Hungkou Construction Co., Ltd. and Hungpang Co., Ltd. designated mortgage banks in violation of the Fair Trade Law

Chinese Taipei

Case:

Hungkou Construction Co., Ltd. and Hungpang Co., Ltd. designated mortgage banks in violation of the Fair Trade Law

Key Words:

Deceptive or obviously unfair acts, real estate, mortgages

Reference:

Fair Trade Commission Decision of June 21, 1995 (the 193rd Commission Meeting); Disposition (84) Kung Ch'u Tzu No. 098

Industry:

Real estate industry (6811)

Relevant Laws:

Article 24 of the Fair Trade Law

Summary:

1. A member of the public, Mr. Heh, in early September 1994 complained to the Fair Trade Commission: As Mr. Heh had successfully applied for a residential mortgage made available by the Taipei county to its citizens, he tried to negotiate with the builder, hoping to be allowed to directly apply for a mortgage from the Land Bank of Taiwan. Nonetheless, the builder refused and intended to unilaterally terminate the contract and to forfeit Mr. Heh's down payment of more than NT$ 1 million. Mr. Heh therefore came to ask for help from the Commission.

2. The 138th Commission Meeting held in June 1994 resulted in a resolution: "If the buyer intends to choose his own mortgage bank, he should clearly express his intent when signing the sales contract with the builder. However, if the buyer plans to apply for a mortgage on his own when it is time for the real estate closing and the builder refuses to provide the property deed, whether such act constitutes a violation of Article 24 of the Fair Trade Law depends on the actual circumstances. The factors which should be taken into consideration include whether the mortgage interest rate charged by the bank chosen by the buyer is indeed lower, e.g., the residential mortgage for workers, the residential mortgage for government employees and teachers, and etc.; whether the builder assists in sharing the spread between different interest rates; whether the buyer cooperates in ensuring the protection of the builder's rights as a creditor, and the status of coordination between the two banks." The investigation shows that the builder in this case asked for mortgages from the Union Commercial Bank while Mr. Heh, having received government subsidies, was obliged to get the mortgage from the Land Bank of Taiwan.

3. In view of the practice in connection with the provision of mortgages for pre-built real estate units, the bank will not allocate funds unless both the buyer and the builder fully cooperate during the process of applying for mortgages regardless of whether the buyer receives mortgage subsidies from the government. However, Hungpang and Hungkou companies' claim that "the company does not have the obligation to cooperate," did not comply with the practice in the industry because the buyer could not possibly obtain a mortgage without the cooperation on the part of the builder in the mortgage applying process. Moreover, as commonly seen in the real estate closing procedure for pre-built real estate units, the builder for the purpose of protecting its rights as a creditor often demands after the mortgage application process with buyer is completed but before the bank allocates funds, that the buyer issue a promissory note on which a sum identical to the closing payment is written. As soon as the funds are allocated and received by the builder, the builder would give the buyer both the promissory note and the ownership deed so as to complete the whole closing procedure. In this case, Hungpang and Hungkou companies insisted that Mr. Heh should negotiate with the Land Bank of Taiwan and have the Bank present an undertaking guaranteeing that the Bank would unconditionally allocate funds to the builder regardless of whatever disputes there might be between the builder and the buyer. But this case basically was a sales contract between the buyer and the builder, and the Land Bank of Taiwan only served as a bank which assisted in the mortgage application, therefore, the demand to have the Bank issue an undertaking was unreasonable. On the other hand, if the builder had its way as it wanted, there was no chance for Mr. Heh to complete the closing procedure and the builder would have every right to retain the down payment of NT$ 1.3 million previously made by Mr. Ho.

4. This case presents a typical dilemma encountered in many real estate transactions in the sense that the seller needs to make sure he receives the money for the property when transferring the ownership and the buyer, on the other hand, needs to acquire the ownership in order to obtain a mortgage. Therefore, a third party is usually involved in order to safeguard the interests of both parties. In this case, the bank had been designated to be the third party, but the buyer found another mortgage bank, which could not or refused to play the role as the third party, thus leading to the current impasse. If the seller terminates the contract and keeps the down payment, it would be improper. However, if the Commission imposes any undue restrictions on the seller, his right to protect his creditor's rights may be infringed. In fact, the parties may seek a third party such as lawyers, accountants, or commercial legal agents to safekeep the check issued by the Panchiao Branch of the Land Bank of Taiwan payable to the seller. Then after the ownership is transferred and the mortgage rights are all settled, the check will be given to the seller. The two parties may even take advantage of the deposit office of local courts. From this particular perspective, the seller's claim that it had no obligation to cooperate with the buyer before exhausting all reasonable remedies could constitute a breach of the good faith principle and abuse of power even though relevant regulations had been clearly written in the contract. In addition, this situation has commonly occurred in many transactions, in which individual real estate buyers are often put in a disadvantageous position, so the Commission, considering the public interests, has decided to intervene in this case under the Fair Trade Law.

5. Mr. Heh in this case from the outset has not been found to breach or default on the contract, e.g., he has made payments regularly. The fact that he received mortgage subsidies from the government and then had to obtain the mortgage from the Land Bank of Taiwan was beyond his own control. In view of the factors to be taken into account as specified in the aforesaid meeting decision, both the Bank and Mr. Heh have done their best to cooperate in the whole process. The builder, in contrast, for the purpose of protecting its own interests demanded that the Bank promise to allocate the funds under whatever circumstances. Once its demand was not met, the builder handled the case as if it was a default under the contract, which violated the aforesaid decision and was obviously unfair, thus constituting a violation of Article 24 of the Fair Trade Law.

　

Summarized by Wu, Ting-hung
Supervised by Chang, Fen-fen

＊＊: For information of translation, click here

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