Real estate mortgage according to current Vietnamese law

This property relationship is regulated based on the theory of rights when giving the mortgagee the right to decide to " agree " to the mortgagor to sell, exchange, or donate the mortgaged real estate as a co-owner. Accordingly, the mortgagor who wants to exercise the right of disposal must have the consent (unanimity of will) of the mortgagee. However, how is the concept of " agreement " understood, does the mortgagee " agree " to let the mortgagor sell, exchange, or donate the mortgaged real estate but still maintain the validity of the mortgage agreement or " agree " to sell and release the mortgage, that is, terminate the validity of the mortgage agreement? This issue is not clearly regulated in the 2015 Civil Code.

In practice, the Civil Code does not stipulate the mortgagee's right to pursue (as a property right) but only gives the mortgagee the right to decide on the sale and transfer of mortgaged real estate, leading to difficulties and risks for the mortgagee when handling mortgaged real estate. Because if the mortgagee agrees to sell and release the mortgage before carrying out the procedure for transferring the mortgaged real estate to the buyer without the right to pursue, the credit granted to the obligated party will change its status from secured to unsecured. In fact, there have been cases where the bank agreed to release the mortgage and carry out the mortgage registration cancellation procedure before carrying out the procedure for transferring the mortgaged land use right, but later, the mortgagor could not carry out the procedure for transferring the land use right to the buyer because the business registration certificate was revoked, leading to the bank being unable to handle the mortgaged land use right to recover the debt 201 .

In addition, the 2015 Civil Code's approach from the principle of rights to handle the relationship of a material nature (the relationship between the mortgagee and the mortgaged real estate) has led to many difficulties in the application process. This mechanism does not encourage the circulation of real estate goods in the dynamic development of the market economy, and at the same time limits or even eliminates the rights of the mortgagee on the mortgaged real estate in cases where the real estate is transferred to a third party through sales and transfer transactions. The practice of disputes in housing construction investment projects is a typical example of the difficulties in using the theory of rights to regulate the relationship between the mortgagee and the mortgaged real estate 202 . It is worth mentioning that this problem arose from the implementation phase of the 2005 Civil Code. However, the 2015 Civil Code does not create a new legal solution but maintains the approach of the 2005 Civil Code when handling the relationship between the parties regarding mortgaged assets in cases where ownership of these assets is transferred to a third party through sales and transfer contracts 203 .

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201 Binh Duong Provincial Land Registration Office (2018), Official Dispatch No. 503/STNMT-VPĐKĐĐ dated March 19, 2018 on guidance on cases of cancellation of mortgage registration, Binh Duong.

202 Nguyen Vu, “From The Harmona case: Ho Chi Minh City will publicize the bank mortgage project”, Source: http://cafef.vn/tu-vu-the-harmona-tphcm-se-cong-khai-du-an-the-chap-ngan-hang-20160625215053627.chn; accessed at 9:00 p.m. on August 19, 2019.

203 During the implementation of the 2005 Civil Code, the People's Committee of Ho Chi Minh City issued Official Letter No. 5637/UBND-DTMT dated September 17, 2015 to the Prime Minister, reflecting on difficulties related to the issuance of certificates of house ownership to home buyers in housing development projects whose investors had mortgaged to credit institutions but had not yet completed the registration procedure for changes (withdrawal of mortgaged assets) in Ho Chi Minh City. This difficulty has lasted from the implementation of the 2005 Civil Code until now, but the 2015 Civil Code still retains the provisions of the 2005 Civil Code without any legal solution to resolve it. On December 22, 2018, the People's Committee of Ho Chi Minh City continued to issue Official Letter No. 5758/UBND-DT reflecting

Second , the 2015 Civil Code is based on the theory of rights to regulate the rights of the mortgagee to the mortgaged real estate in the case of handling the mortgaged real estate. Therefore, the regulations on the procedures for handling mortgaged real estate still depend too much on the will of the mortgagor. This leads to the failure to create the necessary legal guarantees for the mortgagee to be able to proactively and unilaterally handle the mortgaged real estate, so the efficiency of handling real estate is not high, causing bad debt for the economy.

