Mortgage certificate of land use right in Vietnam - Is the contract void?

Specifically, the first-instance civil judgment No. 117/2020/DS-ST dated August 25, 2020 on the loan and mortgage contract dispute has the following contents:

“In 2017, Mr. S and Ms. T pledged house and land documents located in Hamlet, Ward 8, Ca Mau City, Ca Mau Province for Ms. D handed over to Mr. S and Ms. T 150,000,000 VND. The term of the bond is 3 years. To secure the house contract, the land Mr. S and Ms. T have assigned to Ms. D to keep the land use right transfer contracts between Ms. D and Ms. L; Land use right transfer contract between Ms. L and Ms. T; Certificate of land use right transfer between Ms. T and Mr. S” and 01 ground plan for the current state of the land.

By 2018, Mr. S received an additional 100,000,000 VND, and write a paper agreement to mortgage the house and land for Ms. D, this agreement has entered the same amount of money for the first time, totaling 250,000,000 VND, and term 03 Annual interest rate is 15,000,000 VND/year. Due to the due date, but Mr. S and Ms. T did not return the amount of VND 250,000,000 pledged, so Ms. D asked Mr. S and Ms. T to return the amount of VND 250,000,000, without asking for interest."

The People's Court of Ca Mau city said that the mortgage contract between the parties was not in accordance with the regulations, so the house and land mortgage contract was declared invalid.

Although the law does not have clear provisions in the case of mortgage of houses, land and house papers, according to the provisions of Article 105 of the Civil Code 2015 and Clause 16, Article 3 of the Land Law 2013 of Vietnam, the Certificate of Land Use Right (red book) is not an asset but a legal deed for the State to certify land use rights and house ownership.

Article 105. Property

1. Property comprises objects, money, valuable papers and property rights.

2. Property includes immovable property and movable property. Immovable property and movable property may be existing property or off-plan property.

Article 3. Land Law 2013

16. Certificate of land use rights and ownership of houses and other land-attached assets is a legal certificate in which the State certifies the lawful land use rights and ownership of houses and land-attached assets of the person who has land use rights and ownership of houses and land-attached assets.

Meanwhile, Article 309 of the Civil Code 2015 also stipulates that "Pledge of property means the delivery by one party (hereinafter referred to as the pledgor) of property under its ownership to another party (hereinafter referred to as the pledgee) as security for the performance of an obligation". According to that, in essence, a pledge of property is the handover of property by one party to the pledgee to secure the performance of an obligation. Because it is not an asset, the red book cannot be pledged but can only be mortgaged to the bank. Therefore, the provisions on pledging property cannot be applied to the pledgee being a land use right certificate.

Based on the above legal provisions, it can be seen that the State does not recognize the pledge of land and house use right certificates. Therefore, these transactions have no legal value and will be declared invalid under Article 123 of the Civil Code 2015 " Civil transactions with purposes and contents that violate the prohibition of the law, contrary to social ethics. is invalid. The prohibition of the law is the provisions of the law that do not allow the subject to perform certain acts…”. The consequence of a void contract is that the parties return to each other what they have received.

The pledge of land use right certificates is very common while the law on the mortgage of property, especially land use rights, is still unclear. People need to learn carefully to avoid misunderstanding and illegal implementation, leading to unfortunate legal risks.  

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