Mortgages on property according to Vietnam legal regulations

Mortgage on property is a imprtant type of security for performance of obligations. Let’s find out this issue with Lawyer X through the following situation: “Dear Lawyer! I want to ask what does mortgage of property mean in Vietnam? What are regulations on mortgaged property? Thanks for answering me!”

Legal grounds

2015 Vietnam Civil Code

What is mortgage of property?

– Mortgage of property means the use by one party (hereinafter referred to as the mortgagor) of property under the ownership of the obligor as security for the performance of an obligation to the other party (hereinafter referred to as the mortgagee) without transferring such property to the mortgagee.

– The mortgaged property shall be held by the mortgagor. The parties may agree to deliver the mortgaged property to a third person to hold.

Regulations on mortgaged property

– Where entire immoveable property or moveable property having auxiliary objects is mortgaged, such auxiliary objects shall also form part of the mortgaged property, unless otherwise agreed.

– Where a portion of immoveable property or moveable property having auxiliary objects is mortgaged, such auxiliary objects shall also form part of the mortgaged property, unless otherwise agreed by the parties.

– With respect to mortgage on land use rights that property on land is owned by the mortgagor, such property shall also part of the mortgaged property, unless otherwise agreed.

– Where mortgaged property is insured, the mortgagee must notify the insurer that the insured property is being mortgaged. The insurer shall pay the insured sum directly to the mortgagee upon occurrence of an insured event.

If the mortgagee failed to notify the insurer that the insured property was mortgaged, the insurer shall pay the insured sum in accordance with the insurance contract and the mortgagor shall be obliged to make payment to the mortgagee.

Effectiveness of mortgage of property

– Agreement on mortgage of property shall take effect from the time of concluding, unless otherwise agreed or prescribed by law.

– The mortgage of property shall take effect against third party from the time of registration.

What are obligations of mortgagor?

– Transfer documents related to the mortgaged property, unless otherwise agreed or prescribed by law.

– Take care of and preserve the mortgaged property.

– If the mortgaged property is in danger of losing its value or depreciating in value due to its exploitation, to take necessary remedial measures, including ceasing the exploitation of the mortgaged property.

– When the mortgaged property is damaged, the mortgagor is obligated to, within a reasonable period, repair or substitute another property with equivalent value, unless otherwise agreed.

– Provide information about the actual condition of the mortgaged property to for the mortgagee.

– Deliver the mortgaged property to the mortgagee for realization in one of the cases prescribed in Article 299 of Civil Code.

– Notify the mortgagee of any third person rights with respect to the mortgaged property (if any). In the case of failure to provide such notice, the mortgagee shall have the right to cancel the contract of mortgage of property and demand compensation for damage or the right to maintain the contract and agree on the rights of the third person with respect to the mortgaged property.

– Do not sell, exchange or give the mortgaged property, except in the cases provided in Clauses 4 and 5 of Article 321 of Civil Code.

What are rights of mortgagor?

– Exploit, and to enjoy the yield and income derived from, the property, except where the yield and income also form part of the mortgaged property as agreed.

– Invest in order to increase the value of the mortgaged property.

– Recover the mortgaged property and related documents held by a third person when the obligation secured by the mortgage is terminated or is substituted by other security.

– Sell or replace mortgaged property being goods rotating during the production and business process. In the case of a sale of mortgaged property being goods rotating during the production and business process, the right to require the purchaser to pay money, the proceeds received or the assets formed from the proceeds received shall form the mortgaged property in substitution for the property which was sold.

When a warehouse is mortgaged, the mortgagor may substitute goods in the warehouse but must ensure the value of the goods in the warehouse remains the value agreed.

– Sell, exchange or give mortgaged property not being goods rotating during the production and business process with the consent of the mortgagee or as prescribed by law.

– Lease or lend the mortgaged property provided that notice must be provided to the lessee and the borrower that the property is being mortgaged and that the mortgagee must also be notified that such notice has been provided.

What are obligations of mortgagees?

– Where the parties agree that the mortgagee will hold the documents relating to the mortgaged property, to return to the mortgagor such documents upon termination of the mortgage.

– Follow procedures for realization of mortgaged property in accordance with regulations of law.

What are rights of mortgagees?

• Examine and inspect directly the mortgaged property provided that such examination and inspection does not hinder or cause difficulty to the use and exploitation of the mortgaged property.

• Require the mortgagor to provide information on the current status of the mortgaged property.

• Require the mortgagor to apply necessary measures to preserve the property and the value of the property if there is a danger that use and exploitation of the mortgaged property will cause loss of value or depreciation in value of the property.

• Conduct the registration of mortgage as prescribed by law.

• Require the mortgagor or a third person holding the mortgaged property to deliver it to the mortgagee for realization if, upon expiry of the term for fulfillment of the obligation, the obligor has failed to perform or performed incorrectly the obligation.

• Hold documents related to mortgaged property as agreed by parties, unless otherwise prescribed by law

• Follow procedures for realization of mortgaged property as prescribed in Article 299 of Civil Code.

Rights and obligations of third parties holding mortgaged property

– A third person holding mortgaged property has the following rights:

• Exploit the property if so agreed;
• Receive remuneration and be reimbursed for expenses incurred in taking care of and preserving the mortgaged property, unless otherwise agreed.

– A third person holding mortgaged property has the following obligations:

• Take care of and preserve the mortgaged property, and to compensate for any damage if the third person loses the mortgaged property or causes the mortgaged property to lose its value or depreciate in value;
• Cease the exploitation of the property if it is in danger of losing its value or depreciating in value;
• Return the mortgaged property to the mortgagee or mortgagor as agreed or prescribed by law.

Mortgage on land use rights without mortgage of property on land

– With respect to mortgage on land use rights without mortgage property on that land but the land user is also the owner of the property on land; such property shall also part of the realized property, unless otherwise agreed.

– With respect to mortgage on land use rights that the land user is not also the owner of the property on land, such owner may keep using such land within his/her rights and obligations during the realization of the land use rights. The rights and obligations of the mortgagor in relation with the owner of the property on land shall be transferred to the transferee of the land use rights, unless otherwise agreed.

Mortgage of property on land without mortgage on land use rights

– With respect to mortgage of property on land without mortgage on land use rights but the owner of the property on land is also the land user, such land use rights shall also part of the realized property, unless otherwise agreed.

– With respect to mortgage of property on land without mortgage on land use rights that the owner of the property on land is not also the land user, the transferee of property on land may keep using such property within the transferred rights and obligations from the owner of the property on land during the realization of the land use rights, unless otherwise agreed.

Termination of property mortgages

A mortgage of property shall terminate in any of the following cases:

• The obligation which is secured by the mortgage has terminated;
• The mortgage of the property has been cancelled or substituted with another security;
• The mortgaged property has been realized;
• As agreed by the parties.

Please see more:

• Instructions for exclusive registration of company logos in Vietnam
• Service of changing the legal representative of Vietnamese enterprises

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