Taking advantage of the borrower's urgent need for money, lenders often require loan security by handing over a land use right certificate or making a signed and notarized land use right transfer contract with a larger value than the loaned asset. Once a borrower fails to meet its debt repayment or interest payment obligations, the borrower may lose his or her property.
Specifically, in Judgment 97/2019/DS-PT dated June 19, 2019 on disputes over property loan contracts, property recovery, request for cancellation of land use right transfer contracts, and cancel a part of the land use right certificate with the following contents:
“On August 2013, Ms. T's brother-in-law, Mr. N, borrowed Ms. T and Mr. H's land use right certificate to mortgage the loan. Mr. N said he and she went to notary B's office to do notarization procedures. Because Mr. N said this is an acquaintance and trust to mortgage money.
Therefore, on August 29, 2013, Mr. C, and Ms. L received the transfer of Mr. H and Mrs. T, the land plot number 179, map sheet 32, area 108.5m2 in neighborhood H, ward T, city B for 200,000,000 VND. The contract is notarized by Notary B's Office No. 4517. The purpose of signing the contract is to ensure that Mr. N can borrow money, not to buy and sell real estate.
On September 27, 2014, Mr. C and Ms. L carried out the procedures to transfer their names and put their names on the certificate of land use rights for the above land plot. After receiving the transfer many times, Mr. C and Mrs. L suggested Mr. T and Ms. H move to another place and hand over the house.
On June 8, 2015, Ms. T and H filed an independent lawsuit requesting the cancellation of the land use right transfer contract signed on August 29, 2013 and requesting to cancel the adjustment part of the land use right certificate. land granted to Mr. C and Mrs. L because of a fake contract ."
In the first-instance judgment No. 88/2018/DS-ST dated November 12, 2018, the People's Court of City B decided: Cancel the contract of transferring the land use right no. 179, map sheet 32, ward T, City B signed between Ms. T, Mr. H, and L, Mr. C certified by Notary Office B on August 29, 2013. At the appellate level, the People's Court of Dong Nai province annulled the first-instance judgment 88/2018/DS-ST because the first-instance court had not collected enough evidence to clarify the relationship between the loan contracts property and land use right transfer contract.
The establishment of a contract for the transfer of the house and land use rights as security to borrow the property is potentially risky for the borrower and for the parties involved in or related to the transaction. However, this activity is still very popular. Clarifying the legal issues of the two contracts above has important implications for lenders, and borrowers, and in the practice of resolving disputes for loan transactions with collateral as the right to use real estate.
Vietnamese law clearly states:
Article 463. Contracts for loan of property
"Contract for the loan of property means an agreement between parties whereby a lender delivers property to a borrower. When the loan falls due, the borrower must repay the lender property of the same type in accordance with the correct quantity and quality, and must pay interest if so agreed or so provided by law."
Therefore, the subject participating in the property loan transaction is an individual or an organization; the form of loan contract can be written or oral; the loan contract interest rate as agreed between the parties but must not exceed 20%/year of the loan amount, specified in Clause 1, Article 468 of the Civil Code 2015 of Vietnam
Regarding land use right transfer contracts, the 2015 Civil Code stipulates:
Article 500. Contract of land use rights
"The contract of land use rights means the agreement between the parties that the land user convert, transfer, lease, sublease, donate, mortgage and contribute land use rights as capital or exercise other rights to the other party as prescribed in the Law on land; and the other party shall exercise rights and perform obligations according to the contract to the land user."
In addition, the contract on land use rights must be made in writing in a form consistent with regulations and notarized and authenticated.
If considering these contracts independently, the signatories usually ensure the form of the contract, meeting the conditions for legal effect. However, the concurrent signing of these two types of contracts is often the use of one contract to conceal another. In a property loan transaction secured by a land use right transfer contract, it can be seen that the parties actually want to perform the property loan contract, but it is shown outside as a purchase and sale (transfer) contract. Thus, at the time of signing, there was a conflict between the will and the manifestation of the will.
Article 124. Invalid civil transactions due to forgery
" 1. When the parties artificially establish a civil transaction in order to conceal another civil transaction, the forged civil transaction shall be invalidated, while the concealed civil transaction shall remain valid, except for the following cases: such transaction is also invalid under the provisions of this Code or other relevant laws.
2. In case a fake civil transaction is established in order to evade obligations towards a third party, such civil transaction shall be void."
In fact, the use of contracts to buy, sell, and transfer real estate use rights to secure a property loan contract brings many risks to the borrower and the parties involved in this transaction. In case, the borrower fully fulfills the debt payment and interest obligations under the property loan contract, the recovery of the house and land use right certificate or the request to declare the real estate transfer contract is not It must be easy because signing a real estate transfer contract is legal, the notary office also works according to the law when the parties have all the documents according to the law. Moreover, the settlement process to come to a judgment declaring a contract void can take up to several years because it is important to assess which contracts are fake, which ones are real, and Whether the parties are completely voluntary or forced to sign the contract is very difficult and time-consuming. Because the property loan contract is still valid when the agreement is made orally, while the real estate transfer contract needs to be notarized and authenticated, it is quite difficult to prove that the property purchase and sale contract is fake. Not to mention, other risks may arise such as during the time when the borrower of the property performs the obligation, the secured party can perform contracts to mortgage the property to secure another loan or transfer the property to another entity.
The lender is the beneficiary in this transaction because the property loan contract is often worth much less than the value of the real estate transfer contract. However, if there are signs of forging or forcing the signing of a house and land transfer contract, this contract may be declared invalid, or more serious if there is a threat of force to force the borrower to finance the transaction. If the property signs a security contract, it will violate the criminal law.
In conclusion, to ensure the interests of the borrower and avoid troubles for the parties in the future, the entities involved in this transaction need to clearly state in the contract the loan amount, mortgaged property, agreement on payment term, settlement of property when one party fails to properly perform contractual obligations. The implementation of transactions in accordance with the law is to protect their own interests as well as contribute to the management of the State.