- (v) Clause 2, Article 133 of the 2015 Civil Code only stipulates the protection of a bona fide third party when this party has relied on (based on) information about the property registered with a competent state agency to establish and perform a transaction with a transfer of property in case the previous civil transaction (which is the basis for establishing the rights of the party entitled to transfer the property) is invalid. Meanwhile, the mortgage transaction does not have a transfer of property from the mortgagor to the mortgagee. In practice, the fact that the 2015 Civil Code has not clearly stipulated the issue of protecting a bona fide third party, the mortgagee, in case this party has relied on information about the property registered to establish a mortgage transaction, has led to many different interpretations, causing difficulties in the application process . This affects the enforcement of the mortgagee's rights on the mortgaged real estate in cases where the mortgage transaction is established based on information about the registered property due to the lack of adequate legal basis to protect rights in case of disputes.

- (vi) Other relevant provisions of the 2015 Civil Code are not consistent with the newly recognized mortgage property element, which is a principle of this Code, leading to difficulties in enforcing the rights of the mortgagee on the mortgaged real estate. Specifically, in the part on ensuring the performance of obligations, the 2015 Civil Code approaches the mortgage of real estate from the perspective of real rights when recording the mortgagee's right to claim in the event that the mortgage measure becomes effective against a third party. However, Article 166 of the 2015 Civil Code does not record the mortgagee's right to reclaim the property from the possessor, user, or beneficiary of the property without legal basis in the event that the mortgage measure becomes effective against a third party, but only records the owner's right to reclaim the property. Thus, in case there is a basis for handling according to Article 299 of the 2015 Civil Code, the mortgagee also has no right to reclaim the mortgaged real estate from the possessor, the user of the property, or the beneficiary of the property without legal basis. In this case, in order to access the real estate for handling, the mortgagee must request the mortgagor to exercise the right to reclaim the mortgaged real estate from the possessor, the user of the property, or the beneficiary of the property without legal basis. This leads to the mortgagee's access to the mortgaged real estate for handling being greatly dependent on the will of the mortgagor.

on difficulties and recommendations to be resolved in the land sector in Ho Chi Minh City, including the above-mentioned difficulties.

204 Supreme People's Court (2019), Official Dispatch No. 64/TANDTC-PC dated April 3, 2019 on the announcement of online answers to some questions about criminal, civil and administrative proceedings , Hanoi.

Second , limitations in the provisions of specialized laws on the rights of the mortgagee on mortgaged real estate.

The 2015 Civil Code has initially approached the real estate mortgage relationship based on the theory of property rights, however, this theory has not been " spread " to related specialized laws. In reality, the provisions of the land and housing laws are still regulating the relationship between the mortgagee and the mortgaged real estate based on the foundation of the theory of rights without being reviewed and amended to be consistent with the property rights element of the mortgage measure according to the new initial approach of the 2015 Civil Code.

- (i) The 2014 Housing Law and Decree No. 99/2015/ND-CP have dealt with the relationship between the mortgagee and the mortgaged real estate being a house in the case where the investor exercises the right to sell the house to the buyer on the basis of the theory of right. According to Clause 1, Article 147 of the 2014 Housing Law, Point b, Clause 2, Article 19 of Decree No. 99/2015/ND-CP, the investor must carry out the procedure of releasing the mortgage of the mortgaged house before selling the house to the buyer, that is, must terminate the mortgage right (of the credit institution) on the mortgaged real estate before carrying out the procedure of transferring ownership, except in the case where the buyer and the mortgagee agree (with a written agreement) not to release the mortgage and allow the purchase and sale of that house. The above regulation shows that the housing law is approaching in the direction that the house sold must not be in a mortgaged state, and the right to pursue (the validity of the mortgage) on the mortgaged house is not " automatic " when the house is transferred to a third party. The mortgagee must express the will " not to release the mortgage " to the competent authority through legal documents, at the same time, maintaining the validity of the mortgage measure on the mortgaged house also depends on the will of the house buyer. If the house buyer does not agree, the mortgage measure cannot be maintained on the mortgaged house that the investor plans to sell to the buyer.

