[Direct answer]The mortgage is a loan contract between the buyer and the bank, which is independent of the house purchase contract with the developer. The developer's bankruptcy does not directly exempt the owner from the obligation to repay the loan; however, if the house is left unfinished and the contractual purpose is frustrated, the owner may, in accordance with Article 23 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, request to rescind the sales contract and simultaneously rescind the guarantee loan contract. After the contract is rescinded, the developer shall return the remaining loan to the bank and the paid purchase price to the owner, and the owner shall not need to continue to repay the loan. If the developer enters the bankruptcy procedure, the owner shall lawfully declare his/her creditor's rights and participate in the distribution of the bankruptcy estate. It is recommended to fix the contract, payment and evidence of the construction site being halted as soon as possible. For more details, please refer to the following link:Legal services for real estate transactions and construction projectsAndBeijing Henglu Law Firm.

I. Problem background and typical scenarios

The unfinished construction of real estate projects is the most worrying chain risk for homeowners: they have paid the money and taken on the loans, but the houses are still not delivered on time. The developers' capital chain breaks down and they even go bankrupt. Typical scenarios include: the project being halted, the delivery of the house being indefinitely postponed, and homeowners having to continue paying the monthly mortgage while not seeing the house; the developer being applied for bankruptcy reorganization or liquidation, and homeowners not knowing whether to continue repaying the loan or stop doing so; whether the down payment and the repaid loans can be recovered; and the bankruptcy administrator requiring homeowners to continue performing the contract and making up the outstanding balance. Such disputes span contract law, bankruptcy law, and financial loans. Homeowners are very likely to continue repaying the loan for fear of affecting their credit records, but they often overlook their right to legally terminate the contract and mitigate losses.

II. Key points of contention

The disputes in such cases include: First, the relationship between the purchase contract and the loan contract. The loan contract is intended for purchasing the property, with the funds directly paid to the developer. The two contracts are closely interrelated. According to the Supreme Court's judicial interpretation, when the sales contract is rescinded, the loan contract can be rescinded simultaneously, and the responsibility for repaying the remaining loan will be transferred accordingly. Second, the presumption of continued performance of the contract in bankruptcy proceedings. According to Article 18 of the Enterprise Bankruptcy Law, the administrator has the right to decide whether to rescind or continue to perform the contract if neither party has fully performed their obligations. If the owner has paid most of the purchase price and the main obligations of the contract have not been fully performed, the administrator may request continuation. In this case, the owner should actively raise objections and demand rescission. Third, the priority of repayment of the paid purchase price and the repaid loan in bankruptcy assets. These are either priority or ordinary claims, which directly affect the recovery rate of funds.

III. Professional analysis by Henglue Lawyers

Henglue Lawyers have observed in cross-disciplinary disputes involving real estate and finance that the biggest misunderstanding of property owners is believing that if the developer goes bankrupt, they will no longer need to make monthly mortgage payments, but in the long run, they will still have to repay the loan and worry about damaging their credit records. Lawyers advise: In legal terms, property owners are borrowers to the bank and purchasers to the developer. These two legal relationships need to be handled separately. The optimal approach is usually to terminate both contracts simultaneously - when there is no possibility of delivering the house, according to Article 563 of the Civil Code on fundamental breach of contract and Article 23 of the judicial interpretation, the sales and loan contracts should be terminated, so that the remaining loan can be returned to the developer and the payments made can be included in the bankruptcy claims. In practice, it is necessary to complete the termination of contracts and the declaration of claims before the distribution of bankruptcy assets, and to pay attention to whether policies such as special loans for ensuring the completion of housing projects and government bailout measures can promote the resumption of work. For contracts that the administrator requires to continue to perform, property owners should file written objections with supporting evidence to prevent being presumed to continue to perform. In cases involving reorganization plans, it is also possible to combine these measures with other relevant provisions. 恒略律师在房地产与金融交叉纠纷中观察到，业主最大的误区是以为开发商倒了，月供也免了，结果长期空还贷又怕征信受损。律师提示：法律关系上，业主对银行是借款人，对开发商是购房人，两笔关系需分别处理。最优路径通常是双解除——在房屋确无交付可能时，依《民法典》第563条根本违约与司法解释第23条，解除买卖与贷款合同，使剩余贷款回归开发商、已付款纳入破产债权。实务中应抢在破产财产分配前完成合同解除与债权申报，并关注保交楼专项借款、政府纾困等政策能否推动复工；对已被管理人要求继续履行的合同，应书面异议并附证据，防止被推定为继续。涉及重整计划的，还可结合Financial capital and cross-border services involving foreign affairsEvaluate the disposition of creditors' claims.

