• A bank mortgage loan agreement usually does not state that the property cannot be transferred before the loan is fully repaid. The clause on “restrictions on disposition of the collateral” generally applies only to acts such as remodeling, demolition, construction, addition, or other acts that may reduce the value of the house. The term “disposition” here does not include ownership transfers such as gifts or sales.
• The main purpose of this restriction is to prevent the value of the house from being reduced by such acts, so that if the borrower later fails to repay the loan and the bank enforces the mortgage through a court auction, the auction price will not be insufficient to cover the debt. Therefore, this type of restriction on the mortgaged house is unrelated to the transfer of ownership.

2. Can a House with an Existing Mortgage Be Transferred to a Spouse, Child, or Parent?

• Yes. Article 867 of the Civil Code provides: “After the owner of real property has created a mortgage, the owner may transfer the real property to another person. However, the mortgage shall not be affected thereby.”
• In other words, real property with a registered mortgage may still be transferred to another person even before the mortgage is cancelled. After the ownership transfer, the mortgage will remain on the property. It does not matter if the borrower and the property owner are different people. This rule is intended to protect the creditor’s rights.
• Therefore, a mortgage on a house does not prevent an ownership transfer. The house may still be transferred to a spouse, child, parent, or third party.
• However, if the real property is subject to an “advance notice registration,” it cannot be transferred to anyone other than the person holding the claim under the advance notice registration unless the registration is cancelled first.
• Gift Transfer of Real Property to a Spouse
  • A husband purchased a house with a mortgage loan. Because he loves his wife, he decides to gift the house to her. Even if the mortgage has not been fully paid off at the time of the gift, the house can still be transferred to the wife by gift. The wife becomes the owner, while the husband remains the borrower under the mortgage loan and continues to be responsible for the monthly repayments.
  • Article 20 of the Estate and Gift Tax Act provides: “Property gifted between spouses shall not be included in the total amount of gifts.”
  • However, the husband as the donor must still file a gift tax return and obtain a “Certificate of Exclusion from Total Amount of Gifts” from the National Taxation Bureau before applying for the gift transfer registration at the land office.

►Case Study: Gift Transfer of a Mortgaged House Between Spouses
 

3. Can Children Use Their Parents’ House as Collateral for a Loan?

• Yes. Mortgage loans from financial institutions do not require the borrower and the property owner to be the same person. As long as the property owner, namely the parents, agrees, another person, such as the child, may be the borrower.
• In this situation, the financial institution may require the property owner to act as a general guarantor for the mortgage loan. However, if the borrower has strong enough financial qualifications, the bank may not require a general guarantor and may only require the property owner to act as the collateral provider.
  • General guarantor: If the borrower fails to repay the loan, the financial institution may demand repayment from the general guarantor. If the mortgaged real property is sold through a court auction and the proceeds are still insufficient to repay the mortgage, the general guarantor remains liable for the shortfall.
  • Collateral provider: Also known as a “real surety,” this refers to a person who provides their own property as mortgage collateral to the creditor but does not assume any personal guarantee obligation for the debt. If the debtor fails to repay the loan, the financial institution may only enforce against the mortgaged real property through a court auction. Even if the auction proceeds are insufficient to fully repay the debt, the collateral provider does not have to repay the shortfall.
• Please note that although the property owner has no repayment obligation, if the borrower fails to repay the loan on time, the bank may still enforce the mortgage and auction the property.
• Therefore, as long as the parents are willing, the child may obtain the parents’ consent to mortgage the house under the parents’ name to the bank in order to apply for a loan.
• When the child applies for the loan, the parents must sign the relevant documents together. This is to confirm that they agree to provide the house as collateral for the child’s bank loan.

4. Transferring Property to Children Through a Sale