Introduction

As housing purchase policies continue to tighten, under the combined influence of factors such as the residential demand driven by population mobility and the speculative psychology fueled by soaring housing prices, it is very common for purchasers without home-purchase qualifications to buy houses in restricted areas. One of the significant risks arising from the inability to transfer registration due to lack of qualifications is that the property still registered under the seller’s name may be sealed up and auctioned by the seller’s creditors. In this regard, the core issue of this article is how judicial practice evaluates the situation of lacking home-purchase qualifications during the review of a third party’s claim to the subject matter of enforcement.

If a third party objects to the subject matter of enforcement and believes they have the right to exclude enforcement, they may raise an execution objection during the enforcement proceedings. If the execution objection is rejected by the court, they may file an execution objection lawsuit by a third party to seek relief. In the execution objection procedure, courts focus more on formal review, while in the execution objection lawsuit by a third party, both formal and substantive reviews are considered. However, in any case, the court will determine whether the third party has the right to exclude enforcement based on or with reference to Article 28 or Article 29 of the “Provisions of the Supreme People’s Court on Several Issues Concerning the Handling of Execution Objection and Reconsideration Cases by the People’s Courts” (hereinafter referred to as the “Provisions on Execution Objection and Reconsideration”).

Article 28: In the enforcement of monetary claims, if a purchaser raises an objection to an immovable property registered under the name of the person subject to enforcement, and the following circumstances are met and the purchaser’s right can exclude enforcement, the people’s court shall support it:

(1) A lawful and valid written sales contract has been signed before the people’s court sealed up the property;

(2) The purchaser has lawfully possessed the immovable property before the people’s court sealed it up;

(3) The full purchase price has been paid, or part of the purchase price has been paid in accordance with the contract, and the remaining price has been delivered for enforcement in accordance with the requirements of the people’s court;

(4) The failure to complete the transfer registration is not due to reasons attributable to the purchaser.

Article 29: In the enforcement of monetary claims, if a purchaser raises an objection to a commercial housing registered under the name of a real estate development enterprise that is the person subject to enforcement, and the following circumstances are met and the purchaser’s right can exclude enforcement, the people’s court shall support it:

(1) A lawful and valid written sales contract has been signed before the people’s court sealed up the property;

(2) The purchased commercial housing is used for residential purposes, and the purchaser has no other residential housing under their name;

(3) The purchase price paid exceeds 50% of the total price stipulated in the contract.

I. When a third party files an execution objection lawsuit regarding an immovable property subject to enforcement, the third party may choose to have their case reviewed under Article 28 or Article 29 of the “Provisions of the Supreme People’s Court on Several Issues Concerning the Handling of Execution Objection and Reconsideration Cases by the People’s Courts.” The two provisions do not conflict or exclude each other.

According to the judgment points of Guiding Case No. 156, Wang Yanyan v. Xu Yijun and Beijing Jinbi Real Estate Development Co., Ltd., an execution objection lawsuit by a third party, published in the “Notice of the Supreme People’s Court on the Release of the 27th Batch of Guiding Cases”:

“Article 28 of the ‘Provisions of the Supreme People’s Court on Several Issues Concerning the Handling of Execution Objection and Reconsideration Cases by the People’s Courts’ stipulates the right of a purchaser of immovable property to exclude enforcement of monetary claims, and Article 29 stipulates the right of a consumer purchaser to exclude enforcement of monetary claims.

If a third party requests the exclusion of compulsory enforcement against commercial housing registered under the name of a real estate development enterprise that is the person subject to enforcement, they may choose to apply Article 28 or Article 29. If the third party claims the application of Article 28, the people’s court shall review it.”

Based on this line of judicial reasoning, the following sections discuss the review of whether the purchaser has home-purchase qualifications when applying Article 28 or Article 29 of the “Provisions on Execution Objection and Reconsideration.”

II. For purchasers who lack home-purchase qualifications because the number of properties under their name has reached the upper limit in the area where the purchased property is located, judicial practice tends to find that the purchaser has fault regarding the transfer due to their lack of qualifications, does not meet the requirement of Article 28(4) of the “Provisions on Execution Objection and Reconsideration,” and therefore cannot exclude enforcement.

A purchaser whose number of owned properties has reached the upper limit in the area where the purchased property is located will inevitably fail to satisfy the condition of Article 29(2) of the “Provisions on Execution Objection and Reconsideration,” i.e., “the purchased commercial housing is used for residential purposes, and the purchaser has no other residential housing under their name.” Therefore, they can only seek relief under Article 28.

