When signing a rental contract for an apartment or condominium, it's not uncommon to receive an explanation about mortgages. As a tenant, you may feel anxious wondering "what will happen if the mortgage is executed?"
This article provides a detailed explanation of the basic structure of mortgages, the risks if executed, the possibility of eviction, and how to investigate on your own.
What Exactly Is a Mortgage?
A mortgage is a security interest placed on real estate when receiving financing from a financial institution. If loan repayments fall behind, the financial institution can auction the secured property and use the proceeds to repay the debt.
Since construction costs for office buildings and condominiums are substantial, it's common practice to receive financing from financial institutions and set mortgages on the buildings. When starting a new business, mortgages may also be set as collateral for startup capital.
Properties with mortgages are not uncommon, so there's no need to be overly concerned. However, caution is needed when mortgages are set by non-bank entities such as consumer finance companies.
Additionally, mortgages are information that must be disclosed during the important matters explanation for rentals. Failure to explain can result in penalties including business suspension or license revocation.
What Happens When a Mortgage on a Rental Property Is Executed?
When a mortgage is executed, the property may ultimately be auctioned and ownership may change. Here we'll explain the process step by step.
The Property Owner's Repayments Fall Behind
When a mortgage is executed, the property owner's loan repayments first fall into arrears. After approximately 6 months of non-payment, the "benefit of the term" allowing installment payments is lost, and full repayment of the remaining debt is demanded. If full repayment cannot be made, subrogation payment by the guarantee company occurs, and approximately 8-9 months after the initial default, an application for real estate auction is filed.
The Creditor Financial Institution Proceeds with Auction
Within approximately 2 months of the auction decision notice, a court bailiff conducts a property investigation. Information about the auction is posted on real estate auction websites, where anyone can check it. After an approximately one-week bidding period, the successful bidder on opening day becomes the new owner.
Voluntary Sale May Also Be An Option
Voluntary sale is a method where the owner sells the property at a price close to market value by their own will to repay the debt. Compared to auction, more money remains in hand, allowing for greater debt reduction. If successful, installment repayment of remaining debt may be recognized.
Negotiating Eviction According to the New Owner's Wishes
If the new owner requests tenants to vacate, a grace period of 6 months until eviction is provided. Eviction after ownership change is possible without just cause, so you may be asked to vacate immediately.
However, since 2004, a "system to grant enforceability to lease rights with mortgagee consent" was established, and with the consent of all mortgagees and registration, lease rights can be asserted against the new owner.
Must You Always Vacate When a Mortgage Is Executed?
Whether eviction is necessary depends on the timing of mortgage establishment and property delivery.
If the Property Has Not Yet Been Delivered
If the property has not yet been delivered at the time of mortgage establishment, you may be asked to vacate. This is because you are deemed to have contracted knowing the eviction risk.
If Property Delivery Has Already Been Completed
If delivery was already completed before mortgage establishment, lease rights take priority and there is no need to comply with eviction. If the new owner wishes eviction, negotiation or litigation based on just cause is required.
Understanding the Eviction Grace Period System
The eviction grace period system recognizes a 6-month grace period from the payment date for tenants when property is sold at auction. It's established to avoid sudden eviction and secure time to find the next residence.
What Risks Exist When a Mortgage Is Executed?
When a mortgage is executed, risks include ownership change, double payment of security deposits, and forced eviction.
The Landlord May Suddenly Change
In both auction and voluntary sale cases, the rental contract itself can generally continue. However, management policies may change with the new landlord. Especially for rental offices, the scope of construction permits may change significantly based on the landlord's policies.
You May Need to Pay Security Deposit Again to the New Landlord
When the landlord changes, you need to re-execute the lease contract and may need to pay a security deposit to the new landlord. While you can request return of the deposit from the previous landlord, many cases lack payment ability, creating a risk of effectively double payment.
You May Not Get Your Security Deposit Back
If the mortgage was established before the lease rights, the security deposit paid to the previous landlord is not transferred to the new owner. Without payment ability, they cannot comply with return requests, creating a risk of disputes over unreturned deposits.
You May Be Ordered to Forcibly Vacate
Cases exist where forced eviction is ordered at unintended timing, making schedule management difficult for both residential properties and offices. It's important to organize necessary responses in advance as preparation.
Can You Receive Eviction Compensation for Forced Eviction by Auction?
Basically, no eviction compensation is received for forced eviction by auction. Tenants vacate after the grace period.
However, landlords may pay eviction compensation in the following cases:
- When wanting eviction without waiting for the grace period: When the new owner has circumstances such as wanting to resell the property
- When wanting to avoid forced eviction procedure costs: Cases of settling by paying eviction compensation to save costs and effort
The market rate for eviction compensation from auctions is approximately tens of thousands of yen.
Can Forced Execution by Auction Be Avoided?
To avoid forced execution by auction, the landlord must choose voluntary sale or personal rehabilitation, and there's nothing tenants can do. The reality is that you can only watch the landlord's actions.
For those concerned about property management, please refer to stress-free rental management systems to consider preparing for risks.
How Can You Check If a Mortgage Is Established?
