Mortgaging land use rights to secure bank credit contracts under current Vietnamese law from the practice of Da Nang city

Mortgages have distinct features. Land use rights are fixed assets with limited area but unlimited duration of use and profitability. Most land use rights have great value and can exist forever. Therefore, mortgaging land use rights is beneficial to both the mortgagor and the mortgagee. The mortgagor can still use and exploit the utility, invest profitably, and enjoy the benefits and income from that land use right. The mortgagee only needs to keep the land use rights certificate without having to spend a lot of money on preservation and inspection, like pledging or mortgaging other assets. Moreover, land use rights have great value, so the mortgagee can completely expand the loan limit, thereby earning maximum profit.

* Conditions for mortgaged land use rights

According to the provisions of Article 188 of the 2013 Land Law, land users are allowed to exercise the right to mortgage the value of land use rights to borrow capital from credit institutions when fully meeting the requirements, specifically:

- Have land use rights certificate

From 2009 to present, for all types of land, houses and other properties attached to land, when meeting the conditions prescribed by law, land users will be granted a certificate issued by the Ministry of Natural Resources and Environment according to a unified form and applied nationwide with the name: "Certificate of land use rights, house ownership rights and other properties attached to land" (hereinafter referred to as the certificate). The certificate is a legal document for the State to confirm the legal land use rights, house ownership rights and other properties attached to land of the person with land use rights, house ownership rights and ownership rights of other properties attached to land. Through the issuance of certificates, the State can manage land.

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- Land without dispute

The fact that commercial banks accept land use rights as collateral is not beyond the purpose of risk prevention, creating a legal basis for recovering loans later in case the borrower fails to repay the debt according to the agreement. Therefore, right from the time of mortgage, the mortgagor must commit that the land is not in dispute to ensure the legality of the mortgage relationship and avoid third parties from participating in the dispute over the mortgaged land use rights with commercial banks. This is not only a specific condition for land use rights in the mortgage relationship but also a general condition for land use rights in all transactions on land use rights taking place in the market.

Currently, the law does not have specific regulations on what constitutes undisputed land. In fact, undisputed land is understood to mean that at the time of mortgage, the mortgagor's land use right does not have any complaints or disagreements or conflicts with any other entity. The People's Committee of the commune, ward or town is the competent authority to confirm the status of undisputed land. In case of land use right disputes, all transactions, including land use right mortgage transactions, will not be carried out until the dispute is resolved by the competent State agency. This is also a necessary condition and requires the mortgagee to be cautious and thoroughly investigate the actual status of the land use right when establishing a transaction to ensure that the transaction is carried out safely and to avoid risks more effectively.

- Land use rights are not subject to seizure to ensure enforcement of judgment.

The mortgagor's land use right is seized to ensure enforcement of a judgment, which means that this land use right has become an asset to secure the performance of one or several property obligations of the mortgagor. Therefore, if this land use right continues to be the subject of a mortgage relationship to secure another property obligation, the risk of disputes is inevitable. Before deciding to lend, the commercial bank must work with the People's Committee of the commune, ward, town, and the branch of the land registration office where the land is located to verify. If the land use right has been seized to ensure enforcement of a judgment, the commercial bank has the right to refuse to accept the mortgage of that land use right. This provision is reasonable and creates a safe legal basis for the mortgagee of the land use right before deciding to lend.

- During the land use period

Mortgaging land use rights is a method for land users to exercise their rights and obligations regarding land use rights. Therefore, mortgaging land use rights must comply with the land use principles prescribed by law. At that time, the mortgagor can only mortgage the land use rights under his/her legal right to use at a commercial bank to ensure the obligation to repay the debt to himself/herself or to a third party during the land use period. When accepting a mortgage on land use rights to ensure the borrower's obligations, based on the land use period, the commercial bank will value the mortgaged land use rights corresponding to the remaining land use period to determine a reasonable loan amount, determine a suitable credit term, thereby limiting the loan amount.

* Regulations on subjects mortgaging land use rights

The subjects in the mortgage relationship of land use rights to secure the debt repayment obligation when borrowing capital at commercial banks are stipulated in legal documents such as the Civil Code, Land Law, Decree 163/2009/ND-CP of the Government on secured transactions,... including:

- Mortgage party :

The mortgagor can be an individual, a household, or a legal entity. Mortgaging land use rights is a civil transaction. Therefore, the condition for a land use rights mortgage transaction to be valid is that the mortgagor, when participating in the land use rights mortgage relationship, must have full civil legal capacity, full civil act capacity for individuals, and full civil legal capacity for legal entities as prescribed in the 2015 Civil Code.

In addition, for each different subject, the law has different and specific provisions on conditions, and only when those conditions are met can the mortgagor participate in the land use rights mortgage relationship. The 2013 Land Law clearly stipulates the cases in which land use rights can be mortgaged, specifically as follows:

- For domestic households and individuals, the 2013 Land Law stipulates that the following subjects are allowed to mortgage land use rights.

