Critics of the current real estate lien system have been taking issue with its adverse effect that it de facto allows the highest priority in repayment to lienholders even though a lien is not publicly registered in the real estate registry.

In response, on January 16, 2013, the Ministry of Justice made a legislative announcement of a proposed partial amendment to the Civil Code (the “Proposed Amendment”), stating the reasons as follows: “Not only do liens create unpredictable losses to third parties since they de facto allow priority in repayment even though liens are not publicly registered in the real estate registry, it has also been pointed out that [the lien system] has the problem of reducing socio-economic utility since others cannot use and enjoy the real estate during the occupation by the lienholder, and [this proposed amendment] is intended to restrict the scope of application of the lien system, while, on the other hand, to establish separate protective measures for creditors whose position has deteriorated from the loss of lien rights.”

The key provision of the Proposed Amendment is the recognition of a right to establish a mortgage substituting the lien rights to registered real estate.  In cases where the relevant real estate is not registered, lien rights to such unregistered real estate are recognized temporarily, until the registration of the establishment of mortgage has been completed or until the right to establish a mortgage has lapsed.

Set forth below is an overview of the implications of the Proposed Amendment if it is adopted.

Click here to see table.