A bought a flat from Developer S under a pre-sale contract and paid over RMB 6 million in full. S delivered the flat, A let it to a tenant, but S never gave notice to complete registration of title and instead mortgaged the flat to a pawn company, F.

Issue

Whether F, as a professional lender, acquired a valid mortgage over a flat that had already been sold and delivered.

Outcome

The firm argued that F failed its duty of prudent examination: as a professional institution it should have inspected the property, discovered the tenant in occupation and excluded the existence of a prior sale. The court accepted that a lender cannot acquire priority by ignoring facts visible on inspection.

Note

For buyers, the lesson is to register the pre-sale contract without delay; for lenders, physical inspection is not a formality but the basis of security.