In reality, the above provisions of the housing law are not feasible, and at the same time cause many difficulties and disputes between the parties in the application process 205 . Because it is very difficult for investors to receive the consensus of credit institutions on mortgage release. Therefore, in many housing construction investment projects, investors have violated the provisions of the 2014 Housing Law when selling houses to buyers without completing the mortgage release procedures before selling, leading to disputes between credit institutions, investors and home buyers when the credit institutions exercise the right to handle mortgaged houses due to the investor's violation of payment obligations. This mechanism also does not ensure the rights of all three parties in the mortgage relationship, namely the investor (mortgagee), the credit institution (mortgagee) and the home buyer. From an economic perspective, this mechanism does not encourage, even hinders investors from carrying out business operations (buying

205 Nguyen Vu, “From The Harmona case: Ho Chi Minh City will publicize the bank mortgage project”, Source: http://cafef.vn/tu-vu-the-harmona-tphcm-se-cong-khai-du-an-the-chap-ngan-hang-20160625215053627.chn; accessed at 9:00 p.m. on August 19, 2019.

On the mortgagee's side, the above provisions of the housing law, together with the fact that the 2015 Civil Code does not stipulate the mortgagee's right to pursue in the event that the real estate is sold, exchanged, or donated, have directly affected the mortgagee's right to be secured by the real estate in the event that the real estate is bought, sold, or transferred. On the home buyer's side, the above provisions of the housing law have inadvertently led to the home buyer's right to be granted a certificate of home ownership being dependent on the mortgage release obligation (agreement) of the investor and the bank. This provision has pushed home buyers into unnecessary legal disputes between the investor and the bank. At the same time, home buyers are at risk of not being able to own the house, even though they have met the conditions specified in Clause 3, Article 12 of the 2014 Housing Law, simply because the investor does not fulfill the mortgage release obligation before selling.

- (ii) The Land Law does not have any provisions on the enforcement of the mortgagee's rights on land use rights in case of a change in the subject of the mortgaged land use rights.

According to the provisions of Point d, Clause 3, Article 49 of Decree No. 43/2014/ND-CP, when granting a certificate of house ownership to a home buyer in a housing construction investment project, the land area of 206 that has been assigned to the investor must be converted to a form of shared use (between the investor and the apartment buyer). In reality, a problem that needs to be resolved is that, in the case where the investor has mortgaged the housing construction investment project before selling the house to the buyer, after the sale, will the land use rights on the land area that has been converted to a form of shared use automatically continue to be mortgaged, or must the mortgage have the consent of the home buyer as a co-owner with the investor for the land area used in common?

Regarding this issue, the 2013 Land Law has not yet recorded the principle that in case the mortgaged land use right is converted to a form of joint use, the validity of the mortgage measure is not lost, the mortgagee still has the right to the mortgaged land use right, even though the land use right has changed the subject (form) of ownership, from the sole ownership of the investor to the joint ownership of the investor and the home buyer. Instead, according to the spirit of Clause 2, Article 167 of the 2013 Land Law; Clause 1, Article 214, Clause 2, Article 218 of the 2015 Civil Code, when the land use right becomes the joint ownership of the investor and the home buyer, the mortgage must have the consent of the home buyer. Based on this principle, the parties will have to amend the signed land use right mortgage contract. This provision is not feasible because it will be difficult for home buyers to agree to let investors continue to mortgage the land use rights on the common use area. This leads to the bank's guaranteed rights on the land use rights mortgaged by the investor being seriously affected because the maintenance of the validity of the mortgage measure depends entirely on the will of the home buyer.

