With the increasingly developing economy, credit activities are becoming more active, and borrowing and lending are essential needs for individuals and organizations. Asset mortgage is one of the measures to secure the execution of civil obligations when individuals or organizations borrow capital from credit institutions. Legal regulations on asset mortgages attract significant attention from clients. Therefore, NPLaw provides information on such an issue according to Vietnamese law.
I. What is an asset mortgage?
Clause 1, Article 317 of the Civil Code 2015 provides: Asset mortgage is when one party (hereinafter referred to as the mortgagor) uses assets owned by themselves to secure the execution of obligations without transferring the assets to the other party (hereinafter referred to as the mortgagee).
From such a concept, it is clear that asset mortgage plays a role in securing the rights of the mortgagee in case the mortgagor fails to fulfill the secured obligations.
Registration dossier for asset mortgage
The components of the registration dossier depend on the type of asset the mortgagor wants to register. Generally, the basic documents include:
- Registration request form
- Notarized or authenticated mortgage contract
- Original certificate of ownership or usage rights of the mortgaged asset
Besides, notarization fees for the mortgage contract, calculated based on the asset value or loan value.
II. Common questions about asset mortgage
Many individuals and organizations want to mortgage assets to borrow capital for business, purchase land, houses, or other purposes. Common questions include:
2.1 Can leased assets be mortgaged?
According to Clause 6, Article 321 of the Civil Code 2015: The mortgagor has the right to lease or lend mortgaged assets but must notify the lessee or borrower that the asset is mortgaged and notify the mortgagee as well.
Thus, mortgaged assets can still be leased, but the owner must notify the relevant parties that the leased asset is mortgaged.
2.2 Can assets attached to land be mortgaged?
Clause 3, Article 318 of the Civil Code 2015 provides: When mortgaging land use rights, assets attached to the land owned by the mortgagor are also part of the mortgaged assets, unless otherwise agreed.
Thus, assets attached to land, such as a house, are included in the mortgage unless there is a separate agreement.
2.3 Can assets be mortgaged to borrow capital?
Assets include immovable and movable properties. Vietnamese law allows asset mortgages to borrow capital. The loan amount depends on the appraised value of the mortgaged property.
2.4 Mortgage of assets acquired before marriage
According to Clause 1, Article 43 of the Law on Marriage and Family, assets owned before marriage are separate property. Therefore, mortgaging pre-marriage assets does not require the spouse’s consent. A single-status certificate is required for the mortgaging party when conducting such transactions.
III. Issues related to handling asset mortgage
3.1 When is a mortgage contract invalid?
According to Article 117 of the Civil Code 2015, a civil transaction is valid if:
- Parties have legal capacity and civil act capacity for the transaction
- Parties participate voluntarily
- Purpose and content are lawful and not contrary to social ethics
- Form complies with legal requirements, if specified by law
A mortgage contract is invalid if these conditions are not met, including parties’ capacity, unlawful purpose or content, or non-compliance with required form.
3.2 Consequences of mortgaging without the mortgage contract
In principle, a mortgage contract can be concluded in various forms, provided parties can prove the contractual relationship. However, for land use rights, Clause 1, Article 502 of the Civil Code 2015 requires the contract to be in writing. The contract is invalid if failure to implement under correct form.
Legal consequences of invalid mortgage contracts:
- Invalid mortgage contracts do not set up, change, or terminate civil rights and obligations from the time the transaction was made.
- Parties restore the original state and return received assets; if physical return is impossible, monetary compensation applies.
- A party lawfully receiving profits need not return them.
- The breaching party must compensate for damages.
3.3. What happens to mortgaged assets after contract termination?
The mortgagee returns the mortgaged asset to the mortgagor and completes the deregistration process with the competent state authority.
3.4. Mortgage contract and handwritten loan agreement
Mortgage contracts and loan agreements are two separate civil transactions. Both have legal value in disputes if they meet legal conditions for validity.
3.5. Can authorized assets be mortgaged?
According to Article 581 of the Civil Code 2015, an authorized contract is an agreement between the parties, according to which the authorized party is obliged to perform work on behalf of the authorizing party, and the authorizing party only has to pay remuneration if there is an agreement or if the law so provides.
Accordingly, an authorized party may use the assets for mortgage if the authorization agreement grants such right.
3.6. Does a mortgage contract for a company guarantee require notarization?
According to Article 167 of the Land Law 2015 and Article 122 of the Housing Law 2014, mortgages involving land use rights must be notarized or authenticated.
3.7. How should enterprises draft mortgage contracts to protect their rights?
A proper mortgage contract should include:
- Contracting parties
- Mortgaged assets
- Rights and obligations of mortgagor
- Rights and obligations of mortgagee
- Rights and obligations of third parties holding the mortgaged asset
- Termination of the mortgage
- Validity of the mortgage
3.8. Can one land-use certificate be mortgaged at multiple banks?
Clause 1, Article 296 of the Civil Code 2015: An asset may secure multiple obligations if its value at the time of securing exceeds the total value of secured obligations, unless otherwise agreed or provided by law.
Thus, one land-use certificate can be mortgaged at multiple banks, provided the total secured value does not exceed the asset’s appraised value. Agreements or legal restrictions may apply.
3.9. Mortgaging assets of a minor
According to Articles 76 and 77 of the Law on Marriage and Family 2014:
- Parents/guardians managing assets of children under 9 may dispose of them for the child’s benefit.
- Parents/guardians managing assets of children aged 9–15 must consider the child’s wishes.
- Children aged 15–18 have the right to dispose of their personal assets. Written consent from parents/guardians is only required for real estate, registered movable assets, or business-use assets.
3.10. Spouse using personal assets for mortgage and authorizing the other spouse to repay
Article 370 of the Civil Code 2015 allows obligation transfer if the obligee consents. A written agreement and third-party consent are required.
These points provide clients with a better understanding of asset mortgages under Vietnamese law. In practice, asset mortgages are complex, high-risk, and time-consuming. Therefore, clients are advised to seek reputable legal firms for guidance and risk mitigation, which we at NPLaw are confident in providing.
