A property mortgage is one of nine (09) measures to ensure the performance of civil obligations, which are governed by Vietnamese law. Measures to ensure the fulfilment of civil obligations not only mean limiting the risks that may occur in transactions but are also currently used in many areas of commerce, especially to minimize risks and ensure the performance of contractual obligations between enterprises. To find out more about the legality of this guarantee, read the article below:
The Civil Code defines the property mortgage as follows: “Property mortgage means a party’s use of property under its ownership to secure the performance of obligations and not hand over the properties to the other party.”
Enterprises that want to participate in a property mortgage transaction must meet the same conditions as the subject of other transactions such as: Being legal entity under Vietnamese law and joining in property mortgage transactions for purposes not contrary to law provisions. Enterprises often mortgage property owned by the enterprise to serve the purpose of secured loans, ensure the performance of contractual obligations when entering into contracts with other enterprises, etc. The property used in property mortgage transactions is also the property under civil law and other regulations, including objects, money, valuable papers, and property rights. The property includes real estate and movable assets, which may be existing or future properties, whether tangible or intangible. Mortgaged property must meet certain conditions, including: (i) the mortgaged property must be in the possession of the enterprise, except for the cases of lien on property or title retention; (ii) the enterprise may directly or authorize another person to conduct mortgage transactions; (iii) the mortgaged property may be existing or future assets, including real estate, excluding land-use rights (Point c, Clause 2, Article 4, Decree No. 163/2006/ND-CP amended and supplemented by Decree No. 83/2010/ND-CP, Decree No. 05/2012/ND-CP and Decree No. 11/2012/ND-CP); (iv) The mortgaged property may be generally described, but must be identified; (v) The value of the mortgaged property may be equal to, greater than or less than the value of the guaranteed obligation. Mortgaged property may be used to secure the performance of multiple obligations if, at the time of the establishment of mortgage transactions, the value of the insurance is higher than the total amount of the secured debts. In this case, the enterprise using the Mortgaged of property is obliged to notify the later Mortgaged property recipients of the previous mortgage transactions. In addition, if documents related to the establishment of the mortgage property rights of an enterprise are held by the mortgagee, the enterprise must notify the mortgagee.
Mortgage of property transaction must be made in writing and takes effect from the time of conclusion unless otherwise agreed. When entering into a mortgage contract, the more legal issues a business clarifies, the less likely it is that a dispute will occur. After the parties enter into a mortgage contract, the mortgage enterprise may retain the property, or a third party holds it according to the parties’ agreement. Therefore, the mortgagor has the right to exploit the utility, enjoy the yield and profit from the mortgaged property. Thus, the mortgagee wants to receive both yields and profits as collateral, and it must agree in the mortgage contract that it also belongs to the mortgaged property.
The mortgagor may invest in the mortgaged property, which has the right to keep to increase the value of the mortgaged property, exploiting its utility, leasing, or lending the mortgaged property. These rights of the mortgagor are specified in civil law by the mortgagor. Therefore, the mortgagee has no right to restrict the mortgagee from doing the above. If this agreement is contrary to the law, this provision will likely be invalid. However, the right to invest in the mortgaged property of the mortgagor would be a risk for the mortgagee when the mortgagee is free of rights without the consent of the mortgagee. Also, the investment in collateral is likely not to increase the value of the property. But the worse situation may be that the cost of the insurance reduces. Since then, the decline in the value of the collateral will make the security transaction no longer highly secure when the mortgagor violates the contract. The solution for businesses that are mortgagees is to bind the mortgagor with a strict contractual clause that stipulates that the mortgagee wants to lease, invest, renovate, or the mortgagees must approve even. The exploitation and use of mortgaged properties. Also, the mortgagor is not entitled to sell the property, except in the case of sale to pay off the debt for the mortgage obligation.
Mortgages of property is a measure often applied by businesses in the course of their business activities. Therefore, understanding the nature of this type of transaction helps companies limit the risks that may arise during the contract performance and ensure the interests of their business.
If you have any questions or require any additional information, please contact Apolat Legal – An International Law Firm in Viet Nam.
This article is for general information only and is not a substitute for legal advice.