Khóa luận tốt nghiệp: Mortgaging the off–plan property –Theory and practice

VIETNAM NATIONAL UNIVERSITY HANOI

SCHOOL OF LAW

NGUYỄN VŨ PHƯƠNG ANH

MORTGAGING THE OFF–PLAN PROPERTY – THEORY AND PRACTICE

GRADUATION PAPER

Science Instructor: PHD LECTURER NGUYỄN THỊ PHƯƠNG CHÂM

Ha Noi – 2022

VIETNAM NATIONAL UNIVERSITY HANOI

SCHOOL OF LAW

NGUYỄN VŨ PHƯƠNG ANH

MORTGAGING THE OFF–PLAN PROPERTY – THEORY AND PRACTICE

GRADUATION PAPER

Science Instructor: PHD LECTURER NGUYỄN THỊ PHƯƠNG CHÂM

Ha Noi – 2022

COMMITMENT

I hereby declare that this graduation paper is my own research The documents and materials used in the report have clear sources, the research results are my honest work

I sincerely thank!

STUDENT

Nguyễn Vũ Phương Anh

6.Organisation of the study 8

CHAPTER I SOME THEORETICAL ISSUES RELATED TO MORTGAGE OF PLAN PROPERTIES 9

OFF-A Theoretical background 9

B General theory 10

1.The concept, nature and role of mortgage 10

1.1.The concept of mortgage 10

1.2.The nature of mortgage 12

1.3.The role of mortgage 12

1.3.1.Empowering more creditor's rights 13

1.3.2.Enhance the debtor's willing to fulfill obligations 13

1.3.3.Ensuring the safety of the credit institution system and promoting credit activities 14 2.Concepts and constitutive elements of off-planed assets 14

2.1.Concepts 14

2.2.Constitutive elements of off-planed assets 15

C Specific legal issues 16

2.1 Effect of the mortgage security measure between the parties 22

2.2.Effect against third party 23

2.3.Termination of mortgage 25

3.Realization of the property 26

3.1 Principles of realization 26

3.2.Legal basements for realization 27

3.2.1.A secured obligation is breached when due 27

3.2.2.When the secured obligation is breached ahead of time due to the agreement of the parties in the contract or provided for by law. 27

3.2.3.The law stipulates that the mortgaged property must be disposed of in order for the mortgagor to perform other obligations 28

3.2.4.Other cases as agreed by the parties or prescribed by law 28

3.3.Method of realization 29

3.4 Order of priority of payment 31

4.The differences between the two systems Common Law and Civil Law 31

CHAPTER II VIETNAMESE LAW ON MORTGAGE OF OFF-PLAN PROPERTIES 33

1 History of formation and development of Vietnamese law on mortgage of off-plan properties 33

1.1 Feudal and French colonial period 33

1.2 The period from 1945 to 1995 34

1.3 The period from 1995 to 2015 34

2 Current Vietnamese law 36

2.1 Overview of current Vietnamese law 36

2.2 Problems and limitations in regulations 37

CHAPTER III APPLICATION OF THE LAW IN PRACTICE AND RECOMMENDATIONS 40

1.Application of the law in practice 40

2.Recommendations 43

CONCLUSION 46

REFERENCES 47

INTRODUCTION 1 Rationale of the study

Until the new concept of the knowledge economy and the strong rise of science and technology in the 90s of the last century to the early years of the twenty-first century, especially in the era of the Second Industrial Revolution As the material resources get closer and closer to the limit, the limitless resource of knowledge is increasingly asserted Off-plan assets are considered creating an important factor to promote the development of the economy

On the basis of studying the provisions of the law on mortgage of off-plan properties in order to understand the nature of mortgage, inadequacies and limitations in the provisions of the law and the application of the provisions of the law Law to find solutions, thereby proposing to improve Vietnamese law on mortgage of off-plan properties, proposing specific solutions in the application of the law on mortgage of off-plan properties

