CHINA Law and Practice Contributed by: Nancy Zhang, Xiaoying Tian and Liangqian Ying, JunHe LLP
3.7 Subordinating Existing Debt to Newly Created Debt An existing mortgage debt may become subordinat - ed to a newly created mortgage debt, the mortgage interest of which has been duly registered, only if the mortgage over such existing debt has not been duly registered. But if the mortgage over the newly created debt has also not been duly registered, the existing debt will rank pari passu with the newly created debt. 3.8 Lenders’ Liability Under Environmental Laws The lender, being the mortgagee of the real estate, will not generally be held liable. However, if the lender becomes the land use right owner in respect of such real estate as a result of foreclosure (or enforcement) of the mortgage, the lender may be held liable for such non-compliance if the party that caused the pollution cannot be identified. 3.9 Effects of a Borrower Becoming Insolvent The security interests created by a borrower in favour of a lender will not be made void if the borrower becomes insolvent, and the lender may continue to claim its senior debt against the collateral, although this will be subordinated to the contractor’s lien. In the event of restructuring during the bankruptcy proceed - ings, the lender will have to temporarily suspend its enforcement of the mortgage (unless damage to the collateral or a situation is likely to decrease the value of the collateral and might endanger the mortgagee’s interests). If the borrower enters into reconciliation or a liquidation procedure, the lender may continue to
collectively-owned construction land), educational, medical and other public welfare facilities owned by non-profit schools, nurseries and/or medical institu - tions, real estate subject to title dispute or without clear title, real estate under attachment, detainment or custody orders. 3.6 Formalities When a Borrower Is in Default When a lender enforces its security over real estate against a defaulting borrower, if the lender and the mortgagor have explicitly agreed in the mortgage con - tract to apply the enforcement notarisation approach, the lender may directly apply to the competent court for enforcement by presenting the duly notarised mortgage contract and the enforcement certificate issued by the notary public’s office. If the lender and the mortgagor have not explicitly agreed in the mort - gage contract to apply the enforcement notarisation approach, the lender may, by agreement with the mortgagor, dispose of the collateral by negotiating a purchase price, by auction or sale of the collateral, and the lender may claim its senior debt against the proceeds from such a negotiated purchase price for auction or sale of the collateral. Failing an agreement between the mortgagor and the mortgagee on the means of disposal of the collateral, the lender may apply to the local court to auction or sell the collateral. In either case, the sale or negotiated purchase price of the collateral shall be based upon market price. The timeframe required for the aforesaid enforcement varies, and typically ranges from six to 12 months. Lenders tend to be prudent in exercising their fore - closure rights in the current market, except where the borrower is in fundamental breach or becomes insolvent. There is an active market for the sale of non-per - forming loans (NPLs), including those secured by real property. State-owned national or local asset man - agement companies (AMCs) are typically permitted to purchase NPL portfolios directly from Chinese banks, and then subsequently transfer the NPLs to both for - eign and domestic investors through open processes such as public bidding or auctions.
enforce the mortgage. 3.10 Taxes on Loans
There are no existing, pending, or proposed mortgage recording or similar taxes in connection with mortgage loans or mezzanine loans related to real estate.
4. Planning and Zoning 4.1 Planning and Zoning Framework
The PRC laws applicable to strategic planning and zoning at state level mainly include the Land Admin - istration Law, the Urban and Rural Planning Law, the
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