IV. Practical suggestions and legal basis

Legal basis: Article 563 of the Civil Code (effective January 1, 2021) stipulates that if the fundamental breach of contract results in the failure of the contractual purpose, the parties may terminate the contract; Articles 566 and 567 regulate the consequences of termination and the effectiveness of settlement and liquidation clauses. Article 23 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 on December 29, 2020) stipulates that after the commodity housing sales contract is confirmed as invalid or rescinded or terminated, if the purpose of the commodity housing guarantee loan contract cannot be achieved, the party's request to terminate the loan contract shall be supported, and the seller shall return the received loan principal and interest to the bank and return the purchased housing funds to the buyer. Article 18 of the Enterprise Bankruptcy Law (effective June 1, 2007) grants the administrator the right to choose whether to terminate or continue to perform the contract, Articles 44 and 48 stipulate the declaration of creditor's rights, and Article 113 stipulates the order of repayment. Practical suggestions: Immediately send a written notice to the developer to demand delivery of the house and preserve the evidence; Evaluate whether to terminate or continue to perform the contract, sue for termination and declare creditor's rights as soon as possible; Pay attention to the policies on ensuring the delivery of houses; Never stop supplying funds without authorization to avoid damaging your credit record.

5. Henglue Law Firm's Advice

The developer's bankruptcy doesn't mean that the buyer will lose both the money and the house. The key is to terminate the contract and declare the creditor's rights as soon as possible in accordance with the law. Henglu Law Firm advises: Do not stop the loan without terminating the contract for fear of affecting your credit record, nor wait passively and miss the creditor's rights declaration period; if there is no possibility of delivering the property, terminate the sales and loan contracts as soon as possible in accordance with Article 23 of the judicial interpretation, transfer the remaining loan responsibilities back to the developer, and simultaneously declare the creditor's rights to the bankruptcy administrator. For restructured and continued construction projects, actively participate and rationally judge the possibility of delivery. Evidence is essential throughout the process: contracts, payment records, records of suspension of work and reminders, and screenshots of communication must be preserved in full. Such cases involve contracts, bankruptcy, and finance. It is recommended to consult a professional lawyer as soon as possible and start with the following steps:Beijing Henglu Law FirmUnderstand the relief path for unfinished buildings and bankruptcy claims, and combine them when necessary.Legal services for real estate transactions and construction projectsDevelop a plan.

VI. Frequently Asked Questions

Q1: The developer went bankrupt. Do I still need to continue repaying the mortgage I borrowed from the bank?

It depends on the specific circumstances. The mortgage contract binds the homeowner and the bank. If the developer goes bankrupt, it does not necessarily exempt the homeowner from the obligation to repay the loan. If the house has been delivered and the contract continues to be performed, the homeowner usually still needs to repay the loan monthly. However, if the project is left unfinished and the purpose of the sales contract is frustrated, the homeowner can legally rescind the sales contract and the guarantee loan contract. After the contract is rescinded, the remaining loan shall be returned by the developer to the bank, and the homeowner does not need to continue repaying the loan. This is supported by relevant judicial interpretations of the Supreme People's Court and many similar cases. If the developer enters bankruptcy, the homeowner should distinguish between two paths: continuing to perform the contract and rescinding the contract to limit losses. If the project can resume construction and delivery, the homeowner can continue with the bankruptcy reorganization; if there is no possibility of delivery, the homeowner should promptly rescind the contract and declare the creditor's rights to avoid repaying the loan for a long time without getting the money back. For referenceCreditor-debtor relations and enforcement case servicesUnderstand the declaration of creditor's rights.

Q2: If the real estate project is left unfinished, can I just stop paying the mortgage directly?

It is not advisable to directly suspend the supply of funds, but rather to follow the legal procedures for contract termination. Directly suspending the supply of funds will be regarded by the bank as a breach of contract, reported to the credit information system, and even lead to litigation for recovery of damages, which carries great risks. The correct approach is: when there is no possibility of delivery for the property, in accordance with Article 23 of the Judicial Interpretation of the Sale of Commercial Housing, initiate litigation or arbitration to request the termination of the sales contract and the guarantee loan contract simultaneously; after the court issues a judgment of termination, the responsibility for repaying the remaining loan will be borne by the developer, and the owner can legally suspend the loan without constituting a breach of contract. If the developer has entered bankruptcy, the owner can simultaneously file a claim for creditor's rights and promote the termination of the contract, and claim from the bank to suspend the loan based on the effective legal documents. It is essential to retain evidence such as the suspension of construction, reminders to deliver the property, and negotiation records to prove that the owner has fulfilled his obligation to mitigate losses. It is strictly prohibited to suspend the supply of funds without obtaining a termination notice first.

