28/07/2022 09:15

Lending a land use right certificate to borrow money, will the land be handled to repay the debt in Vietnam??

Lending a land use right certificate to borrow money, will the land be handled to repay the debt in Vietnam??

It is quite common for family members or acquaintances to borrow a Land Use Right Certificate (LURC) or otherwise known as a red book or pink book to borrow money from a bank. So, in case the borrower fails to repay the debt, will the security asset, which is the land use right, be liquidated by the bank to recover the debt? At the same time, if the mortgaged land is still owned by other people, who are not the person named on the LURC, how will it be handled, who will be the priority to be paid?

The above content is shown in Judgment 04/2017/KDTM-ST dated August 17, 2017 on the credit contract dispute of the People's Court of An Duong district - Hai Phong between D Commercial Joint Stock Bank and the Defendant is D1 Company Limited (Director is Mr. T1).

"Due to their kinship relationship with Mr. T1, Mr. V and Mrs. P1 lent the D1 company a certificate of the right to use 839m2 of land and assets attached to the land to mortgage a bank loan of 500 million VND. The mortgage has established a Land Use Right Mortgage Contract, which has been notarized and registered for a secured transaction in accordance with the law.

When company D1 failed to repay the bank's debt, it requested to handle the collateral to recover the debt, but Mr. V and Mrs. P1 disagreed because he and she did not borrow from the Bank and there were construction works on the land. The building was built and used by Mr. V's children, Mrs. P1's brothers and sisters, T2, Y, T3, N1 and T4.

The court has declared that Company D1 must pay the Bank an amount: VND 617,457,523 (principal + interest), in case Company D1 fails to perform or fails to fulfill its debt repayment obligation, the Bank has the right to request Judgment enforcement agencies have the power to distrain and sell security assets to fulfill debt repayment obligations.

The proceeds from the sale of the above assets are prioritized to be paid to the children of Mr. V and Mrs. P1, then to the Bank and, if there is any balance, returned to the mortgagor, Mr. V and Mrs. P1, if Limited Company D1 must continue to fulfill its debt repayment obligation.

Firstly , Mr. V and Mrs. P1 have signed a mortgage contract to secure the loan of company D1 which is a loan with collateral as prescribed in Article 317 of the Civil Code 2015 of Vietnam

Article 317. Mortgage of property

1. 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.


Here, Mr. V and Mrs. P1 lent the LURC to company D1 under their ownership, and together with company D1 and the bank, signed a mortgage contract for company D1 to borrow money, the signing a contract to mortgage assets to ensure that company D1 will repay the bank when the payment is due.

Secondly, when the payment is due, but the borrower has breached the debt repayment obligation, the bank has requested to handle the collateral to pay for the debt. This content is prescribed in Article 299 of the Civil Code 2015 of Vietnam

Article 299. Cases of realization of collateral

1. An obligator fails to perform or perform not as agreed an obligation when it falls due.
2. An obligator must perform the secured obligation before time limit due to his/her violation against the obligation as agreed or prescribed by law.
3. Other cases as agreed by the parties or prescribed by law.

Company D was due to pay its debt to the bank, but it violated its payment obligation and did not fully pay the principal and interest, leading to overdue debt. Therefore, the bank is entitled to request to handle the collateral to pay for the debt.

Combining the signing of a contract to mortgage the land use rights and breaching the payment obligation of company D1, the Court decided to handle the security property to recover the debt.

Thirdly, because on the land of Mr. V and Mrs. P1 there are other properties of their children and when mortgaged, these people did not sign a contract to mortgage their properties on the land, so This is not included as collateral, therefore, when handling collateral, it is necessary to give priority to paying these people first to ensure benefits.

There are two takeaways from this.

The first issue, in essence, the word "LENT" that we often hear can be explained in one of two cases:

+ The borrower is authorized by the lender (notarized) to carry out loan activities

In this case, the lender will authorize the borrower to carry out operations with the bank to carry out the mortgage and bank loan. Such as making loan contracts, property mortgage contracts...

+ The lender directly signs a mortgage contract with the bank

Similar to the case in the judgment, the LURC lender will sign a mortgage contract with the bank to secure the borrower's loan.

The second issue, the making of an authorization contract or a mortgage contract with the bank also needs to comply with some conditions for the civil transaction to take effect such as :

+ Both parties fully understand the transaction and its legal consequences, and voluntarily establish and perform the transaction;

+ Transactions are established in writing, notarized (compliance with real estate transactions such as houses and land) and must be registered for secured transactions with competent authorities (if it is a secured transaction).

+ Transactions established by authorized entities: must be established by the owner of the property being house/land and the authorized person of the business (or bank).

+ Subjects are houses/land that are eligible to participate in transactions as prescribed by law (no dispute; still have land use term...).

In conclusion, when lending the LURC to another person (whether authorizing the borrower to mortgage or mortgaging it) and the lending ensures the above conditions, it will lead to a result of binding the lender's liability to the bank for guaranteeing the repayment of the borrower's debt.

In case the borrower violates the debt repayment obligation, the bank has the right to request the disposal of the security property to recover the debt. Therefore, for lending LURCs to other people for bank loans, it is also necessary to carefully consider the borrower's ability to repay.

Duc Phong

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