Understanding Property Title Defects and Mortgages

Lands Department will issue a warning letter and require correction within a specified period if it confirms that the owner has violated the land lease terms (such as non-compliant use, unauthorized structures, etc.); if not rectified by the deadline, this warning letter can be registered at the Land Registry, commonly known as "imposing an encumbrance". This is a risk alert: the property has unresolved legal/administrative procedures, which will affect buying, selling, and mortgages.

Q1｜Can a property with a title defect be used for mortgage financing?

Yes, but it is more difficult. Each bank has different risk policies and varying attitudes towards properties with title defects; common situations include:

• Direct rejection
• Require removal of the title defect first (approval to be reviewed after completion)
• After clearing the defect, adjust the loan-to-value ratio and terms based on the situation

Q2｜Can a property under encumbrance be bought and sold?

Yes—the key lies in the cause and severity of the encumbrance, and whether the buyer needs a mortgage. Common causes include unauthorized structures, monetary disputes, etc. If it involves issues not related to structural safety that can be quantified and handled (such as non-structural unauthorized structures, unpaid management fee memoranda), and the prospective buyer, after assessing the cost and timeline for demolition/repayment and consulting a lawyer's opinion, is willing to take on the risk, the transaction can still proceed as usual; the price generally reflects the related risk (discount). But note: future mortgages or resales may still be restricted.

Conversely, if the encumbrance involves high-risk or statutory orders (such as pending litigation, building orders, land lease breaches, etc.), even for cash transactions, future bank approvals and the ability to transfer to the next buyer may be affected, and a discount does not mean risk-free.

Q3｜How to "Remove a Covenant"?

• Resolve the Cause: Such as paying off debts, completing and reviewing building orders, withdrawing lawsuits, lifting charges, etc.
• Obtain Proof: Payment receipts and withdrawal memoranda, Buildings Department closure letters/review approvals, court withdrawal/dismissal orders, charge release documents, etc. (depending on the case).
• Solicitor Registration: Submit the above documents to the property solicitor handling the transaction for registration with the Land Registry (commonly known as "lodging"). After registration is completed, the latest search will show that the relevant covenant has been withdrawn/removed.

Once the cause of the covenant is properly resolved and registration is completed, mortgages can usually be handled as normal cases.

Q4｜How long does removal take? Is it always successful?

• Time: Depends on the cause—arrears-related cases are usually faster; building orders involve repairs and re-inspections, taking longer; litigation cases depend on withdrawal of the lawsuit/court procedures.
• Success: Depends on whether the actual cause is eliminated, and whether the documents are sufficient, correct, and registrable; this is why oversight by a practicing lawyer is necessary.

First check the land registry, first clear the encumbrance, have a lawyer complete the deregistration and simultaneously communicate with the bank—after risks are eliminated "documentarily", the property and mortgage can usually be handled like ordinary cases.