+ Households and individuals using agricultural land allocated by the State within the limit; Land allocated by the State with land use fees collected, land leased with one-time land rent payment for the entire lease term, land use rights recognized by the State; Land received through conversion, transfer, donation, inheritance (Clause 1, Article 179 of the 2013 Land Law);

+ Households and individuals are permitted by competent state agencies to change the land use purpose from land without land use fees to land with land use fees or land lease with one-time land rent payment for the entire lease term (Clause 2, Article 180 of the 2013 Land Law).

- For domestic organizations, the 2013 Land Law stipulates that the following entities are allowed to mortgage land use rights.

+ Economic organizations are allocated land by the State with land use fees collected, and land leases are subject to one-time land rental fees for the entire lease term (Clause 2, Article 174 of the 2015 Land Law).

2013); Receiving the transfer of land use rights originating from the State's allocation with land use fees collected or the State's land lease with one-time prepayment for the entire lease term, but the land use fees and land rent paid do not originate from the state budget (Clause 2, Article 176 of the 2013 Land Law);

+ Economic organizations that receive the transfer of agricultural land use rights in accordance with the provisions of law and do not change the land use purpose or change the land use purpose in cases where the State allocates land with land use fees or leases land with one-time land rent payment for the entire lease term (Clause 3, Article 176 of the 2013 Land Law); are permitted by competent state agencies to change the land use purpose from land without land use fees to land with land use fees or leases land with one-time land rent payment for the entire lease term (Clause 4, Article 176 of the 2013 Land Law); are leased land by the State with one-time land rent payment for the entire lease term to invest in the construction of underground works (Clause 1, Article 178 of the 2013 Land Law);

+ Self-financed public service organizations that are leased land by the State pay land rent at once for the entire lease term, and the land rent paid does not originate from the state budget (Clause 3, Article 174 of the 2013 Land Law).

- For Vietnamese people residing abroad, the 2013 Land Law stipulates that the following subjects are allowed to mortgage land use rights.

+ Vietnamese people residing abroad and foreign-invested enterprises in Vietnam are allocated land by the Vietnamese State with land use fees collected, and land leases are paid once for the entire lease term to carry out investment projects (Clause 1, Clause 3, Article 183 of the 2013 Land Law);

+ Vietnamese people residing abroad and foreign-invested enterprises that are allocated land by the State with payment or lease land with one-time payment for the entire lease term are exempted from land use fees and land rent (Clause 5, Article 183 of the 2013 Land Law).

+ Overseas Vietnamese who are allocated land by the State with land use fees or leased land with one-time payment for the entire lease term and contribute capital in the form of land use rights as domestic economic organizations to joint ventures with foreign organizations and individuals (Clause 3, Article 184 of the 2013 Land Law).

+ Vietnamese people residing abroad are allowed to receive land use rights transfers in industrial parks, industrial clusters, export processing zones, high-tech zones, and economic zones (Clause 1, Article 185 of the 2013 Land Law).

+ Vietnamese people residing abroad and foreign-invested enterprises that rent or sublease land in industrial parks, industrial clusters, export processing zones, high-tech zones, and economic zones must pay land rent or sublease fees once for the entire lease or sublease period (Clause 2, Article 185 of the 2013 Labor Code).

- For enterprises with foreign investment capital, the 2013 Land Law stipulates that the following subjects are allowed to mortgage land use rights.

+ Foreign-invested enterprises are formed by receiving the transfer of shares, and after receiving the transfer of the land use form of the enterprise, the State will allocate land with payment or lease land with one-time payment for the entire lease term (Clause 4, Article 183 of the 2013 Land Law).

+ Joint venture enterprises, 100% foreign-owned enterprises converted from joint venture enterprises in which the land of the economic organization contributing capital is allocated by the State with land use fees collected, land lease with one-time payment for the rental period, but the money paid does not originate from the state budget, or the land of the economic organization contributing capital is derived from receiving the transfer of land use rights, which is not land rented from the State with annual payment, and the money paid for the transfer also does not originate from the state budget (Clause 1, Article 184 of the 2013 Land Law).

+ Joint venture enterprises in which the capital contributor is a domestic enterprise that was leased land by the State before July 1, 2004 and is allowed to use the land use right value as allocated by the State budget to the enterprise, do not have to record debt and do not have to repay land rent according to the provisions of the law on land to contribute capital to foreign organizations and individuals (Clause 2, Article 184 of the 2013 Land Law).

+ Joint venture enterprises in which the Vietnamese party contributes capital in the form of land use rights, the land use rights received as capital contribution previously are not used to implement housing investment projects for sale and are now converted into 100% foreign-owned enterprises, which are leased land by the State and collect land rent in one lump sum for the entire lease term (Clause 4, Article 184 of the 2013 Land Law).

