inconsistent with the property at the time of the first registration of the building ownership, or the pre-mortgage registration having expired, which leads to the inability to meet the conditions for mortgage registration, the people's court will not support it; if it is found that the first registration of the building ownership has been completed and there are no circumstances of pre-registration expiration, the people's court should support it and recognize that the mortgage right is established from the date of pre-registration."
For example, in the case (2024) Lu 0791 Min Chu 666 of the People's Court of Weifang High-tech Industrial Development Zone, it was stated that "The property involved has completed the first registration of real estate ownership on January 6, 2023, and obtained the real estate certificate. The pre-mortgage registration of the plaintiff, Industrial Bank Weifang Branch, does not have any statutory expiration circumstances, and the plaintiff is not at fault for not handling the mortgage registration. Therefore, the plaintiff's mortgage right should be recognized as established from the date of pre-registration, and the plaintiff enjoys the mortgage right and priority compensation right for the property involved. In summary, the court lawfully supports the plaintiff's request in this case."
In summary, the determination of the developer's phased guarantee responsibility needs to consider the contract provisions and distinguish the specific circumstances of the case.
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