Perspective | Does the Debtor Transfer Property While Still Keeping a Mortgage? See How Creditors Are Breaking the Impasse With Professional Strategies.
Published:
2025-12-16
In debt enforcement proceedings, if the debtor transfers property or establishes additional mortgages on such property to shift responsibility assets, it directly jeopardizes the creditor’s chances of recovering their claims. Recently, a typical dispute over the creditor’s right of avoidance came to a close. The court, in accordance with the law, invalidated the debtor’s property transfer and subsequent mortgage registration, thereby removing significant obstacles to the realization of the creditor’s claims. This case not only demonstrates the judicial application of the creditor’s right of avoidance but also provides important guidance for similar cases through its trial logic and key legal points.
In debt enforcement proceedings, when a debtor transfers property or establishes additional mortgage rights on such property to shift liability assets, it directly jeopardizes the creditor’s ability to recover their claims. Recently, a typical dispute over the creditor’s right of avoidance came to a close. The court, in accordance with the law, invalidated the debtor’s property transfer and subsequent mortgage registration, thereby removing obstacles to the realization of the creditor’s claims. This case not only demonstrates the judicial application of the creditor’s right of avoidance but also provides important references for similar cases through its trial logic and key legal points.
I. Overview of the Case: Enforcement of Creditors’ Rights Stalls; Debtor Transfers Property in Creative Ways
Creditor A is the applicant for enforcement in a dispute over a financial loan contract. Debtor B and his spouse are jointly and severally liable for the principal amount of the loan exceeding 99.7 million yuan, as well as interest and related expenses. After the case entered the enforcement procedure, the enforcement was once terminated due to the absence of any assets available for enforcement by the judgment debtor.
In 2023, Jia discovered a key clue:
1. Transfer of real estate ownership: In July 2023, Party B transferred a property with an area of 146.6 square meters, currently under its name, to the name of its minor daughter; the real estate transfer registration has been completed.
2. Creation of a mortgage right creates an obstacle: In November 2023, Yi’s daughter mortgaged the property and entered into a “Loan Guarantee Agreement” with Yi’s younger brother, thereby registering a mortgage right for RMB 1 million.
To safeguard its own creditor’s rights, Party A relies on the Civil Code of the People’s Republic of China. Article 538 With regard to the creditor’s right of revocation, file a lawsuit with the court requesting the annulment of the property transfer involving the property in question, the cancellation of the mortgage registration, and the restoration of the property rights to their original status.
II. Core Legal Disputes: Three Key Issues Determine the Outcome of the Case
During the trial, the plaintiff and defendant engaged in a heated debate centered on three key issues: the parties’ standing, the validity of the property transfer, and the legality of the mortgage. Resolving these disputes all hinges on the proper application of specific legal provisions.
1. Dispute over the plaintiff’s standing
According to the relevant provisions on creditors’ right of revocation in the Civil Code of the People’s Republic of China, for a creditor to bring a lawsuit seeking revocation, it must meet the following core prerequisite: The creditor must hold a lawful and valid claim, and the debtor’s disposition of property must have a substantial impact on the realization of that claim.
2. Is the property transfer act revocable?
The defendant argued that the transfer of the property was intended to repay other debts the defendant had incurred, and that the plaintiff’s failure to promptly preserve the property stemmed from the plaintiff’s own negligence in exercising its rights; therefore, Party B did not act with malicious intent to evade debt. In response, the plaintiff pointed out that the transfer of the property in question occurred during the enforcement phase, and Party B, fully aware of its substantial debts yet failing to truthfully disclose its assets, had effectively reduced its assets available to satisfy creditors through the transfer of the property. This behavior meets the conditions set forth in Article 538 of the Civil Code—“If a debtor transfers property gratuitously in a manner that impairs the creditor’s right to collect payment, the creditor may request the court to revoke such transfer”—and thus has damaged Party A’s legitimate creditor’s rights.
3. Determination of the validity of mortgage acts
The defendant argues that the mortgagee is a bona fide third party, the mortgage serves to discharge the defendant’s own debt, and the transfer of the property and the mortgage constitute separate legal relationships that should not be jointly tried. In response, the plaintiff contends that the evidence supporting the loan underlying the mortgage is insufficient (the large cash payment does not conform to customary transaction practices, and the witness has a vested interest in the defendant). Furthermore, the mortgagee was fully aware that the property was actually controlled by the debtor couple, which does not comply with the Civil Code. Article 311 The prescribed criteria for identifying a “bona fide third party” do not constitute a bona fide acquisition; meanwhile, this mortgage transaction was colluded upon in bad faith with the debtor and thus complies with the Civil Code. Article 154 The civil legal act of malicious collusion that harms the legitimate rights and interests of others is invalid. Moreover, after the property transfer has been revoked, the mortgage also loses its lawful basis and constitutes an unauthorized disposition.
III. Key Points of the Judgment: The Core Legal Logic Underlying the Court’s Ruling
Based on the opinions of both the plaintiff and the defendant, and in light of the facts of the case and applicable legal provisions, the court provides a response to the key disputed issues:
1. Determination of the Qualification of Creditors
The plaintiff’s status as a creditor has been confirmed by an effective court judgment. The debtor engaged in the transfer of real estate and the creation of additional mortgage rights on that property, actions which directly resulted in a reduction of the debtor’s assets available to satisfy the plaintiff’s claims and have substantially impaired the realization of the plaintiff’s creditor rights. As a legitimate creditor whose rights have been adversely affected, the plaintiff fully meets the substantive requirements for standing in a creditor’s right of rescission action—namely, “a creditor whose ability to enforce its claim has been obstructed due to the debtor’s fraudulent acts.”
