[Direct answer]After the house is left unfinished, owners should not unilaterally stop repaying the loan without authorization — directly defaulting on the loan will result in an overdue record, affect their credit rating, and may even lead to the bank declaring the loan as prematurely due and suing them, obligating them to bear penalty interest and litigation costs. The correct approach is to "first terminate the contract, then stop repaying the loan": According to Article 563 of the Civil Code, if the developer fails to deliver the house on time after being urged and still fails to perform within a reasonable period, or if the project is permanently suspended and the contractual purpose cannot be achieved, the owner may terminate the commercial housing sales contract. According to Articles 20 and 21 of the Interpretation of the Supreme People's Court on Several Issues Concerning the Application of Law in the Trials of Disputes over Commercial Housing Sales Contracts, if the purchase contract is terminated and the loan contractual purpose cannot be achieved, the loan contract may be terminated, and the remaining principal and interest of the loan shall be returned to the bank by the developer. Before terminating the contract, it is recommended to first promote the resumption of the project or include it in the government's special handling, and consult a lawyer to assess the likelihood of winning the case and enforcing the judgment. For more details, please refer to the following link:Real estate sales and purchase | Construction project servicesAndBeijing Henglue Law Firm.

I. Legal basis and interpretation of provisions

1. Article 563 of the Civil Code of the People's Republic of China (effective as of January 1, 2021)

When a party delays in performing its main obligations and fails to perform them within a reasonable period after being urged, the other party may terminate the contract; if the delay in performing the obligations results in the inability to achieve the purpose of the contract, the other party may directly terminate it. Applied to unfinished buildings: The delivery of the house is the developer's main obligation of payment. If the project is stalled for a long time and the delivery is far away, the owner may terminate the purchase contract after written urging, which is the first step of "terminating the contract and stopping the loan". The key points of evidence include the contractually agreed delivery date, the written urging record, and the evidence of the project being stalled, such as the stall notice, on-site photos, and government disposal documents. A common dispute is the determination of the "reasonable period": if the delay lasts for several months and there is no hope of resuming work, the court is more likely to support the termination; if the delay is just one or two months, the court may give the developer a grace period, so it is advisable to urge the developer first and wait for the outcome.

2. Article 20 and Article 21 of the "Interpretation of the Supreme People's Court on Several Issues Concerning the Application of Law in the Trials of Disputes over the Sale of Commercial Housing Contracts" (effective as of January 1, 2021)

Article 20 stipulates that if the contract for the sale of commercial housing is confirmed to be invalid or is rescinded or terminated, and the purpose of the commercial housing guarantee loan contract cannot be achieved, the party requesting to rescind the commercial housing guarantee loan contract shall be supported. Article 21 stipulates that after the contract for the sale of commercial housing is confirmed to be invalid or is rescinded or terminated, and the commercial housing guarantee loan contract is also rescinded, the seller shall return the received purchase loan and the principal and interest of the purchase price to the guarantor and the buyer respectively. These two articles transfer the risk of defaulting on the loan from the owners to the developers: after the contract is legally rescinded, the remaining loan shall be returned to the bank by the developer, and the owners shall no longer bear the obligation to repay the loan. The prerequisite are that the contract is rescinded in accordance with legal procedures, rather than defaulting on the loan on their own.

3. Practical adjudication guidelines

In recent years, judicial practice has increasingly protected owners of unfinished buildings. When developers face funding shortages and long-term construction stoppages, or when it is clear that delivery cannot be completed on schedule, courts generally support the termination of purchase contracts and loan contracts, and order developers to return the principal and interest of loans and purchase payments. If the developer enters bankruptcy proceedings, the buyer's request for the return of purchase payments may also receive priority protection, with the specific order of priority subject to case-by-case adjudication. Conversely, if owners suspend payments without terminating the contract, courts generally do not support claims for exemption from liability and still order them to repay the principal and interest of arrears, with any losses from overdue credit reporting being borne by themselves. The core principle is "procedure first": termination comes first, and suspension of payments follows. For projects where delivery expectations still exist but progress is slow, courts may tend to grant leniency, with significant differences from case to case, which should be based on professional assessments.

II. Practical Experience of Henglue Law Firm

Practical Observations on Protecting the Rights of Victims of Unfinished Buildings Handled by Henglue: In the early stage of project suspension, joint owners reported the situation to the housing and construction department, verified whether the pre-sale fund supervision account was misappropriated, and urged the government task force to intervene in the resumption of work. At this stage, it is usually most beneficial for owners to safeguard the project. After confirming that the project has been stalled for a long time, they then evaluate the path of contract termination — first checking whether the developer is involved in litigation, being executed against, and having construction projects mortgaged, and then determining whether they can recover the money after winning the lawsuit, before deciding whether to sue for termination or wait for a successor buyer. Batch litigation by owners is more advantageous than individual cases in terms of fact investigation and enforcement. Clues to pre-sale fund supervision are often a breakthrough in the case. There are two pitfalls that parties are most likely to fall into: First, they unilaterally stop repaying loans based on the slogan of "collective default", which damages their credit records and leads to lawsuits by banks, putting them in a passive position; Second, they fail to evaluate the developer's repayment ability before terminating the contract. After the contract is terminated, the loan is returned by the developer, but the enforcement fails, and they lose both the house and the money. Every step should be evaluated before action is taken. When entering the enforcement stage, reference can be made to the following:Creditor-debtor relations | Enforcement services.

III. Frequently Asked Questions

Q1: What will be the consequences of directly stopping loan repayment?