Therefore, the topic " Mortgaging the off-plan property - Theory and Practice" will partly provide a system of legal arguments to promote the practice of mortgaging off-plan property in Vietnam

2 Research situation

In general, the research works related to mortgage of off-plan assets are still quite modest compared to those of other legal relationships The topic mortgage of off-plan properties has been studied in the following studies

- Nguyễn Thanh Thúy (2014), Master thesis, Thế chấp nhà ở hình thành trong tương lai theo pháp luật Việt Nam

- Nguyễn Hoàng (2015), Master thesis, Thế chấp nhà ở hình thành trong tương lai theo pháp luật Việt Nam hiện hành

- Hoàng Thị Hải Hà (2015), Master thesis, Pháp luật về cho vay thế chấp bằng nhà ở hình thành trong tương lai của ngân hàng thương mại tại Việt Nam

- Trần Văn Từ (2022), “Hoàn thiện pháp luật về giao dịch bảo đảm đối với

loại động sản đặc thù là tàu bay, tàu biển hình thành trong tương lai”, The

Court Journal

In addition, mortgaging of off-plan assets is also studied as part of an independent topic, not a complete one It can be seen that the number of studies on the mortgage of off-plan properties is restricted

3 Research aims

Providing an overview study on mortgage of off-plan properties, putting such provisions of the two legal systems Common Law and Civil Law under the perspective of comparative law

Researching the regulations and movement in the provisions of Vietnam's civil law on mortgage of properties formed in the future, including setting up a mortgage, the legal effect of the mortgage measure, and handling assets mortgage property Compare, contrast and give suggestions and solutions

4 Research objects and scope of the study

The graduation paper focuses on researching theoretical and practical issues of applying the law on mortgage of off-plan properties in Vietnam The first is to clarify concepts, contents and compare and contrast relevant theoretical issues Next, the graduation paper analyzes the current situation of law application in Vietnam, points out the shortcomings, proposes amendments in line with legal practice

5 Research methods

The graduation paper uses theoretical research methods, normative analysis methods, historical methods, comparative jurisprudence methods, and synthetic methods to solve problems in the most reasonable and clear way

6 Organisation of the study

The following chapters will be listed correspondingly in this research Chapter I Some theoretical issues related to mortgage of off-plan properties Chapter II Vietnamese law on mortgage of off-plan properties

Chapter III Application of the law in practice and recommendations

CHAPTER I SOME THEORETICAL ISSUES RELATED TO MORTGAGE OF OFF-PLAN PROPERTIES

A Theoretical background

In the 6th century, the theory of property rights appeared and was used in ancient Roman law Scholars from the time of the emperor Justinian have considered

the doctrine of jus in re – jus ad rem as the model when designing law According to

the development of the history of civil law to the present, in general, the laws of countries have been affected by Civil Law

A property right (jus in re) is a concept of Latin law, used to refer to a right that can be exercised directly and immediately on an object.1 The property rights relationship is built from two components: the subject of the right (human) and the object of the right (thing) That relationship operates outside the role of another subject, especially without the cooperation or assistance of another subject

A lien / A secure property right (in French: sûreté réelle) is a legal claim on an asset It indicates the direct – and – immediate rights of holder on the assest that

is considered as a measure that increases the bondholder's power, without depending on others, allowing the bondholder to have a special interest in the debtor's property.2

This concept also comes from the Continental European legal system

From ancient times, Roman jurists defined liens as including: sale (fiducia cum creditore) and pledge to hand (pignus), later, in the course of development,

1 Xem, ví dụ, F Terré và Ph Théry, Droit civil- Les biens, Dalloz, Paris, 1992, tr 30 ; Ph Malaurie và Laurent Aynès, Droit civil-Les biens, Cujas, Paris, 1998, tr 87 và kế tiếp

2 Pierre Voirin, Gilles Goubeaux Droit Civil: Personnes – Famille, Incapacité – Biens, Obligations – Sûreté Ấn bản thứ 27 1999 Tr 606