2. Determination of the revocability of real estate transfer acts
Relying on Article 538 of the Civil Code of the People's Republic of China, which provides that “If a debtor gratuitously disposes of property rights by waiving its claims, relinquishing security interests on claims, transferring property without compensation, or maliciously extending the maturity date of its due claims in a manner that impairs the realization of the creditor’s rights, the creditor may request the people’s court to revoke the debtor’s actions,” the court held that the transfer of the property involved occurred during the compulsory enforcement stage. Since Party B, as the debtor, failed to truthfully declare its assets and transferred the property to its minor children, this act directly reduced the amount of assets available to satisfy liabilities. Subjectively, Party B did not act in good faith; objectively, it harmed Party A’s creditor rights. Therefore, the property transfer should be revoked, and the property must be restored to Party B’s name.
3. Nullity of the mortgage act
From a factual standpoint, the evidence supporting the defendant’s claims of borrowing and repayment is insufficient. The large-sum cash loan does not conform to common transaction practices, and the time interval between the transfer records and the mortgage registration is excessively long, leaving room for doubt about the possibility of other economic transactions. From a legal perspective, the purpose of the loan as stated in the mortgage registration does not match the actual use of the funds; it is inappropriate for the couple Yi to impose a lien on property belonging to minors for their own benefit. Moreover, despite knowing that the property was actually controlled by the couple Yi, the mortgagee still cooperated in processing the mortgage registration, failing to meet the three key requirements for bona fide acquisition under Article 311 of the Civil Code—namely, “lack of knowledge, payment of a reasonable consideration, and registration.” Thus, the mortgagee cannot be considered a bona fide third party. Furthermore, this mortgage transaction falls under the circumstances of malicious collusion as stipulated in Article 154 of the Civil Code. In addition, since the property transfer has been revoked, the mortgage has lost its legal basis, and therefore the mortgage itself should also be invalidated.
4. The legality of consolidated proceedings
The court held that the property transfer and the mortgage were directly related. Combining the cases for joint trial would not only facilitate the realization of creditors’ rights but also resolve the dispute in one go, thereby complying with the judicial principle of “resolving disputes in a single step.” Consequently, the court rejected the defendant’s defense that “cases with different causes of action should not be jointly tried.”
IV. Professional Legal Interpretation: The Scope of Application and Legal Coordination of the Creditor’s Right of Revocation
This case is a typical application of the creditor’s right of revocation system. The core legal points can be summarized in three key aspects, as outlined in the relevant statutory provisions:
1. Prerequisites and Time Limits for Exercising Rights
According to Articles 538 and 539 of the Civil Code, for a creditor to exercise the right of revocation, three prerequisites must be met: First, the creditor must hold a lawful and valid claim that arose prior to the debtor’s disposition of property; second, the debtor must have engaged in acts involving the gratuitous transfer of property or transactions at conspicuously unreasonable prices, thereby disposing of its property interests; third, such acts must have resulted in a reduction of the debtor’s assets available to satisfy the creditor’s claims, thereby jeopardizing the realization of the creditor’s rights. Meanwhile, Article 541 of the Civil Code clearly specifies the time limit for exercising this right: the right of revocation must be exercised within one year from the date on which the creditor knew or should have known of the grounds for revocation. If the right of revocation is not exercised within five years from the date on which the debtor’s act occurred, the right shall lapse.
2. Criteria for Determining a Good-faith Third Party
According to Article 311 of the Civil Code, a mortgagee must simultaneously meet three conditions—“being unaware of the debtor’s intent to evade debt,” “paying a reasonable consideration,” and “having completed the registration”—in order to be recognized as a bona fide third party. In this case, since the mortgagee has a familial relationship with the debtor, is aware of the actual disposition of the property, and the authenticity of the debt underlying the mortgage is questionable, the mortgagee cannot be considered bona fide. Consequently, its mortgage right cannot prevail against the creditor’s right of rescission.
3. Consecutive application of legal provisions
This case simultaneously invokes Articles 154 (civil legal acts involving malicious collusion are invalid), 311 (the system of bona fide acquisition), and 539 (revocation of unreasonable transactions) of the Civil Code, and, in conjunction with the judicial interpretations of the Property Rights and Contract sections of the Civil Code, has established a comprehensive legal reasoning framework—“confirming the validity of the creditor’s rights—determining the illegality of the property disposal act—negating the effectiveness of subsequent encumbrances”—providing a clear reference for adjudicating similar cases.
V. Professional Support: The Key Foundation for Protecting Credit Rights
In this case, the team of attorneys, leveraging their deep understanding of creditor preservation cases, precisely identified and focused on three key aspects: First, evidence organization—systematically sorting through and securing the critical chain of evidence related to debt assignment and asset transfers; second, legal application—accurately citing the creditor’s right of revocation and related provisions in the Civil Code to establish a comprehensive logic for protecting rights; and third, dispute defense—thoroughly refuting each round of arguments raised by the defendant from both factual and legal perspectives, ultimately prompting the court to issue a favorable judgment.
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