206 Specifically, the land area was initially granted to the investor, but after selling the house, that area belongs to the common use of the apartment owners.

Meanwhile, the law has not yet provided for the legal consequences in the case where the home buyer does not agree to continue mortgaging the land use right, how will the rights of the mortgagee be resolved? This reality shows that the lack of principled regulations on the validity of mortgage rights (automatic and natural) in the case of real estate being transferred to a third party (including both property rights and collateral rights) has reduced or even " invalidated " the function of " ensuring the performance of obligations " of the real estate mortgage measure, and at the same time caused disputes between the parties in the application process . 207 Therefore, in addition to recognizing this principle in the 2015 Civil Code, it is necessary to review the land law to make appropriate amendments and supplements.

From the above analysis, it can be seen that the current law has not separated the rights of the nature of property rights and the rights of the nature of the mortgagee of real estate, leading to the lack of a mechanism to regulate in accordance with the characteristics of these powers. In principle, the rights of the nature of property rights are enforced according to the contract, while the rights of the nature of property rights, although arising from the contract, the enforcement of the rights is independent of the contract, even though the contract is the basis for creating the mortgage rights. However, the current law designs both rights (property rights and rights of property rights) of the mortgagee closely linked to the enforcement of the rights and obligations of the parties in the mortgage contract, while in essence, the rights of the mortgage of real estate are rights of a direct nature on the mortgaged real estate, independent of the contract. This leads to the provisions of the 2015 Civil Code and specialized laws on the rights of the mortgagee on mortgaged real estate that have not yet been separated and stepped out of the relationship of the right that created it to be enforced independently but still bound and dependent on the performance of the obligations of the mortgagor. This reduces the effectiveness of the enforcement of the rights of the mortgagee on mortgaged real estate.

*Limitations in the provisions of law governing the relationship between parties in real estate mortgage measures

Firstly , limitations in legal regulations on the subject of real estate mortgage measures.

- (i) On the mortgagor

Firstly , the 2015 Civil Code aims at the subjects of civil legal relations as individuals and legal entities . 208 From the effects of the Civil Code, Circular No. 39/2016/TT-NHNN dated December 30, 2016 of the State Bank regulating lending activities of credit institutions and foreign bank branches to customers only recognizes borrowers as individuals and legal entities. In addition, according to the provisions of Clause 1, Article 2, the subjects of application of this Decree only include individuals, legal entities and households. Thus, with the provisions of Circular No. 39/2016/TT-NHNN and Decree No. 102/2017/ND-CP, legal entities without legal status such as private enterprises cannot be the subjects of loan relations secured by mortgages.

207 Bac Giang Provincial Land Registration Office (2018), Official Dispatch No. 346/VPĐKĐĐ-ĐKCG dated November 28, 2018 on requesting opinions on removing difficulties in registering secured transactions for land for building apartment buildings , Bac Giang.

208 Article 1 Civil Code 2015.

and register mortgages on land use rights and assets attached to land. Meanwhile, according to the provisions of Clause 1 and Clause 2, Article 5 of the 2013 Land Law, private enterprises are still the entities eligible for land allocation, land lease, land use rights recognition and are entitled to exercise the rights of land users, including mortgage rights.

After the 2015 Civil Code came into effect, there was a refusal to notarize and register real estate mortgages in cases where the mortgagors were legal entities other than individuals or legal entities such as private enterprises. Therefore, in order to mortgage and register real estate mortgages, private enterprises had to carry out procedures for registering changes and converting the ownership status of real estate from real estate owned by private enterprises to real estate owned by individual business owners. It can be said that this is one of the major problems arising in the implementation of the provisions of the 2015 Civil Code on subjects in the relationship of real estate mortgages and mortgage registration, causing unnecessary disruptions and costs for people and enterprises . This shows the different approaches to the subjects of the 2015 Civil Code and the 2013 Land Law, as well as the difference between the 2013 Land Law (regulations on subjects with mortgage rights) and Decree No. 102/2017/ND-CP (regulations on subjects with the right to register mortgage measures) leading to a situation where legal entities without legal status, such as private enterprises, although having land use rights, ownership rights of assets attached to land and the right to mortgage according to the provisions of the land law, cannot exercise mortgage rights and register mortgages.