3 Ngô Thu Trang, “Quyền đối với tài sản – đánh giá mức độ tiếp cận lý thuyết vật quyền và những vấn đề đặt ra”, Trang thông tin điện tử Bộ Tư pháp,

https://moj.gov.vn/UserControls/News/pFormPrint.aspx?UrlListProcess=/qt/tintuc/Lists/NghienCuuTraoDoi&ListId=75a8df79-a725-4fd5-9592-517f443c27b6&SiteId=b11f9e79-d495-439f-98e6-

Sale, mortgage, mortgage was approached by Roman law as a kind of security right, so it has the characteristics of a security right

Firstly, the secured recipient is completely entitled to establish a direct right to the economic value of the pledged or mortgaged property even though such property is still under the ownership of the securing party Property rights are antagonistic and exclusive This means that if one person has established ownership over a property of theirs, the third party will not have the right to affect, change the physical or legal state of that property without the consent of the third party intention of the property owner However, with respect to the mortgage of collateral, in the event that the secured obligation is not performed or improperly performed, the secured creditor has the right to dispose of the security property to recover the debt The right to dispose of the creditor's property was protected by Roman law, and no one had the right to stop it, not even the owner of the secured property

Secondly, the security recipient continues to hold and exercise his/her rights to the security asset even if the property has changed owner or is in the possession of another person (right of following)

Thirdly, property rights allow the right holder to exercise his or her right (priority to exercise the right) before others pursue the same benefit with the principle that "whoever declares the right first will have priority to pay" The law calls it the right of precedence This is most evident in secured and unsecured loan transactions

the performance of a duty and that will become void upon payment or performance according to the stipulated terms - Also termed (archaically) dead pledge.”4 “Dead pledge “ from mort "dead" + gage "pledge;" so called because the deal dies either when the debt is paid or when payment fails

In terms of Vietnamese semantics, "mortgage" is a Sino-Vietnamese word In which, "Thế means instead of"5 and "Chấp is to hold and keep"6 From that, when pairing these two words together, it can be understood that a property mortgage is a party using the property to fulfill or replace a previous obligation.7

The concept of "mortgage" is defined by Article 317 of the 2015 Civil Code as follows: “(1) Mortgage of property means the action of a party (hereinafter referred to as the mortgagor) use his/her property to secure the performance of an obligation and not to hand over the property to the other party (hereinafter referred to as the mortgagee); (2) The mortgaged property is held by the mortgagor The parties can agree to assign a third person to keep the mortgaged property Therefore, the legislator implicitly asserted that a mortgage would create an object relationship where the right is exercised directly on a particular object (property)

Current Vietnamese law does not have a specific definition of secured transactions, the Civil Code 2015 only has listing-measure provisions to refer the

types of security for the performance of obligations, including: 1 Pledge of property; 2 Mortgage of property; 3 Deposit; 4 Security collateral; 5 Escrow deposit; 6 Title retention; 7 Guarantee; 8 Fidelity guarantees; 9 Lien on property.8 It can be seen that, from the perspective of Vietnamese legislators, "mortgage" is considered as one

4 Black's Law Dictionary, 9th edition

5 Đào Duy Anh (2000), Từ điển Hán Việt, Nxb Khoa học xã hội, Hà Nội, tr154 6 Đào Duy Anh (2000), Từ điển Hán Việt, Nxb Khoa học xã hội, Hà Nội, tr394

7 Nguyên Vũ, Những quy định về thế chấp tài sản hình thành trong tương lai, Báo Pháp luật, 2021, https://baophapluat.vn/bds/nhung-quy-dinh-ve-the-chap-tai-san-hinh-thanh-trong-tuong-lai- post421051.html , truy cập ngày 19/03/2022

8 Article 292, Civil Code 2015

of the measures to secure the performance of an obligatory obligation using assest as the collateral