The “Understanding and Application of the Provisions of the Supreme People’s Court on Several Issues Concerning the Handling of Execution Objection and Reconsideration Cases” (hereinafter referred to as the “Understanding and Application of the Provisions on Execution Objection and Reconsideration,” p. 425) interprets “the failure to complete the transfer registration is not due to reasons attributable to the purchaser” as follows: “In practice, reasons attributable to the purchaser can be divided into three levels:

First, neglect of others’ rights obstacles. For example, if the immovable property has a mortgage registered by another person, and the purchaser fails to exercise reasonable duty of care, leading to the inability to register due to the existence of another’s mortgage.

Second, neglect of policy restrictions. For example, knowingly purchasing property in an area with purchase restrictions despite not meeting the conditions, resulting in the inability to complete the transfer.

Third, passive failure to exercise registration rights. For example, if transaction parties intentionally fail to register to evade taxes, such conduct should not be protected by this principle.”

Therefore, for a property where the number of properties under the purchaser’s name has reached the upper limit of the purchase policy, if the purchaser, lacking home-purchase qualifications, nevertheless purchases the property in question, it tends to be found that they have self-fault and cannot exclude enforcement.

Although the Supreme People’s Court later relaxed this position in the “Understanding and Application of the Minutes of the National Conference on Civil and Commercial Trial” (i.e., the “Nine-Minute Meeting Minutes,” p. 642), regarding whether the lack of home-purchase qualifications can be directly deemed as the purchaser’s own fault, this understanding and application merely set aside the issue without a clear stance: “There is considerable controversy during the consultation process regarding whether ‘the inability to complete the transfer due to purchase restriction policies’ falls within the purchaser’s own reasons. Since housing purchase restrictions are an administrative measure, whether they can directly affect the substantive rights of the parties is questionable. Therefore, we temporarily refrain from providing a regulation.” Hence, the Supreme People’s Court did not directly include the situation of lacking home-purchase qualifications in the draft of the judicial interpretation on execution objection and reconsideration.

For example, in the Civil Judgment (2020) Supreme People’s Court Final No. 127 (Wang Ban v. Xinhua Trust Co., Ltd., a lawsuit by the applying party in execution objection), the court held that whether the purchaser lacked home-purchase qualifications at the time of purchase or during the litigation, it constituted a reason attributable to the purchaser for the failure to complete the transfer.

“The Supreme People’s Court considers that Wang Ban bears the burden of proof regarding the number of properties under his name at the time of purchase. The ‘Query Result of Nanchang City Real Estate Registration Information’ submitted by him does not reflect the situation of his properties at the time of purchase, and this evidence contradicts his statement in the first instance that he owned more than one housing unit. Therefore, the Supreme People’s Court does not support the corresponding claim.

Based on the above facts, it was precisely because Wang Ban did not meet the purchase conditions in Nanchang City at the time of purchase and could not complete the transfer registration for the property in question, that led to the property being sealed up on June 18, 2014, by the Chongqing Higher People’s Court as property of the enforcement respondent, Qiangren Real Estate Development Company. As mentioned earlier, although the purchase restriction policy in Nanchang was later adjusted after the court sealed up the property, regardless of whether Wang Ban became qualified after the adjustment, the primary reason for the inability to complete the transfer registration was still that Wang Ban did not meet the purchase conditions before the court sealed up the property.”

Of course, due to the diversity of individual cases, there are also contrary examples in judicial practice. For instance, in the Civil Judgment (2019) Guangdong Supreme People’s Court Civil Application No. 9627, where both parties agreed that the purchaser lacked home-purchase qualifications, the Guangdong Higher People’s Court held that “since the property in question was sealed up by the executing court on January 8, 2018, and the parties clearly agreed that the transfer registration would be completed on July 30, 2018, it cannot be determined that Jing Quanlan had fault for the failure to timely complete the transfer of the property.”

However, the author believes that this judgment involves a situation where the agreed transfer time was later than the sealing-up time, and it is not the prevailing view. The reasoning in the “Understanding and Application of the Provisions on Execution Objection and Reconsideration” is clearer.

In addition to the line of reasoning that the lack of home-purchase qualifications constitutes fault for the failure to transfer, another line of reasoning is that a purchaser who cannot request the transfer does not have the real right expectancy protected by Articles 28 and 29 of the Provisions on Execution Objection and Reconsideration. This situation is discussed in detail under the application of Article 29.

