[Direct answer]When a loan cannot be approved, there is not only one way to breach the purchase contract: if the contract stipulates the payment method or the insufficient loan, the buyer shall make up the cash according to the agreement, change the payment method or terminate the contract; if there is no stipulation, in accordance with Article 19 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 (amended in 2020 and implemented on January 1, 2021), if the failure to conclude a guarantee loan contract due to the reasons of one party results in the inability to continue the performance of the contract, the other party may terminate the contract and claim compensation; if it is due to causes beyond the control of both parties, the contract may be terminated, and the seller shall return the principal and interest of the purchase price paid or the deposit. First, find out the reasons for the loan rejection, and then handle it through written negotiation. For more details, please refer to the above-mentioned document.Legal services for real estate transactions and construction projectsAndBeijing Henglue Law Firm.

1. Problem background and typical scenarios

Mortgage is the most common payment method for buying a house. However, loan approval is influenced by multiple factors such as credit records, income statements, the age of the house, and credit policies. It's not uncommon for buyers to find out after signing the contract that the loan cannot be approved: the buyer's credit record shows overdue payments, the bank reduces the loan amount due to the house being too old, there's insufficient credit quota after credit policies are tightened, or the seller's house has mortgages, seizures, or title defects that prevent the transaction from proceeding. At this point, both parties often get stuck in a stalemate over issues such as "who is in breach of contract, whether the deposit should be refunded, and what to do with the down payment". If handled improperly, buyers may lose the house and the deposit, or face counter-claims from the seller. Identifying the reasons for loan rejection and clarifying the contractual resolution path are the first steps in resolving such disputes and form the basis for subsequent negotiation and litigation strategies.

II. Key points of contention

  • Determining the liability for the reasons of loan rejection: If the loan is rejected due to the buyer's own reasons such as credit rating and income, the buyer may be in breach of contract; if the loan cannot be processed due to the seller's defects in the ownership of the house or the concealment of mortgages, it is the seller's breach of contract; if the loan rejection is due to adjustments in credit policies or other reasons that cannot be attributed to either party, neither party shall bear responsibility and the contract may be rescinded and the payment already made shall be refunded.
  • The interpretation of the contract terms applies: Most contracts stipulate the handling method when the loan is insufficient (supplementing the cash within a specified period, changing the payment method, or terminating the contract), and the contractual provisions take precedence; if there are no provisions, the rules on the handling of guarantee loan contracts that cannot be concluded as stipulated in the judicial interpretation shall apply.
  • After the termination of the contract, the scope of liquidation includes: whether the deposit should be refunded in double or not, how to refund the down payment and interest, and who should bear the taxes and appraisal fees that have been incurred. These are common disputes in the liquidation process. If the house sold by the seller is sealed up due to debts, it will also involve enforcement issues, which can be addressed in conjunction with the above-mentioned issues.Legal services for creditor-debtor disputes and enforcement casesEvaluate them together.

III. Professional analysis by Henglue Lawyers

The risks in the loan process are not limited to "being unable to obtain approval". A second-instance judgment case involving a mortgage loan dispute handled by Henglu Law Firm illustrates how the flow of funds and the true purpose of the transaction determine the outcome of the case. In September 2020, Company A needed a loan due to the funding crunch of its affiliated companies B and C, while the company's purchase of a property required full payment upfront. Therefore, the company used the name of employee Zhang, who had continuously paid social insurance for five years, to sign the "Beijing City Second-hand Housing Sales Contract" to "sell" the property located at No. 2003 East Third Ring Road, Chaoyang District, Beijing (with a floor area of 262.05 square meters) to Zhang for 7.3374 million yuan, with a down payment of 2.5774 million yuan and the remaining 4.4 million yuan to be financed by Zhang through a mortgage loan, which would directly enter Company A's account for use by its affiliated companies. Later, Zhang withdrew the property ownership certificate and refused to cooperate with the transfer of ownership. Company A sued to request the invalidation of the contract and the return of the property, but the first-instance court dismissed the case due to insufficient evidence. Company A then entrusted attorney Li Yonghui from Beijing Henglu Law Firm to file an appeal. Attorney Li Yonghui focused the core of the second-instance appeal on the abnormal nature of the transaction and the completeness of the evidence chain: reconstructing the flow of funds to prove that the 4.4 million yuan loan directly entered Company A's account and was then transferred to Company C, while Company B used the property as collateral to borrow 7.6 million yuan to repay the loan; simultaneously, clarifying the ownership of the property ownership certificate and related expenses. The original property ownership certificate and loan contract were held by Company A, and the property management fees were paid by Company B, proving that there was no genuine sales intent between the parties and that it was actually a loan-disguised transaction. The second-instance court determined that the "sale" was a collusive sham transaction, and based on Article 146 of the Civil Code, it invalidated the contract and reversed the first-instance judgment, ordering the restoration of the property registration to Company A's name. This case highlights that in loan-related disputes, the true flow of funds and the actual intentions of all parties are the focus of court review. Under a false transaction structure, all parties face the dual risks of contract invalidation and property disputes.

