Criteria for Determining the Risk of Damage to the Mortgage in the Transfer of the Collateral

The abstract expression of “the possibility of damage to the mortgage” in Article 406(2) of the Civil Code makes the criteria for its determination unclear, so that there are authorized legal loopholes. In the past, there were three standards for identifying this issue: the act of transfer itself is detrimental to the mortgage right, the act of transfer violates the agreement prohibiting the transfer of the mortgaged property, and the transfer of the mortgaged property is not notified to the mortgagee, but there are some barriers of interpretation that cannot be eliminated in the interpretation process. The reasonable path lies in constructing the basic explanatory framework of the exercise of the mortgage right and the scope of the payment of the mortgage right, deconstructing the element of possible impairment of the mortgage right by extracting flexible evaluation elements such as the proportionality of the cost of realizing the mortgage right to the security interest, the limit of the recourse of the mortgage right, and the scope of the payment of the mortgage right. Thus, the risk of impairment of mortgage should be determined from two levels: firstly, the obstacles of the exercise of mortgage, which is manifested by the extinction of the recourse of mortgage and the obstruction of the recourse of mortgage; secondly, the impairment of the scope of payment of mortgage, which is manifested by the serious impairment of the value of mortgaged property and the transfer of mortgaged property in a gratuitous or unreasonably low price.