Among all credit-related activities nowadays, asset-based mortgages have increasingly become one of the most popular methods to obtain loan capital. Although there are many types of assets can be used to secure loans, banks prefer to accept mortgage in real estate due to its distinctive characteristics such as high value, scarcity and immovability which make it easier for banks to collect and settle debts compared to movable assets.
Furthermore, these characteristics can sometimes expose mortgagors to a variety of risks and losses while undertaking loan agreements. For that reason, in order to guarantee their rights and achieve the intended outcome in the transaction, the mortgagor and mortgagee should comprehend the mortgage requirements, processes and procedures, especially real estate mortgage registration.
What is real estate mortgage?
Mortgage of property is one of the types of security for performance of obligation specified in the Civil Code 2015. According to Article 317 of the Civil Code 2015, a mortgage is “the use by one party (hereinafter referred to as the mortgagor) of property under its ownership 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.” Thus, the parties can use property, including real estate, as collateral for mortgage.
Real estate as collateral for mortgage includes land, houses, construction works under investment projects on housing construction; separate houses and other construction works, other assets attached to land, houses and construction works. These real estates may be ready or off plan.
Please note that, as defined in the Law on Real Estate Trading, land use rights are not off-plan real estate.
Conditions for the exercise of the rights to mortgage land use rights
According to Article 188 Land Law 2013, the land use rights are applicable to collateral for mortgage when fully meeting the following conditions:
- Having the land use rights certificate;
- The land is not in dispute;
- The land use rights are not distrained to secure judgment enforcement;
- The land within the land use term.
Registration land use rights, property on land as mortgages
According to Decree 99/2022/ND-CP (officially in effect since 15 January 2023), the following mortgages are subject to registration:
- Mortgage of land use rights;
- Mortgage of houses, land-attached assets whose ownership has been stated in the certificate of land use rights, ownership of houses and other land-attached assets;
- Mortgage of the project on housing construction, construction works being not houses, agricultural investment project, forest development project, or other investment project that uses land and land use rights assigned by the State with land use levy imposed or leased out in the form of lump-sum payment for the entire lease period.
In addition to 03 circumstances above, mortgage of off-plan houses, land-attached assets are also subject to registration if there are requests.
Procedures for real estate mortgage registration
Step 1: Application preparation
Applications for registration of mortgage of real estate includes:
- An application form for registration;
- A mortgage contract or a notarized/certified mortgage contract as per law;
- An original certificate of land use rights, ownership of houses and other land-attached assets or one of the certificates specified in the Land Law with equivalent legal validity;
- Other documents suitable to each type of immovables.
Step 2: Submission
Real estate mortgage applications can be submitted in four ways: (i) the online application system, (ii) in person, (iii) by postal service, and (iv) by email. The applicant can submit the application at:
- Land registry office.
- People’s Committee of commune, ward, township (“the People’s Committee of commune”).
- Department of reception and result return of administrative procedures, the provincial-level public administration service center (“Single-window division”).
Step 3: Application handling
If the application is received up to 15:00: The handling will be done on the date of receiving valid dossiers.
If the application is received after 15:00, the registration and provision of information shall be completed within the next working day; with a possible extension up to 03 working days if necessary.
The registration of land use rights and property on land is valid from the time when the registry records and updates the registered information in the cadastral register; the registration of off-plan houses, land-attached assets as mortgages valid from the time when the registry records and updates the registered information in the Register of mortgage of off-plan land-attached assets.
Step 4: Returning the result
Results of registration shall be returned to the applicant by any of the following methods:
- In person at the registry authority.
If the application was submitted at the Single window division or the People’s Committee of commune, the applicant for registration shall receive results at these authorities.
- By postal service.
- Other methods in accordance with laws or as agreed upon by the registry and applicant.
Circumstances that may occur after registration of mortgage
The settlement of the mortgaged property arises when the secured obligation is not performed within the allowable time limit.
According to Article 303 of Civil Code 2015, methods of collateral settlement including:
- Put collateral up for an auction
- The secured party sells collateral itself
- The secured party accepts the collateral as substitutions for the performance of obligations of the securing party
- Other methods
In the event that the parties do not have an agreement on the method of mortgage settlement, auction will default to mortgage settlement.
The sum obtained from the settlement of the mortgaged property after deducting from the cost of preservation, capture and settlement of the collateral shall be paid in order of priority specified in the principles and provisions of Civil Code 2015.
The sum obtained from the settlement of the mortgaged property after payment of the costs of preservation, seizure and settlement of the mortgaged property, shall be paid in order of priority between the parties jointly receiving the mortgaged property in accordance with the following principles and regulations prescribed in the Civil Code 2015.
Deregistration of mortgaged property
Mortgage deregistration (also known as mortgage release) is an administrative procedure that the applicant carries out with the competent authority in order to terminate the mortgage registration.
The applicant shall apply for deregistration in any of the following cases under Article 20.1 of Decree No. 99/2022/ND-CP:
- As agreed between the grantor and the secured party.
- The entire secured obligation is terminated.
- The entire or part of the content of the security contract is cancelled but the cancelled content contains the registered security interest.
- The registered security interest is replaced by another security interest as agreed between the grantor and the secured party.
- The collateral has been completely settled by the secured party in accordance with the law on performance of obligations or has been settled by civil judgment enforcement authorities in accordance with the law on civil judgment enforcement.
- Other methods in accordance with the laws.
At that time, the mortgage registrant needs to carry out the order and procedures for deregistration of mortgage in accordance with the law.
Note: This article is provided for reference purposes only and does not constitute legal advice. Depending on each specific matter from time to time, the content presented above may no longer be appropriate. For detailed advice, please contact LMP Lawyers.