Article 406th of the Civil Code of People's Republic of China (PRC) stipulates that the mortgagor may transfer the mortgaged property during the mortgage period. Unless otherwise agreed by the parties, such agreement shall prevail. If the mortgaged property is transferred, the mortgage right will not be affected. The new system of free transfer of mortgaged property created by Article 406 of the Civil Code has greatly promoted market transactions, simplified transaction procedures and reduced the legal risks of both parties. The core of this new system stipulated in Article 406 of the Civil Code is that the mortgaged property can be transferred freely without cancellation of mortgage registration or consent of the mortgagee (unless otherwise agreed), but after the mortgaged property is transferred, the original mortgage right still exists on the mortgaged property. This new system is undoubtedly conducive to improving the utilization efficiency of social materials, promoting the transaction of mortgaged property and reducing its transaction cost, and further promoting the free flow of social wealth resources. First, the law allows the transfer registration or delivery of property rights without canceling the mortgage registration, which greatly reduces the transaction cost of the mortgagor. According to the provisions of the Property Law and the trading behavior pattern of the previous trading market, the mortgagor must first obtain the consent of the mortgagee and cancel the mortgage registration, and generally must pay off the debts owed, such as loans and loans. If the mortgagor does not have enough funds to pay off the arrears and cancel the mortgage registration, the transaction cannot be completed. At this time, mortgage has become a factor that hinders normal market transactions. The new system provides legal possibility for eliminating this obstacle at the legal level. Secondly, the buyer's transaction risk is reduced. Taking the sale of commercial housing as an example, in the current commercial housing market, except for the absence of mortgage, many commercial housing transactions are made by the buyer paying off the loan in advance and then canceling the mortgage registration. Most buyers are worried about the seller's credit risk before the transaction, which leads to the delay of the transaction. The new system allows transactions without canceling mortgage registration, eliminating the risks and worries of buyers. After the buyer paid off the loan to the seller in advance, before the transfer, many transaction objects were sealed up by the court, which may end up with empty houses and money. The new system greatly reduces the transaction risk that the contract cannot be fulfilled after the buyer advances. Third, simplify the transaction procedures. For example, a mortgaged house must pay off the loan and cancel the mortgage registration before the transaction is transferred, and then go through the transfer procedures, and then the new owner and the bank sign a new loan agreement to handle the mortgage registration separately. This process requires a lot of manpower and material resources of buyers and sellers and banks to go through legal procedures, and each process takes a certain amount of time, and the transaction procedures are often too long and expensive. Moreover, due to the long period, before the transfer, the risk of the mortgaged property being sealed up by the court due to another lawsuit of the seller will naturally increase. After the new system comes into effect, the original mortgage still exists in the original collateral after direct transfer, which greatly simplifies the transaction process. Fourth, it conforms to the basic principles of the real right system. Mortgage is a kind of security interest. As a kind of real right, this kind of mortgage right existing in collateral has international effect once it is registered. That is, no matter how the owner changes, the mortgage as a real right will not change. This principle provides legal support for the transfer of collateral without the consent of the mortgagee. Therefore, as long as we recognize that mortgage has absolute real right effect, we should affirm the free transfer of mortgaged property. Fifth, the new system not only promotes the freedom of transaction and property transfer, but also fully protects the rights of mortgagees. Although Article 406 of the Civil Code stipulates that the mortgaged property can be directly transferred without the consent of the mortgagee. However, if the mortgagor transfers the mortgaged property, it shall promptly notify the mortgagee. If the mortgagee can prove that the transfer of the mortgaged property may damage the mortgage right, he may require the mortgagor to pay off the debt or deposit the proceeds of the transfer in advance with the mortgagee. In addition, the mortgagee and the mortgagor may separately agree to exclude or restrict the application of the new system, or change some contents of the new system in a separately agreed way, so as to fully protect the interests of the mortgagee.

Legal basis:

Article 416 of the Civil Code: Priority of chattel price mortgage guarantee The principal creditor's right of chattel mortgage guarantee is the price of collateral. If the mortgage registration is handled within 10 days after the delivery of the subject matter, the mortgagee has priority over other security interests holders of the mortgage buyer, except the lien holder.