Q3: Can my house still be delivered during the bankruptcy restructuring of the developer?

It's possible, depending on the restructuring plan and funding. The purpose of bankruptcy restructuring is to resume construction and deliver the project by introducing investors and activating assets. If the restructuring plan is approved by the court and there is special funding (such as loans for ensuring on-time delivery), the sold houses can resume construction and delivery according to the schedule, and the owners can continue to fulfill their contracts and cooperate with the follow-up procedures. However, if the restructuring fails and proceeds to liquidation, or if the project has no value for resuming construction, delivery will be impossible, and the owners should turn to terminating the contract and declaring their claims. Owners enjoy the right to information and voting rights in the restructuring process, and should actively participate in and raise objections to the restructuring plan that involves their own rights and interests. At the same time, they should evaluate the pros and cons of continuing to wait for delivery and promptly terminating the contract to avoid missing the best time for declaring claims and terminating the contract, resulting in double losses of the down payment and loans.

Q4: If the developer goes bankrupt, can I get back the down payment I've already paid and the loans I've repaid?

Claims can be asserted through bankruptcy creditor declarations, but the amount that can be recovered depends on the bankruptcy estate and the priority of creditor claims. After the contract is rescinded, the developer shall return the paid purchase price (including the down payment and the part of the loan principal and interest corresponding to the purchase price that the owner has already repaid) to the owner. This right to return shall be declared as a creditor claim in the bankruptcy proceedings; if the loan contract is rescinded simultaneously, the developer shall also return the remaining loan to the bank. Generally, the creditor claims of home buyers are ordinary creditor claims in bankruptcy liquidation, which take priority over shareholders but are subordinate to secured creditor claims and employees' and tax claims. The actual recovery rate is affected by the asset situation. Owners should timely declare their claims within the creditor declaration period determined by the court, and submit materials such as contracts, payment receipts, and rescission judgments. If they have objections to the amount of creditor claims confirmed by the administrator, they should file a lawsuit for creditor claim confirmation in accordance with the law to avoid losing their rights due to exceeding the time limit.

Q5: What are the consequences of a supply disruption, and how can I minimize the losses?

The consequences of unilaterally stopping loan repayment are severe: the bank will charge penalty interest according to the loan contract, report the borrower's bad credit record, and even sue the borrower to demand early repayment of the entire loan and auction the collateral (houses). Homeowners may lose their homes and be burdened with debts. The legal way to reduce losses is to first terminate the contract and then stop loan repayment: after confirming that there is no possibility of delivering the property, the borrower can sue to terminate the sales and loan contracts in accordance with Article 23 of the Civil Code and the Judicial Interpretation of the Sale of Commercial Houses. Based on the effective judgment, the borrower can claim from the bank to stop loan repayment, which does not constitute a breach of contract or affect the borrower's credit record at this time. At the same time, the borrower should promptly file a claim with the bankruptcy administrator to recover the payment. If the project is still under restructuring and construction and there is hope of delivery, it is more cost-effective to continue to fulfill the contract. Regardless of which path is chosen, the borrower should send written notices, fix evidence of the suspension of construction, keep all documents, and apply for property preservation when necessary to prevent the developer's assets from being further lost. 未经授权中断供款的后果非常严重：银行将按照借款合同约定收取罚息、上报不良信用记录，甚至起诉要求提前清偿全部贷款并拍卖抵押物（房屋），业主可能既失去房又背负债务。减少损失的合法途径是先解除合同，再停止贷款：确认楼盘无交付可能后，依据《民法典》和《商品房买卖司法解释》第23条起诉解除买卖与贷款合同，以生效判决为依据向银行主张停止贷款，此时停止贷款不构成违约、不影响征信。同时及时向破产管理人申报债权，争取返还已付款。若项目仍在重整续建、有望交付，则继续履约更划算。无论哪条路，都应书面催告、固定停工证据、保留所有文书，必要时申请财产保全，防止开发商资产进一步流失。

This article is written based on the common judicial interpretations in the Beijing area. If the case occurs in other regions, it is recommended to consult local lawyers to verify the regional differences.

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 limits. →Legal services for real estate transactions·Beijing Henglu Law Firm