In that context, in order to ensure the mortgage rights and mortgage registration of private enterprises, Circular No. 07/2019/TT-BTP had to come up with a compromise solution to handle this problem in the direction that in the case of mortgaging land use rights and assets attached to land where the Certificate records the name of the private enterprise but the information about the mortgagor in the mortgage contract of land use rights and assets attached to land is the full name of the private enterprise owner or the full name of the private enterprise owner and the spouse of the private enterprise owner, the registration authority must not refuse to register, even though there are grounds for refusal according to the provisions of Point b, Clause 1, Article 15 of Decree No. 102/2017/ND-CP. This provision is only a situational solution in the context of the views on whether legal entities without legal status are subjects of civil transactions in general and real estate mortgages in particular, which are still very different among law enforcement agencies, even within the Ministry of Justice - the agency in charge of drafting the 2015 Civil Code. 210 In the long term, the important issue is that there needs to be a suitable and unified approach to the subjects of civil transactions in general and measures.

209 These difficulties are reflected in Official Dispatch No. 339/PLDSKT-DS dated June 9, 2017 of the Department of Economic Civil Law on the implementation of the 2015 Civil Code of the Ministry of Justice; Official Dispatch No. 1601/BIDV-PC dated March 29, 2017 of the Vietnam Joint Stock Commercial Bank for Investment and Development; Official Dispatch No. 2012/TGĐ-NHCT35 dated February 27, 2017 of the Vietnam Joint Stock Commercial Bank for Industry and Trade; Official Dispatch No. 1535/2017/EIB-TGĐ dated March 6, 2017 of the Vietnam Export Import Commercial Joint Stock Bank; Official Dispatch No. 365/2017/CV-TGĐ dated April 10, 2017 of the Ho Chi Minh City Development Joint Stock Commercial Bank.

210 This different viewpoint is expressed in documents such as: Inspection Conclusion No. 05/KL-KTrVB dated February 1, 2018 of the Department of Inspection of Legal Documents and Submission No. 20/TTr-BTP dated April 9, 2020 of the Ministry of Justice.

Real estate mortgage in particular in the legal system to facilitate people and businesses to participate in real estate mortgage relationships.

Second , the determination of household members mortgaging land use rights based on the criteria of " having marital, blood, or foster relationships according to the provisions of the law on marriage and family, living together and having joint land use rights at the time of being allocated land, leased land, recognized land use rights by the State; receiving transfer of land use rights " in Clause 29, Article 3 of the 2013 Land Law is still general, leading to different understandings causing difficulties, problems and risks in the application process. Specifically, who are considered household members who have marital, blood, or foster relationships? How many generations of blood relationships? What is considered cohabitation? Actual cohabitation or legal cohabitation on the Household Registration Book? These legal issues have not been clarified. Meanwhile, according to the provisions of Decree No. 43/2014/ND-CP, the contract for mortgage of land use rights and assets attached to land of a household must be signed by the person whose name is on the certificate or the person authorized in accordance with the provisions of the civil law. This provision easily leads to the understanding that those whose names are on the certificate issued to the household are members of the household. Meanwhile, Clause 29, Article 3 of the 2013 Land Law does not define household members according to the criteria of having their names on the certificate issued to the household. In practice, it is the lack of clarity in the criteria for determining the subject of the mortgage relationship as a household that leads to the contract for mortgage of land use rights of a household always being at risk of being declared invalid due to the lack of members participating in the signing. The problem is that this problem has arisen for a long time but up to now, the law has not yet had a thorough solution to handle it.

