So what is borrowing others’ names to buy houses?
It means the contributor borrows other people’s names to buy a house, the property owner’s certificate will show the a different name to the one actually paying for the house, and the house will be used by the person who actually paid for it. In the face of law, the person who gave their name is the real owner of the house, however in reality, the house will consist of a separation between property rights in name and property rights in reality.
The contributor will choose to borrow others’ name to buy houses for the three main reasons below:
(1) Buyers do not have the qualification to buy houses, using Shanghai for an example, buying commercial-to-residential houses has strict rules on the census register, social insurance, marriage from other provinces etc.
(2) Buyers could not successfully get a mortgage from the bank, due to factors such as age, lack of income, or large unpaid debts etc.
(3) In order to enjoy low payment rates, rectificated houses, unit group purchases, group funded houses are relatively cheaper than commercially built residential houses, and these has strict requirements for the purchaser’s identification
The money contributor would face the six main risks below:
(1) The name contributor owns the house in law. If the money contributor were to have a mortgage over the house, then due to interests, he would not be enjoying the benefits of the house increasing in value.
(2) The name contributor has their name registered on the property registrar, if they were to then on-sell, or give the house away using legal methods without the knowledge of the money contributor, innocent third parties will then have a legit ownership of the property in this manner. Not only the house might be sold much below market value, the name contributor might not give the proceeds to the money contributor.
(3) The name contributor with the property certificate might take up a mortgage on the house, causing the house to be mortgaged, causing the money contributor many issues in the future.
(4) If the name contributor has initial debts, debtors may apply to freeze their assets in order to collect their debts, in that situation, it would be difficult to transfer ownership of the house.
(5) If the name contributor were to divorce, the house might be divided according to matrimonial property laws; another possibility would be to maliciously make changes to the name in the form of addition or reduction during marriage; additionally of the name contributor were to die, his successors would want a share in the house.
(6) If the money contributor was unable to use his own name, during transfer of ownership proceedings, the name contributor might not co-operate.
The name contributor would face the six main risks:
(1) Using Shanghai as an example, it is regulated as to how many houses one can buy, once the contributor agreed to use his name to buy a property, then he will have one less change to buy property for himself.
(2) The money contributors normally will not pay for the property for full, rather they will let the name contributor do the administrative matters and they pay the mortgage. However if once the money contributors are no longer able to repay mortgage, banks will request repayment from the name contributors affecting their creditability.
(3) If the name contributor were to take litigation proceedings, when the Court were to check on the person subject to enforcement, the Court will see the house as his house, and might order the house to be retained under his name for life purposes, causing the name contributor’s other properties to be executed instead.
The Court’s Views
(1) Using others’ name to sign house purchase agreements, if the house bought is simply an investment house, then the Court would affirm that the agreement to be invalid. If borrowing of the name occurred to avoid purchase limitations, the name contributor could have rights in the property legally. In accordance to the agreement between both parties, the Court can support the name contributor to transfer all proprietary rights to the money contributor.
(2) The Court will normally base on whether there were written agreements on borrowing name to purchase house, the investment situation, and the ownership situation. In cases of family disputes, without written contracts, the Courts are reluctant to support that someone borrowed others’ names to buy property.
(3) The Court’s decision should not be used to circumvent laws and regulations, if the money contributor still does not accord with the rules and regulations of property transfer, then the Courts are not able to circumvent that, the property transfer will not be implemented.
The lawyer’s views
(1) It is highly recommended to sign a detailed contract indicating the borrowing of one’s name to purchase houses, in some circumstances it is recommended to have third party witnesses. The author will publish a easy version of <Contract for Borrowing One’s Name to Purchase House>, watch this space.
(2) Both parties need to protect their own interests, save all receipts, documents, contracts with regard to he transaction, including renovation documents. As risks are higher for money contributors, normally that party should keep all relevant documents.
(3) This is a risky matter, even with a full and detailed contract, and all relevant documents, the risk is still prevalent, legal advise from professional lawyers are highly recommended.