The risks of directly stopping loan repayments are clear: the bank will handle the overdue payments according to the contract, and the penalty interest will accumulate month by month; a bad record will appear on the credit report, which will affect subsequent mortgage, car loan applications, and even employment reviews; if the borrower fails to repay for several consecutive periods, the bank may declare the loan to be due in advance according to the contract, require full repayment of the principal and interest in one go, and sue the owner, whose other assets may be seized and executed. Even if the dispute is resolved in the future, the overdue record during this period will be difficult to erase. Therefore, "stopping loans" should be the result of legally terminating the contract, rather than the starting point of protecting rights. The correct sequence is: giving a notice, terminating the purchase contract and the loan contract, and having the developer refund the loan. Unilaterally stopping loan repayments is equivalent to turning oneself from a creditor into a defaulting party, which is not worth the candle.

Q2: Under what conditions can the contract be terminated and the loan discontinued?

Generally, the following conditions must be met: the developer fails to deliver the house on time as agreed in the contract, or fails to deliver the house within a reasonable period after being notified by the owner in writing; the project is suspended for a long time and there is no hope of resuming construction, making it impossible to achieve the purpose of the contract. Procedurally, the owner should first send a notice of rescission to the developer or directly sue to rescind the purchase contract, and at the same time or subsequently request to rescind the loan contract. According to Articles 20 and 21 of the Judicial Interpretation of the Contract for the Sale of Commercial Houses, after the rescission of the two contracts, the remaining principal and interest of the loan shall be returned by the developer to the bank, and the owner's obligation to repay the loan shall be terminated accordingly. Note that courts in different regions have different interpretations of the "reasonable period". Before suing, it is recommended that lawyers evaluate the likelihood of winning the lawsuit and the prospects of recovering the payment based on the delivery agreement, the length of the suspension of construction, and the progress of government disposal.

Q3: If the contract is terminated, can I get my money back?

It's not necessarily the case. After the contract is terminated, the developer should return the purchase price, the principal and interest of the loan, and compensate for the interest loss. However, the root cause of unfinished projects is often the developer's capital chain breaking down, which may lead to the risk of enforcement failure. To increase the possibility of recovering payments, the following measures can be taken: before suing, check the developer's litigation, enforcement, and bankruptcy information; apply for litigation preservation to seize the unsold real estate and land use rights under its name; verify the mortgage situation of the construction project and evaluate the repayment priority; if the developer enters bankruptcy proceedings, timely declare its creditor's rights and claim the priority of housing consumers' rights. If the project already has a successor or a rescue plan, it is often more practical to wait for the resumption of construction and delivery rather than terminating the contract to get the money. Whether to terminate the contract should be based on an assessment of the developer's solvency, rather than emotional decisions, and relevant reference materials can be consulted.Business and Commercial | Contract Dispute Services.

Q4: What impact do the government task force and the resumption of work have on protecting workers' rights?

When a project is handled by a government task force, or when funds for project construction or acquisition are introduced, the owners' strategy should typically shift from "terminating the contract and collecting compensation" to "preserving the property and awaiting delivery": After the resumption of construction and delivery, the property value will recover, which is far higher than the expected compensation based on the proportion of ordinary creditors after terminating the contract. At this stage, owners should do the following: register purchase and creditor information, speak out through owners' organizations, and monitor the progress of recovering funds from pre-sale supervision accounts; if the task force's plan involves additional funding or major concessionary terms, owners should first review it with a lawyer before making a decision. Owners who have sued for termination of the contract may also consider withdrawing the lawsuit or suspending the proceedings when the signal for resumption of construction is clear. The protection plan should be dynamically adjusted according to the progress of project handling to avoid sticking to a single path and missing better outcomes.

Q5: What should I pay attention to when joining forces with other homeowners to protect our rights?

Joint protection of rights can reduce costs and increase bargaining power, but attention should be paid to the methods and boundaries: electing representatives and signing written power of attorney to avoid procedural chaos caused by a large number of people; reflecting demands to the housing and urban-rural development department and the letter-writing department through legal channels, and not taking excessive actions such as blocking roads and attacking others, otherwise, the protection of rights will not succeed and may even lead to violations of the law; the negotiation documents with developers and banks should be reviewed by lawyers to prevent individual owners from being "reconciled" alone, which will harm the overall interests; in collective litigation, demands should seek common ground while reserving differences - the interests of owners who pay in full, take loans, withdraw from the purchase, and protect their houses are not entirely consistent, and strategies need to be designed in a tiered manner. It is recommended to use fixed channels for communication, and keep written records of important notifications and commitments as evidence for subsequent litigation or negotiation.

IV. Suggestions for Protecting Rights

  • First, check the pre-sale fund supervision account and the progress of the project's resumption of work to determine whether to keep the house or terminate the contract.
  • If the developer fails to deliver the house on time, you should promptly send a written reminder and keep the relevant proofs to secure evidence for terminating the contract.
  • Do not believe in the rumor of "collective loan default" and stop lending without authorization. This will avoid damaging your credit record and putting yourself at risk of being sued.
  • Simultaneously file a lawsuit to terminate the contract and apply for the seizure of the developer's assets. First, assess the feasibility of enforcement before taking action.
  • The joint owners elect representatives and appoint lawyers collectively, and design their claims in a hierarchical manner to improve the efficiency of protecting their rights.

If you are currently facing similar problems, it is recommended that you consult a professional lawyer as soon as possible with the relevant evidence materials, to avoid missing the statutory time limit. →Specialised services - legal services·Beijing Henglue Law Firm