+ Joint venture enterprises in which the Vietnamese party contributes capital in the form of land use rights, the land use rights received as capital contribution were previously used to implement housing investment projects for sale and are now converted into 100% foreign-owned enterprises to which the State allocates land with land use fees collected (Clause 4, Article 184 of the 2013 Land Law).

- Mortgagee:

According to the provisions of the 2013 Land Law, land users have the right to mortgage land use rights and assets owned by them attached to land at credit institutions licensed to operate in Vietnam.

* Regulations on mortgage contract signing by the mortgage holder

A land use rights mortgage contract is an agreement between the parties, to prove that the parties (at least two parties - the mortgagor and the mortgagee) have agreed and committed to the content of the contract, the representatives of the parties must sign together to confirm that they have accepted all of the content, the law also specifically stipulates who is the person with the authority and qualifications to sign the contract. Thus, a land use rights mortgage contract must have at least two parties signing, that is the mortgagor and the mortgagee.

- Mortgagor: The subject signing the land use rights mortgage contract is the person with the legal right to use the land. In case the mortgagor is a legal entity, the contract must be signed by the legal representative of that legal entity or a person authorized by the legal representative in accordance with the provisions of law. In case the mortgagor of the land use rights is an individual, when signing the mortgage contract, he/she must have full civil act capacity. This is also one of the conditions for the validity of a civil transaction. In case the subject signing the contract does not have sufficient civil act capacity or is not authorized to sign, the mortgage contract may be invalid. In case the land use rights are under the common use rights of a group of land users, the subject signing the mortgage contract is all members of the group or has a written authorization in accordance with the provisions of the law on civil matters.

Clause 2, Article 101 of the 2015 Civil Code stipulates: "The determination of the subject of civil relations with the participation of households using land is carried out according to the provisions of the Land Law."

Clauses 29 and 30, Article 3 of the 2013 Land Law stipulate: “Land-using households are those who have marital, blood, or foster relationships according to the provisions of the law on marriage and family, are living together and have the right to use land together at the time of land allocation, land lease, recognition of land use rights, and receipt of land use rights transfer”. With this provision, we can point out 3 criteria to determine the number of members of a land-using household, including: (i) members of a land-using household must have one of the three relationships of marriage, blood, or foster relationships (these relationships can be determined through household registration documents, however, the law has not clearly defined whether this is the relationship between each member and the head of the land-using household or the mutual relationship between members of the household); (ii) have the right to use land in common (if the names of these people are listed in the decisions on land allocation, land lease, recognition of land use rights and in the contract on receiving the transfer of land use rights; however, not all localities when issuing these decisions fully list the names of the members); (iii) live together at the time the State allocates land, leases land, recognizes land use rights; receives the transfer of land use rights (through the household registration book of the household at the above times to identify the members living together; however, not all localities can fully store this information in the context of war, chaos, and natural disasters). [23]

However, the provisions of Clause 29,30, Article 3 of the 2013 Land Law only determine who has the right to use the land, but are not the basis for determining who is the subject of the relationship on land use rights. Because the subject of the civil relationship on land use rights must meet two factors: having the legal right to use the land and having the capacity to be the subject in that relationship. Therefore, determining the subject of the civil relationship with the participation of a household must be based on the provisions of the Civil Code and the Law on Marriage and Family.

- Mortgagee: For mortgagee organizations, the mortgage contract must be signed by the organization's legal representative or a person legally authorized by the legal representative.

* Regulations on the form of mortgage contracts for land use rights

According to current law, for civil transactions on land use rights in general and land use rights mortgage contracts in particular, both the 2015 Civil Code and the 2013 Land Law stipulate that transactions must be conducted in the form of written contracts. This is also a provision consistent with the general trend of international law in regulating transactions involving valuable assets. Land use rights mortgages can be made in a separate document or expressed in a credit contract. In addition, land use rights mortgage contracts must be notarized and certified by competent agencies and organizations.

Thus, the first requirement for the form of a land use rights mortgage contract is that it must be notarized or certified. These are mandatory regulations or also known as mandatory regulations. This also means that if not complied with, the parties have violated the regulations of public order. From an economic and social perspective, land use rights are a valuable asset, so transactions on land use rights need to be established carefully and closely with the participation of a notary public - considered the gatekeeper for the contract to be established in the most legal and secure way possible. Following the notarization and certification procedures, the land use rights transfer transaction is only considered to have achieved its purpose when the registration procedure for changes at the competent state agency has been completed. Clause 3, Article 188 of the 2013 Land Law stipulates: “…mortgages of land use rights… must be registered at the land registration agency and take effect from the time of registration in the land registry”. This registration has two basic legal meanings: the time when the contract takes effect and the time when the rights in that contract have value against third parties. This provision also aims to help the State manage land more closely as well as contribute to making information on the legal status of land use rights and information on the real estate market more transparent. Clause 2, Article 117 of the 2015 Civil Code has specific provisions on the form of the transaction in cases where the law stipulates that it is considered a condition for recognizing the legality of the transaction.

- Notarization and authentication of land use rights mortgage contracts.