III. For a purchaser with no other housing under their name, if they lack home-purchase qualifications in the area where the purchased property is located, whether they can exclude enforcement under Article 29 of the “Provisions on Execution Objection and Reconsideration” is a subject of divergence in judicial practice. However, the prevailing view is that a purchaser who cannot request the transfer does not have a real right expectancy and has no right to exclude enforcement.

Article 29 of the “Provisions on Execution Objection and Reconsideration” is a special provision for the protection of consumers’ right to survival in the context of commercial housing. Therefore, the requirements for a purchaser applying this provision are more lenient; they do not need to have taken possession, and fault is not considered, as long as they have no other housing under their name. In the absence of a clear legal provision on whether Article 29 should consider home-purchase qualifications, judicial practice shows some variation.

(A) First Line of Reasoning: Only consider whether the purchaser meets the three conditions of Article 29 of the “Provisions on Execution Objection and Reconsideration,” regardless of whether they have home-purchase qualifications.

In the execution objection lawsuits handled by the author, in cases (2021) Yue 0114 Min Chu No. 16843 and (2021) Yue 0114 Min Chu No. 16968 heard by the Huadu District People’s Court, where the purchaser confirmed they did not have home-purchase qualifications at the time of purchase and failed to prove they had such qualifications when filing the lawsuit, the Huadu District Court only reviewed the three conditions of Article 29 of the “Provisions on Execution Objection and Reconsideration” without responding to the applying party’s argument regarding home-purchase qualifications.

(B) Second Line of Reasoning: A purchaser who lacks home-purchase qualifications at the time of signing the purchase agreement cannot be deemed to have signed a lawful and valid purchase contract before the sealing-up, thus failing to meet the condition of Article 29(1) of the “Provisions on Execution Objection and Reconsideration.”

In the case (2019) Supreme People’s Court Civil Application No. 4757, the Supreme People’s Court held that “Article 38 of the ‘Urban Real Estate Administration Law of the People’s Republic of China’ explicitly stipulates that real estate that has not been lawfully registered and obtained a certificate of title shall not be transferred. Although this provision is a mandatory administrative regulation and its violation does not necessarily render the contract void, the act of buying and selling real estate in violation of the said provision is obviously not lawful. Furthermore, based on the real estate purchase restriction policies in Nanjing, Yang Lianfei did not have the qualifications to purchase housing in Nanjing. By purchasing the property in question under the name of Yang Yixin, he clearly circumvented administrative supervision, which is not a conduct protected or encouraged by laws and regulations.”

In the judgment (2021) Yue 19 Min Zhong No. 3838 of the Dongguan Intermediate People’s Court, Guangdong Province, the court determined: “At the time of signing the ‘Zhenjiang Fenghuangtai Commercial Housing Subscription Agreement’ and the ‘Supplementary Agreement,’ Tan Zhiren did not meet the purchase restriction policy for commercial housing in Dongguan City. Based on the content of the ‘Supplementary Agreement,’ both parties knew at the time of signing that Tan Zhiren had no home-purchase qualifications. Combined with Tan Zhiren’s statement in the second-instance hearing regarding the purchase of social insurance, Tan Zhiren confirmed that he had never worked for the company that purchased social insurance for him. Tan Zhiren facilitated the acquisition of his home-purchase qualifications through improper means. By supplementing social insurance payments, Tan Zhiren aimed to circumvent the purchase restriction policies of the State Council and Dongguan City, thereby obtaining additional improper benefits through speculative housing purchases.

In summary, if judicial protection is granted without restriction to such conduct, allowing it to proliferate, it would effectively condone unreasonable housing demand and the rapid growth of speculative purchases, encouraging dishonest parties to obtain improper benefits by circumventing national policy red lines. … Therefore, the ‘Zhenjiang Fenghuangtai Commercial Housing Subscription Agreement’ and the ‘Supplementary Agreement’ signed by the parties to circumvent the national purchase restriction policy shall be deemed invalid for violating public order and good customs.”

(C) Third Line of Reasoning: A purchaser without home-purchase qualifications cannot request the registration of transfer based on the purchase agreement, cannot ultimately acquire ownership, and therefore cannot enjoy a real right expectancy.

In the case (2020) Supreme People’s Court Civil Application No. 1862, the Supreme People’s Court held that “Although Cai Yuxuan and Yongfeng Company signed a ‘Wenchang City Commercial Housing Sales Contract’ for the property in question, because his purchase of the property did not comply with the local purchase restriction policy for commercial housing, Cai Yuxuan’s claim that his real right expectancy in the property should take precedence over the administrative needs of real estate regulation lacks legal basis, and this court does not support it. The court of first instance determined that Cai Yuxuan’s purchase of the property could not result in a change of real rights, and that he could not request the seller Yongfeng Company to complete the transfer registration for him. Based on this, the court found that Cai Yuxuan had no real right expectancy in the property. This determination is correct, and this court affirms it.”

