As a common security measure in lending activities, mortgage plays a crucial role in enhancing the borrower’s commitment to debt repayment and mitigating risks related to non-performance, improper performance, or incomplete performance of repayment obligations by the borrower. When entering into a mortgage contract, the parties, especially the mortgagee, must thoroughly check the legal status of the mortgaged asset. In this article, TNTP will analyze the key considerations about mortgaged assets.
1. Types of mortgaged assets
• Existing assets or future assets, except where the Civil Code or other relevant laws prohibit the sale, transfer of ownership at the time the mortgage contract is established;
• Assets sold under a sales contract with ownership reservation;
• Assets subject to the obligations in a bilateral contract that is violated with regard to retention measures.
2. Basic conditions of mortgaged assets
When entering into a mortgage contract, the parties, especially the mortgagee, need to check the following basic conditions of the mortgaged assets:
• Firstly, the mortgagor must be the legal owner of the mortgaged asset, except in cases of asset retention or ownership reservation. In most cases, the mortgaged asset must not only be owned by the mortgagor but also be without disputes to minimize potential risks for the mortgagee.
Before entering into the mortgage contract, the mortgagor must inform the mortgagee of any restrictions on the rights to the mortgaged asset. However, the mortgagor may not be honest or may intentionally conceal the condition of the asset, leading to potential risks for the mortgagee such as the asset not matching the description, the asset value being lower than declared value, or the mortgaged asset not belonging to the mortgagor. Therefore, the mortgagee needs to thoroughly check the mortgaged asset, such as its actual condition and the documents proving the mortgagor’s ownership, etc.
• Secondly, the mortgaged asset can be transferable in civil transactions. Accordingly, the asset is not associated with personal factors, and not prohibited by law (not on the list of prohibited assets or not subject to seizure by competent state authorities).
3. Other considerations about mortgaged assets
The use of an asset as a mortgaged asset must also comply with the following legal regulations:
• Firstly, in the case of mortgaging the entire real estate or movable property with accessories, the accessories of the real estate or movable property also belong to the mortgaged asset, unless otherwise agreed.
• Secondly, in the case of mortgaging a part of the real estate or movable property with accessories, the accessories attached to the asset belong to the mortgaged asset, unless otherwise agreed.
• Thirdly, in the case of mortgaging land use rights and the asset attached to land belongs to the mortgagor, the asset attached to land also belongs to the mortgaged asset, unless otherwise agreed.
• Fourthly, in the case of the mortgaged asset being insured, the mortgagee must notify the insurance organization that the insured asset is being mortgaged. The insurance organization pays the insurance money directly to the mortgagee in the event of an insurance occurrence. If the mortgagee does not notify the insurance organization that the insured asset is mortgaged, the insurance organization pays the insurance money according to the insurance contract, and the mortgagor is obligated to pay the mortgagee.
The above article on “Key considerations about mortgage assets” is presented by TNTP. Should readers have any issues to discuss, please contact TNTP for timely support.
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