On The Conflict Of Interest And Reconciliation Of Real Estate Mortgage Followed By Lease

The purpose of designing a mortgage system is to leverage the exchange value of the property,without affecting the possession of the object.On the other hand,the leasehold system is intended to utilize the use value of the property.Therefore,even if a mortgage has been established on the property,it will not hinder the mortgagor from renting it out.In reality,it’s common to see the coexistence of both systems to maximize the effectiveness of the property,reflecting the principle of making the best use of things.However when multiple rights exist simultaneously,conflicts of interest between stakeholders determining profits are inevitable.If the lease is established first and the mortgage later,the Civil Code stipulates that the mortgage cannot influence the lease connection.However when the mortgage is established first and the lease follows,how to reconcile the conflict of interests is not clearly stated in the law,resulting in different opinions and practices.Such conflicts are prevalent in the housing rental market.Thus this thesis will discuss the conflicts of interest and reconciliation in the case of real estate mortgage before lease.After gathering and classifying cases under judicial practice,the author discovered three significant issues that require immediate resolution: determining when a mortgage on real estate is paid off,the lease becomes effective or terminated,and how to reconcile the interests of the lessee after the mortgage is realized.This thesis discusses the conflict of interest and reconciliation of real estate mortgages followed by leases,aiming to ensure a reasonable disposition of interests for both the mortgagee and the lessee.The validity of lease rights during the realization of a real estate mortgage can be theoretically divided into three schools of thought: the theory of absolute validity,the theory of absolute elimination,and the theory of adverse effect elimination.The theory of absolute validity is an academic concept pursued by a few scholars in order to achieve perfect realization of the rights of all parties.However the coexistence of rights will inevitably lead to conflicts.If a later lease affects the earlier mortgage,insisting on retaining the lease would damage the mortgagee’s rights.While allowing the existence of multiple rights on the property,removing the later rights regardless of the balance of parties’ interests would be unreasonable.This approach solves the conflict once and for all,but it has certain defects.In contrast,the doctrine of removal of adverse effects can balance the interests of both the mortgagee and the lessee,and has become a common theory in academic circles.Removing adverse effects should become one of the basic theories to resolve conflicts between these two rights.When it comes to disposing of leasehold rights upon the realization of real estate mortgages,the question arises of how to determine the existence of "adverse effects" and how to start the procedure of removing leasehold rights.There are three major criteria for determining "adverse effect",namely the first auction result,the double offer criterion,and the appraisal price criterion.The standard of the first auction result is objective,but it does not fully consider the ability to realize the value of the mortgage.Relying solely on whether the mortgaged property can be auctioned could result in the buyer of the property acquiring it at a low price,which would not satisfy the debts of the mortgagor and negatively impact the interests of the mortgagee.The double quotation standard takes into account the parties’ rights and interests but can result in legal costs,making it difficult to adapt to the constantly changing rental market.While the appraisal price standard does not fully reflect the appraised object’s actual value,its objectivity,fairness,and consideration of the parties’ rights and interests make it superior to the first two standards.In judicial practice,the court’s decisions also adopt this criterion.This article believes that this criterion should be the only way to determine "adverse effect".Regarding the procedure for removing lease rights,the auction process is divided into two cases: agreed and statutory realization of mortgage rights and private exclusion,which is not justified by law.A court ruling should be adopted to remove the right of the lease without unduly interfering with the parties’ autonomy.When it comes to balancing the interests of the lessee following the completion of a real estate mortgage,there are four key issues that require special attention.Firstly,whether the tenant has the right to file a lawsuit against the execution.Secondly,whether they have the right of first refusal.Thirdly,whether they can suspend the vacating of the premises.Finally,whether they can claim responsibility from the mortgagee.This article asserts that if the lessee believes that the lease right has an adverse effect on the prior mortgage,they can file a lawsuit to object to the execution.Under the same circumstances,they still have the preemptive right,and exercising that right won’t affect the changing price of the mortgaged property.Drawing on the US grace vacation-period rule and Japan’s delay delivery rule,a delayed vacation-period system can be established,giving the lessee enough time to move out and return the real estate under the condition of paying the full price.Lastly,the lessee has the right to hold the lessor(mortgagee)accountable for any flaws,carelessness under contract,and breach of contract resulting from a violation of the duty of disclosure.