The presence of a mortgage can be checked through confirmation of important matters explanation at contract time, obtaining property records, credit investigations, etc.
Confirm at Contract Time
Receive explanation about mortgages from the owner or real estate company during the important matters explanation at contract time. However, as there are cases where it's not actively explained, it's important to ask for confirmation yourself.
Investigate Yourself
Mortgages can be investigated by non-owners as well. All you need is the procedure fee and the lot number (a number organized by property at the Legal Affairs Bureau).
Check Credit Information
To know whether the owner is trustworthy, there's also a method of requesting a credit investigation from a specialized company. If credit information is good, you can judge that the risk of mortgage-related troubles is low.
How to Check Mortgages in Property Records
By obtaining property records (certificate of all matters), you can confirm real estate-related rights such as ownership and mortgages.
Certificate of All Matters
The certificate of all matters obtainable at the Legal Affairs Bureau lists the property's ownership, mortgages, and other rights relations. Anyone can obtain it by submitting an issuance application form at the Legal Affairs Bureau counter and attaching stamps. It can be obtained even at Legal Affairs Bureaus with different jurisdictions.
Online Application System
If you cannot visit the Legal Affairs Bureau, you can view registration information as PDF through the online application system. Real-time information can be confirmed, but without an official seal, it cannot be submitted as a certificate.
Consulting with a Judicial Scrivener
By requesting a judicial scrivener, you can not only obtain property records but also receive detailed explanations about mortgages. Consider consulting an expert if you have many concerns.
How to Read the Certificate of All Matters
The presence of mortgages is listed in the "Rights Section (Part B)" of the certificate of all matters.
There Are 4 Types of Registration Certificates
- Certificate of all matters: All past registration matters are listed
- Certificate of current matters: Only registration matters effective at present are listed
- Certificate of partial matters: Only specified content is listed
- Certificate of closed matters: Only closed registration records are listed
Items in the Certificate of All Matters
Both land and building versions consist of a title section (basic property information), rights section part A (matters concerning ownership), rights section part B (rights other than ownership such as mortgages), and joint security schedule. Mortgages are listed in the rights section (part B), where you can confirm information such as the loan date and interest.
Some Things Cannot Be Known from the Certificate of All Matters
Property valuation is not listed during ownership transfer registration by sale. Additionally, information related to city planning law and building standards law is not listed, so if you want to know these, you need to obtain separate documents.
Points to Note About the Certificate of All Matters
If received from a real estate company, always check the acquisition date. Since registration content reflects rights changes, a certificate from several months ago may differ from current content.
Do Properties Without Mortgages Exist?
In reality, it's more difficult to find properties without mortgages. When building rental properties, financing from financial institutions is almost always received, and if financing is received, mortgages are established. Understand that properties with mortgages are the norm.
Note that there are many cases where new owners continue renting, and cases leading to eviction are a minority. Notice is required at least 6 months in advance.
Why Is Caution Needed When "Seizure" Appears in Registration?
A seizure notation indicates that the owner's monetary debt payments are delayed, meaning there's a high risk of proceeding to auction.
What Is Seizure?
When "seizure" is listed, repayments to financial institutions or payments of taxes, insurance, pensions, etc. are already in arrears. There's a possibility that the real estate may be auctioned in the future.
Can Seizure Be Resolved?
Resolving seizure basically requires full repayment of the debt. The procedure requires the buyer to pay the full sale price, the seller to fully repay the debt, and the creditor to remove the seizure registration. As a resident, recognize that future circumstances will change depending on the owner's decision.
Release Notice Can Be Received Through Simultaneous Performance
At sale settlement, the seller, buyer, real estate company, judicial scrivener, etc. attend, and remaining payment and ownership transfer occur simultaneously. By proceeding with seizure removal procedures simultaneously, troubles are prevented.
Summary
Mortgages are common on properties with borrowing from financial institutions, and there's no need to worry excessively. However, caution is needed when seizure notation exists, as auction and eviction risks increase. Before contracting, it's important to confirm the important matters explanation and investigate property records to prepare for risks.
Frequently Asked Questions (FAQ)
Is it dangerous to move into a property with a mortgage?
Having a mortgage established is itself common and not immediately dangerous. However, it's important to confirm the mortgage content in the important matters explanation at contract time and understand whether there are problems with the owner's repayment status.
Who bears moving costs if a mortgage is executed?
In principle, moving costs are borne by the tenant. However, if the new owner desires early eviction, cases exist where eviction compensation of approximately tens of thousands of yen is paid.
What's the difference between a mortgage and a revolving mortgage?
While a mortgage is established for a specific claim, a revolving mortgage is a security interest established when repeatedly receiving financing within a certain range. Revolving mortgages are often seen in commercial properties.
Does it cost money to check rental property records?
Obtaining a certificate of all matters at the Legal Affairs Bureau counter costs about 600 yen, online applications cost about 500 yen, and PDF viewing of registration information costs about 330 yen.
Are there cases where you can continue living even if the mortgage is executed?
Yes, there are. If delivery was completed before mortgage establishment, lease rights take priority, so there's no need to comply with eviction. Also, if the new owner continues rental management, you can continue living there.
