1. What is Property Mortgage?
In terms of semantics, a property mortgage refers to the act of one party using an asset to substitute or secure the performance of a prior obligation.
In practice, when parties have mutual obligations, they often apply certain measures to protect the interests of the obligee. A property mortgage is one of the security measures for obligation performance prescribed by law, whereby parties in an obligation relationship may choose to use it to ensure the fulfillment of their obligations.
A property mortgage is the act whereby one party uses an asset under their ownership to secure the performance of a civil obligation toward the other party without transferring the asset to the mortgagee. Property mortgages are regulated under Articles 317 to 327 of the Civil Code of Vietnam 2015.
2. Form of Property Mortgage
A mortgage must be established in writing, either as a separate document or as a clause within the principal contract. If the mortgage is stipulated within the principal contract, the mortgage terms constitute part of that contract. If the mortgage is established as a separate document, it is considered a collateral agreement alongside the principal contract, and its validity depends on the validity of the principal contract. Therefore, the content of a separate mortgage document must be consistent with the principal contract.
The mortgage document must be notarized or authenticated if required by law or agreed upon by the parties. Notarization or authentication ensures the legal safety of transactions. Additionally, since the state needs to manage transactions involving real estate, mortgages of real estate must be notarized or authenticated.
3. Subject Matter of Mortgage
The scope of assets eligible for mortgage is broader than those eligible for pledge. Mortgaged property may include objects, property rights, valuable papers, existing assets, or future-formed assets. Leased or loaned assets may also be mortgaged.
Depending on the case, parties may agree to mortgage the entire asset or only a portion. If the obligor mortgages an entire immovable property, its accessories are also included in the mortgaged property. If only part of an immovable or movable property is mortgaged, its accessories are still part of the mortgage unless otherwise agreed.
If the mortgaged property is insured, the insurance proceeds also belong to the mortgage. Fruits and profits derived from the mortgaged property are included in the mortgage only if agreed by the parties or prescribed by law.
4. Parties to a Property Mortgage
In a mortgage relationship, the party using the property to secure the performance of an obligation is called the mortgagor (or security provider), while the obligee is called the mortgagee (or secured party). The parties to a mortgage must meet all legal conditions applicable to civil transactions in general. The mortgagor may be the obligor in the secured obligation or a third party who mortgages (e.g., land use rights) to secure the obligor’s performance.
5. Content of a Property Mortgage
- Mortgagor’s Obligations:
- Must deliver all documents related to the mortgaged property to the mortgagee.
- If the mortgaged property requires security transaction registration, the mortgagor must register the mortgage with the competent state authority.
- Must inform the mortgagee of any third-party rights over the mortgaged property.
- If the property secures multiple obligations, the mortgagor must disclose prior mortgages to subsequent mortgagees.
- Unless otherwise agreed, the mortgagor retains possession of the property and may exploit its utility, including enjoying its fruits and profits (unless these are also part of the mortgage or exploitation risks diminishing the property’s value).
- Must preserve and maintain the mortgaged property and take necessary measures to prevent damage.
- May not sell, exchange, donate, or give away the mortgaged property but may lease, lend, or use it to secure other obligations only if agreed or permitted by law.
- Mortgagee’s Rights & Obligations:
- May demand the disposal of the mortgaged property if the mortgagor fails to perform the obligation when due.
- Must return property documents upon termination of the mortgage.
- If holding the mortgaged property, must fulfill all custodial obligations.
- May exploit the property’s utility and enjoy its fruits/profits per agreement.
- If the property is unlawfully possessed or used by a third party, may demand its return.
- Third-Party Custodian (if applicable):
Rights and obligations are governed by Article 324 of the Civil Code of Vietnam 2015.
6. Disposal of Mortgaged Property & Termination of Mortgage
If the mortgagor fails to perform the obligation when due, the mortgaged property shall be disposed of to fulfill the obligation.
- Disposal Methods:
- Generally, the property is auctioned.
- If parties have prior or subsequent agreements, disposal proceeds as agreed.
- The mortgagee has priority in payment from the sale proceeds after deducting preservation and related costs.
- Multiple Mortgages:
If a property secures multiple obligations and must be disposed of for one due obligation, all other obligations (even if not yet due) are deemed due. Priority among mortgagees (creditors) follows the same order as pledge creditors. - Termination of Mortgage:
A mortgage terminates when:- The property is disposed of.
- The mortgage is canceled.
- It is replaced by another security measure.
- The secured obligation is fully performed.