- (ii) About the real estate mortgagee

Firstly , according to the provisions of Point g, Clause 1, Article 179 of the 2013 Land Law, Clause 2, Article 144 of the 2014 Housing Law, land users and house owners who are individuals have the right to mortgage land use rights and houses at credit institutions, other economic organizations or individuals " in accordance with the provisions of law ". Regarding legislative techniques, the general, precautionary provisions " in accordance with the provisions of law " of the Land Law and the Housing Law lead to the fact that the Land Registration Offices " wait " for legal guidance on mortgages at economic organizations that are not credit institutions and individuals to carry out the registration. In fact, many Land Registration Offices refuse to register mortgages in cases of mortgages of land use rights and houses to economic organizations that are not credit institutions and individuals on the grounds that the Land Law and Housing Law allow mortgages but must be " in accordance with the provisions of law ", while there are currently no legal provisions so there is no basis for registration . 211 This leads to the invalidation of the mortgage rights of these legal entities, and at the same time

211 Ministry of Natural Resources and Environment (2019), Official Dispatch No. 1557/BTNMT-TCQLDD dated April 5, 2019 on responding to the opinion of National Assembly delegate Tran Thi Quoc Khanh , Hanoi.

Diversifying channels (forms) of capital mobilization for production and business investment of people is also affected.

Second , according to the provisions of Point g, Clause 1, Article 13, Decree No. 53/2013/ND-CP dated May 18, 2013 of the Government on the establishment, organization and operation of the Asset Management Company of Vietnamese credit institutions, in the case of purchasing bad debts with collateral, VAMC naturally inherits the status of the mortgagee of the credit institution to become the new mortgagee without having to re-sign the mortgage contract. This viewpoint continues to be recorded in Clause 2, Article 9, Resolution No. 42/2017/QH14. However, according to the provisions of the 2013 Land Law and the 2014 Housing Law, in many cases, land users and house owners are only allowed to mortgage at credit institutions licensed to operate in Vietnam . The lack of uniformity and consistency in the provisions of the law on debt settlement and the Land Law has led to a situation where the right to be secured by mortgaged real estate of the credit institution has been terminated according to the debt purchase contract with VAMC, but VAMC cannot establish the right to receive the mortgage (which is naturally transferred from the credit institution) because it does not meet the conditions on the subject of the mortgage as prescribed by the Land Law. This provision leads to legal risks in the enforcement of VAMC's right to receive the mortgage. On the other hand, limiting the mortgagee of land use rights to only be a credit institution in the above cases also hinders the transfer of the right to request measures to mortgage real estate according to Article 368 of the 2015 Civil Code, affecting the circulation of real estate goods on the market.

Second , limitations in the provisions of law on obligations secured by real estate mortgages.

Real estate mortgage is a security measure arising from a relationship of rights, so the element of freedom of contract (freedom of decision) is emphasized in the process of creating rights and obligations of the parties in the mortgage relationship. Of course, this does not mean denying the management role (directive and guiding) of the State in creating and implementing this measure. However, in some cases, the positive law is showing excessive and unnecessary control (intervention) over the freedom of decision of the parties in agreeing on obligations secured by real estate mortgage, which is not in accordance with the spirit of Article 14 of the 2013 Constitution and Clause 2, Article 2 of the 2015 Civil Code, that is, civil rights can only be restricted according to the provisions of law in necessary cases for reasons of national defense, national security, social order and safety, social morality, and public health. This is reflected in the following main aspects:

- (i) Regarding the type of secured obligation: Current law still has restrictions on the parties' agreement on the type of obligation secured by real estate mortgage: Currently, land and forestry laws still have restrictions on obligations secured by mortgage of land use rights, value of forest use rights, value of production forests being planted forests as payment obligations.

212 Point b, Clause 4, Article 156, Point d, Clause 1, Article 174, Point b, Clause 1, Article 175, Point b, Clause 2, Article 183 of the 2013 Land Law; Clause 1, Article 144 of the 2014 Housing Law.

Real estate mortgage according to current Vietnamese law - 14

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