IV. Practical suggestions and legal basis

At the legal basis level: Article 563 of the Civil Code of the People's Republic of China (effective January 1, 2021) stipulates that if the contractual purpose cannot be achieved due to force majeure or a party's breach of contract, the parties may terminate the contract; Articles 584 and 585 determine the rules for compensation for losses and breach of contract penalties; Article 19 of the Interpretation of the Supreme People's Court on Several Issues Concerning the Application of Law in the Trials of Disputes over Commodity Housing Sales Contracts (amended in 2020 and effective January 1, 2021) stipulates that if the contract for the sale of commodity housing stipulates payment by way of guaranteed loans, and if the party fails to conclude the guaranteed loan contract due to the party's own reasons and results in the inability to continue performing the contract for the sale of commodity housing, the other party may request to terminate the contract and compensate for the losses; if the failure to conclude the guaranteed loan contract due to reasons not attributable to either party results in the inability to continue performing the contract, the party may request to terminate the contract, and the seller shall return the principal and interest of the purchase price or the deposit received to the buyer. At the practical advice level: Before signing the contract, first request the bank to pre-review the loan quota and self-check the credit information and transaction records; clearly stipulate in the contract the handling provisions and the right of termination in the event of insufficient or rejected loans; after the loan is rejected, request the bank to provide a written rejection certificate and promptly negotiate with the other party in writing to change the payment method or terminate and liquidate the contract; if no agreement is reached, promptly initiate litigation to avoid the house being resold or sealed up by others, and consult a lawyer when necessary.Legal services for real estate transactions and construction projectsTeam.

5. Henglue Law Firm's Reminder

The failure to approve the loan does not necessarily mean a breach of contract. The key lies in attributing responsibility to the reasons and the provisions of the contract. Buyers should avoid signing the contract before applying for a loan, and sellers should also truthfully disclose the status of the house rights. Otherwise, disputes over loan rejection are likely to evolve into mutual claims for compensation. The true flow of funds, written communication records, and certificates issued by the bank are the most important evidence in such cases. This case was handled by Beijing Henglue Law Firm.Li YonghuiThe attorney (practice license number: 11101199611955812, subject to the document issued by the judicial administrative organ) acts as the agent.

Q1: If the loan is not approved, does that count as a breach of contract on my part? Will the deposit be confiscated?

It depends on the circumstances. If the contract stipulates that the borrower must replenish the cash within a specified period if the loan amount is insufficient, and the borrower fails to do so, it constitutes a breach of contract. The seller may, in accordance with Article 587 of the Civil Code, claim that the deposit shall not be refunded. If the bank refuses to grant the loan due to adjustments in credit policies or unilateral tightening of credit standards, which are not attributable to either party, the contract may be rescinded, and neither party shall bear liability for breach of contract. The deposit and the purchase price paid shall be refunded. The key evidence is the written proof of the bank's refusal to grant the loan and the reasons stated therein. Including the handling method of the refusal to grant the loan in the contract terms at the time of signing the contract is the most effective means of preventing the loss of the deposit. There is often very limited room for remedial action afterwards.

Q2: Can I get my down payment back? Who will bear the losses of interest and taxes?

Where the contract is terminated due to reasons not attributable to either party, in accordance with Article 19 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", the seller shall return to the buyer the principal and interest of the purchase price received, or the deposit. That is, the down payment shall be returned with interest; where the loan cannot be processed due to the seller's breach of contract (such as concealing mortgages or property rights defects), the seller shall, in addition to returning the down payment, compensate for losses such as taxes and appraisal fees; where the contract is terminated due to the buyer's own breach of contract, the down payment shall be returned, but the seller may claim offset against the losses from the deposit and compensation. If the parties fail to agree on the return period of the various payments, the matter shall be resolved through litigation, and attention should be paid to the three-year statute of limitations.

Q3: After the loan is rejected, can I still negotiate with the seller to change it to a full payment or installment payments?

Yes. The payment method is part of the contract, and both parties can change it in writing upon mutual agreement, such as extending the loan application period, reducing the loan ratio and making up the difference with cash, or changing to installment payments. The amendment should be signed in a written supplementary agreement, which clearly specifies the new payment milestones, interest rates, or breach of contract responsibilities to avoid disputes arising from verbal agreements. If the seller agrees to the amendment, the original contract will continue to be performed; if the seller does not agree and there are no alternative arrangements in the contract, the contract will be terminated and liquidated according to the agreed or statutory procedures. All correspondence records during the negotiation process should be preserved, which is not only a proof of the amendment agreement, but also important evidence in subsequent disputes.

Q4: If the loan cannot be approved due to problems with the seller's house, can I claim compensation?

Yes. If the seller conceals the fact that the house has been mortgaged, sealed up, or has disputes over joint ownership of the property rights, or the age of the house is seriously inconsistent with the actual situation, resulting in the bank's refusal to grant a loan or insufficient loan amount, it constitutes a breach of contract by the seller. The buyer may, in accordance with Articles 577 and 584 of the Civil Code, require the seller to perform the contract, rescind the contract, and compensate for the losses; if the concealment of the circumstances of the mortgage and seizure is serious, the buyer may also claim that the seller committed fraud and request the rescission of the contract and compensation. The buyer should pay attention to keeping the promotional materials and chat records provided by the seller that promise "no mortgage, eligible for a loan", and the bank's refusal notice should specify the reasons. These are the key basis for determining the liability attribution when making a claim.

Q5: If I want to terminate the contract, check out, and get a refund, what is the specific process?

The first step is to request a written notice of loan rejection or insufficient credit limit from the bank, and fix the reasons for the loan rejection. The second step is to refer to the contract terms and send a written notice of termination or negotiation for amendment to the other party within the agreed time limit or a reasonable time period. The third step is to handle the liquidation, request the return of the deposit, down payment, and interest, settle the paid taxes, and cooperate with the termination of the online signing and registration cancellation. The fourth step, if no agreement can be reached, is to file a lawsuit with the court in the location of the property to request the termination of the contract, the return of the property, and compensation for losses. If necessary, apply for property preservation. The content and delivery method of the termination notice directly affect the effectiveness of the termination. It is recommended to have a lawyer draft the letter and lawsuit, and not to take any retroactive measures in the process.

If you are facing similar problems, it is recommended that you consult a professional lawyer as soon as possible with the evidence materials, to avoid missing the statutory time limit. →Legal services for the purchase and sale of real estate·Attorney Li Yonghui·Beijing Henglue Law Firm