CHINA Law and Practice Contributed by: Nancy Zhang, Xiaoying Tian, Qian Gu and Liangqian Ying, JunHe LLP
3.6 Formalities When a Borrower Is in Default When a lender enforces its security over real estate against a defaulting borrower, if the lend - er and the mortgagor have explicitly agreed in the mortgage contract to apply the enforcement notarisation approach, the lender may directly apply to the competent court for enforcement by presenting the duly notarised mortgage con - tract 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 notari - sation 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 mar - ket price. The timeframe required for the aforesaid enforce - ment varies, and typically ranges from six to 12 months. Lenders tend to be prudent in exercising their foreclosure 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 management companies (AMCs) are typically permitted to purchase NPL portfolios directly from Chinese banks, and then subse -
the registration of such cross-border loan) in accordance with the PRC laws. 3.4 Taxes or Fees Relating to the Granting and Enforcement of Security If a mortgage is created over real estate, both the mortgagor and the mortgagee are obliged to pay stamp duty for the mortgage contract at a tax rate of 0.05% each of the secured debt. A mini - mal registration fee for a real estate mortgage (CNY80 for residential property and CNY550 for non-residential property, per registration) is charged by the registration authority and often borne by the mortgagee. Furthermore, if the mortgagor and mortgagee agree in the mortgage contract to an enforce - ment notarisation, a fee for enforcement notari - sation may be incurred, which is usually borne by the mortgagor. Such fee is charged by the notary public office at a rate equal to an agreed percentage of the amount of the secured debt, which may vary at different localities. 3.5 Legal Requirements Before an Entity Can Give Valid Security Under PRC laws, certain real estate may not be used as collateral to secure a debt, such as land ownership (other than land use rights that can be a valid collateral), land use right to certain collec - tively-owned land such as farmers’ homestead land (other than collectively-owned construc - tion land), educational, medical and other public welfare facilities owned by non-profit schools, nurseries and/or medical institutions, real estate subject to title dispute or without clear title, real estate under attachment, detainment or custody orders.
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