In the case (2020) Yue Min Shen No. 7879, the Guangdong Higher People’s Court held: “In this case, although Lin Guocai signed the sales contract before the people’s court sealed up the property in question and paid the relevant purchase price, when Lin Guocai signed the real estate sales contract with Liao Yunhu, Guangzhou City had already implemented a residential housing purchase restriction policy for many years. Lin Guocai knew that he could not have the transfer of the four properties registered under his name.

A real right expectancy refers to a situation where a third party does not yet have real rights (ownership) in the sense of the ‘Real Right Law of the People’s Republic of China’ over the property in question, but possesses the substantive elements of real rights, and can reasonably expect to convert this real right expectancy into real rights (ownership) in the sense of the ‘Real Right Law’ through the registration of the immovable property, i.e., an expectation that ownership of the immovable property will be registered in their name.

Therefore, only a party who can ultimately obtain ownership can possibly have a real right expectancy. However, a purchaser of housing subject to purchase restrictions cannot request the seller to complete the transfer registration of the immovable property, and thus cannot ultimately obtain ownership. Consequently, they cannot become a subject of a real right expectancy.

Although Lin Guocai formally meets the requirements for a real right expectancy, he does not substantively hold a real right expectancy and has no right to exclude compulsory enforcement.”

Behind the third line of reasoning and the previously mentioned line of reasoning that a purchaser lacking home-purchase qualifications has fault, there are certain logical and jurisprudential differences. The logic of the third line is that a purchaser who cannot request the transfer does not have the expectation of converting a creditor’s right into a real right, and therefore cannot exclude enforcement. This does not yet fall under the application of Article 28 or Article 29 of the “Provisions on Execution Objection and Reconsideration,” while the line of reasoning regarding fault in lacking home-purchase qualifications is a substantive review of Article 28(4) of the “Provisions on Execution Objection and Reconsideration.”

The “Understanding and Application of the Provisions on Execution Objection and Reconsideration” discusses real right expectancy as follows: “The basic legal relationship underlying a real right expectancy must be lawful and valid. Although Chinese law recognizes real right acts, it does not recognize the independence of real right acts. The change of real rights follows the principle of ‘consent in obligatory rights plus registration.’ … Although a purchaser’s real right expectancy is not a real right by nature, because it is approaching a real right, the premise and basis for its protection is that it will eventually transition into a real right.”

The author believes that, based on the legal interests protected and the legislative intent behind this provision, the purchaser’s right to request the transfer of the property in question based on the contract is a creditor’s right. Creditor’s rights are not inherently superior to other creditor’s rights and cannot oppose real rights. However, to protect survival rights and social stability, the law makes special provisions for the protection priority of such creditor’s rights. What is protected is the purchaser’s expectation that, based on their creditor’s right, they can convert it into a real right—a state extremely close to a change in real rights, with no obstacles to obtaining that real right. A purchaser without home-purchase qualifications does not have this expectation, and their creditor’s right should not be considered as having priority, nor do they have the right to exclude another creditor’s enforcement.

On another level, although a purchaser has no other housing under their name, they are aware of their lack of home-purchase qualifications. Compared to a creditor without fault, the purchaser has a subjective defect in conduct that violates relevant legal provisions. Moreover, if a purchaser who lacks home-purchase qualifications can nonetheless exclude enforcement, to some extent, this negates the purchase restriction policy’s provisions for non-local residents, rendering such policies ineffective and making it difficult to prevent speculative housing purchases.

Through legal research on this issue and handling related cases, the author found that most trial judges still review whether the purchaser has home-purchase qualifications, and the prevailing judicial reasoning requires home-purchase qualifications for corresponding protection.

However, it is undeniable that, because the law has no explicit provision requiring a review of home-purchase qualifications, given the traditional Chinese family concept’s emphasis on property, the common social phenomenon that expensive housing requires the combined strength of the entire family to purchase, and the perspective of ensuring people’s livelihood and maintaining social stability, the ultimate focus of the court still falls on balancing the interests between the creditor and the purchaser. Article 29 still has considerable room for reasoning and application. The determination of individual cases must still return to the evaluation of the rights and interests of all parties involved in the case and cannot be one-sidedly generalized.