Limits of the Application of Preemption License in Real Estate Financing Agreements

Real estate financing agreements constitute a distinctive mechanism that facilitates individuals in obtaining funding for the purchase, construction, or renovation of properties. This mechanism typically involves three parties: the seller, the financier, and the investor. The legislator has designed this structure to offer an attractive legal and financial position for the investor, thereby encouraging investment in real estate—whether for residential or other purposes—which in turn contributes to the vitality of the property market.

However, a significant legal obstacle may hinder the effectiveness of these agreements: the right of preemption (shuf‘a). Of the scenarios addressed in Article 936 of the Civil Code, only the case involving neighboring property ownership appears applicable in the context of real estate financing. An adjacent property owner may seek to exercise this right to replace the investor in the purchase, leading to a conflict of interest. This situation presents a legal challenge that may ultimately undermine the very objective of the real estate financing system.

In the first chapter of this study, we examine the distinctive features of acquiring property through real estate financing and its advantages over comparable financing mechanisms. These features justify the need for legal protection and the safeguarding of the interests of all parties involved. We then clarify the core legal dilemma and analyze the implications of the conflict between the preemptive right of the neighboring owner and the investor's interest in acquiring the same property.

The second chapter explores possible approaches to resolving this conflict. First, we consider existing legal mechanisms that may serve as viable alternatives to the real estate financing model—mechanisms that achieve similar objectives without exposing the buyer to the risk of a preemption claim. Additionally, we propose legislative reforms that could help prevent such conflicts and enhance legal certainty in real estate transactions.