The disposal of mortgaged property is an important legal process to protect the lender’s rights when the borrower fails to perform repayment obligations. Proper disposal in accordance with legal provisions ensures fairness and transparency in credit transactions. At the same time, it contributes to maintaining financial market stability and legal safety for all involved parties. Below, NPLaw presents an overview of the legal framework governing the disposal of mortgaged property.
I. Current situation of mortgage disposal in Vietnam
At present, the disposal of mortgaged property in Vietnam has several difficulties and limitations. The process often takes a long time due to complex legal procedures, lack of coordination among competent authorities, and limited capacity in the management and handling of secured property.
In addition, disputes arising during the disposal process are sometimes not resolved in a timely manner, affecting the legitimate interests of the parties involved. The lack of transparency and incomplete information also reduces the efficiency of mortgage disposal, making it difficult for credit institutions to recover debts and impacting the overall credit market.
II. Legal provisions on the disposal of mortgaged property
1. What is a mortgaged property?
According to Clause 2, Article 317 of the Civil Code 2015, a mortgaged property is a property used by the mortgagor to secure the performance of obligations without transferring possession of such property to the mortgagee.
2. When is a bank entitled to dispose of mortgaged property?
Pursuant to Article 299 of the Civil Code 2015, a bank (or secured party) is entitled to dispose of mortgaged property in the following cases:
- The obligation becomes due and the borrower fails to perform or improperly performs it;
- The borrower is required to perform the obligation earlier due to a contractual breach;
- Other circumstances as agreed by the parties or prescribed by law.
Accordingly, the bank has the right to dispose of the mortgaged property when the borrower breaches the contractual obligations or as otherwise agreed or stipulated by law.
3. How is a property mortgaged to multiple banks disposed of?
Under Article 296 of the Civil Code 2015, if a property is mortgaged to several banks, disposal shall be implemented as follows:
- A property may secure multiple obligations if its value exceeds the total secured obligations (unless otherwise agreed or provided by law). Each mortgage must be made in writing, and the mortgagor must notify subsequent mortgagees of the prior mortgage.
- When the property is to be disposed of, all obligations, including those not yet due, shall be deemed due. All mortgagees (banks) have the right to participate in the disposal process. The bank notified about the disposal shall take primary responsibility, unless otherwise agreed.
If the parties do not wish to dispose of obligations not yet due, they may agree to substitute other assets as security to avoid disposing of the jointly mortgaged property.
III. Questions about the disposal of mortgaged property
1. When may the mortgagor reclaim the mortgaged property?
Pursuant to Article 57 of Decree No. 21/2021/NĐ-CP, the mortgagor is entitled to reclaim the mortgaged property from the bank in the following circumstances:
- The obligation has been fully performed before the disposal process;
- The mortgaged property has been replaced or exchanged with another asset;
- The obligation has been settled through set-off;
- Other cases as agreed or provided by law.
2. What are the methods of disposal of mortgaged property by banks?
Article 303 of the Civil Code 2015 allows the mortgagor and mortgagee to agree on the method of disposal in case the obligation is not duly performed. Disposal methods include:
- Property auction;
- Direct sale by the mortgagee;
- The mortgagee accepting the property in lieu of obligation performance;
- Other agreed methods.
3. How to handle mortgaged agricultural land whose land use term has expired in credit contract disputes?
According to Official Letter No. 196/TANDTC-PC dated July 4, 2023 of the Supreme People’s Court, guidance on resolving cases involving mortgaged agricultural land whose land-use term has expired in credit contract disputes is as follows:
- Under Clause 1, Article 188 of the Land Law 2013 (now repealed by Point d, Clause 1, Article 45 of the Land Law 2024), one of the conditions for mortgaging land-use rights is that the land must still be within the valid use term. If, at the time of signing the mortgage contract, the land-use term stated in the Land Use Right Certificate had expired and had not been renewed, the mortgage contract shall be deemed invalid for violating the condition regarding land-use duration. In such cases, the Court will declare the mortgage contract void and address the legal consequences in accordance with the law.
Where the mortgage was valid at the time of signing, but by the time of trial the land-use term had expired, the Court must request information from competent authorities regarding whether the land-use term has been renewed. If renewal has been granted or is under consideration, the mortgage contract remains legally valid. If not renewed, the Court must reassess the security value and handle it in accordance with provisions on replacement or disposal of secured property, or determine that the mortgage has lost its security value.
IV. Legal consultancy services on the disposal of mortgaged property
The foregoing article by NPLaw provides an overview of legal provisions governing the disposal of mortgaged property. With a team of experienced lawyers and legal professionals, NPLaw is always ready to accompany, advise, and support clients in all matters related to mortgage disposal. For legal assistance, please contact NPLaw.
