Inheritance division for mortgaged houses and land in Vietnam

Specifically, in the Appellate Civil Judgment No. 36/2019/DS-PT dated March 21, 2019 on the dispute over the division of inheritance of land use rights, the content is as follows:

“During their lives, Mr. M and Mrs. K together created a number of assets including plot 66, map sheet 124, area 2,617.9m2; plot 106, map sheet 20, area 3,038.9m2; plot 1016, map sheet No. 01, area 25,410m2. During his life, Mr. M borrowed VND 150,000,000 from Vietnam Bank for Agriculture and Rural Development, branch of Thanh B district, Dong Thap province, and mortgaged the land use rights of plots 1014 and 1016.

Mr. M and Mrs. K died without leaving a will, and their children disagreed on the agreement to divide the estate left by their grandparents. Mr. R (son of Mr. M, Mrs. K) filed a lawsuit to ask the Court to divide the inheritance and repay the bank debt. In the first-instance judgment, the Court divided the estate into eight equal parts of the land, but the involved parties disagreed with the judgment, so they have to appeal to the Court of Appeal."

The People's Court of Dong Thap province said: From the facts and contents of the judgment, there are enough grounds to conclude that the first-instance judgment that the above land is heritage has a legal basis; but decided the division is not appropriate, should accept part of the appeal, readjusted in the direction of using the estate as land to fulfill the obligation to repay the Bank of Vietnam. Therefore, it is necessary to partially amend the first-instance judgment in the direction of the above statement.

Currently, the Civil Code does not have any provisions prohibiting the division of inheritance of property being mortgaged land use rights at banks or credit institutions. However, according to the provisions of the Civil Code 2015 of Vietnam, the death of an individual mortgaging the land use rights in his/her name at the Bank does not terminate the mortgage contract, the contract terminates only in the case of the death of the individual entering into the contract, but the contract must be performed by that individual.

Article 422. Termination of contracts

A civil contract shall terminate in any of the following cases:

1. The contract has been completed;

2. The parties so agree;

3. Where a contract is only able to be performed by a particular natural person or juridical person having entered into the contract, and that particular natural person dies or that juridical person ceases to exist.

4. ...

Therefore, the Court performs the division of inheritance in a normal way. The heirs are responsible for performing property obligations within the estate left by the deceased unless otherwise agreed.

Article 615. Performance of property obligations left by deceased

1. A person entitled to an inheritance has the responsibility to perform the property obligations within the scope of the estate left by the deceased, unless otherwise agreed.

2. Where an estate has not yet been divided, the property obligations left by the deceased shall be performed by the administrator of the estate as agreed by the heirs.

3. Where an estate has already been divided, each heir shall perform those property obligations left by the deceased corresponding to, but not exceeding, that part of the estate that the heir has inherited, unless otherwise agreed.

4. Where the heir inheriting an estate under a will is not a natural person, it must perform the property obligations left by the deceased in like manner as a natural person.

Because the property is a house and the land use right has been mortgaged at the bank, the division of land is not appropriate. In practice, the valuation of land-use-property assets is very difficult to be close to the market price, which is often lower, because the market price of housing and land fluctuates continuously, making it difficult to value the estate. When dividing value without dividing in kind, it will cause difficulties in judgment enforcement and affect the legitimate rights and interests of involved parties. However, the valuation of assets and difficulties in judgment enforcement can be overcome, so the Court often recognizes the performance of the mortgage contract and divides the inheritance by valuing assets to serve as a basis for determining the share of each inheritance rate, dividing it by the plaintiff in kind, and dividing it among other heirs by value. Accordingly, the recipient in kind is responsible for paying back the corresponding value to other heirs and continuing to perform the mortgage contract with the Bank.

The method of dividing the inheritance of the Court as above is to ensure the correct implementation of the law, without affecting the legitimate rights and interests of the parties and for the Bank.

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