In short, "mortgage" is one of the measures to secure objects prescribed by law Accordingly, the mortgagor uses the property under his/her ownership to secure the performance of civil obligations towards the mortgagee and does not have to transfer such mortgaged property to the mortgagee

1.2 The nature of mortgage

The essence of “mortgage property” is a legal relationship whereby the owner of the property restricts his absolute right to the property and gives others a certain right to that property for the purpose of securing the performance of an obligation while retaining the right to exploit, use, and obtain profits from the mortgaged property

In a mortgage security measure, the subject matter brought by the parties as security is a certain property, which has a value that can be converted into cash, is recoverable and is compensatory for the fact that the guarantor has breached obligations specified in the contract

The essence of mortgage of property to secure an obligation is to create a right with a claim Thus, the arising of a right or not does not affect the arising of the right, unless otherwise agreed by the parties In addition, when there is no lien (no obligation to be performed), the corresponding security right will not arise, if the lien is destroyed, the security right is annihilated On the contrary, as long as the performance-secured lien appears, the corresponding collateral will appear and the parties will gain the ability to exercise their rights.9

1.3 The role of mortgage

9 Tăng Thị Hà Chi, Một số vấn đề về hợp đồng thế chấp tài sản đảm bảo thục hiện nghĩa vụ, 2019, Cổng thông tin điện tử sở tư pháp tỉnh Bình Dương https://stp.binhduong.gov.vn/bo-tro-tu- phap/Lists/GiaoDichBaoDam/DispForm.aspx?ID=19, truy cập ngày 22/3/2022

1.3.1 Empowering more creditor's rights

Vietnamese law as well as other countries’ law system following the tradition of Civil Law recognize two necessitated rights of the mortgagee, namely the right of following and the right to priority of payment when the mortgage measure comes into effect through a registration mechanism

By giving the above two physical rights to the creditor, it helps to partly guarantee the interests of the creditor when making a loan When the debt repayment obligation is not fulfilled, the creditor (also known as the mortgagee) will be guaranteed the right directly and immediately However, the mortgagee must also prove the legitimacy when exercising its rights on the mortgaged property with sufficient grounds such as: there is a breach of the secured obligation and the mortgage contract is valid

1.3.2 Enhance the debtor's willing to fulfill obligations

The enhancement of the debtor's responsibility for debt repayment is considered an inevitable consequence when "creating more rights for creditors" The contract of mortgage of property formed in the future will create a binding on the mortgagor by the value of the property to promote the responsibility of the mortgagor, forcing the mortgagor to perform its obligations When the mortgagor fails to perform part or all of its obligations, the mortgagee is allowed to use its right of recourse and priority to secure its lawful rights and interests, in accordance with the provisions of this Law law A physical right is granted to a creditor beyond the scope of the unauthorized relationship and is not subject to the unauthorized relationship Compulsory performance of this obligation does not stop at the right to claim (the right of the counterparty) to the obligor, but it is also reflected in the right of the mortgagee to directly influence the mortgaged real estate to secure ensure that this obligation will still be performed in the event that the right of counterpart is not

effective10 Therefore, the mortgagor will be forced to bear the burden of the obligation and the responsibility to perform the obligation

1.3.3 Ensuring the safety of the credit institution system and promoting credit activities

Credit markets are very important prerequisites for the efficient exploitation and use of resources in the economy The loan-lending relationship, also known as the credit relationship, has a far-reaching impact on the current market economy Credit activities play a decisive role in mobilizing and allocating idle capital in an economical and efficient manner In recent years, the system of credit institutions has developed strongly in order to promptly meet the demand for loans, improve the ability to access capital to serve the needs of people and businesses Therefore, to ensure a stable credit market, it is necessary to establish an effective collateral mechanism and handle collateral

The subject of the mortgage will normally be an asset of great value enough to cover the risks in the credit granting activities of the mortgagee, so it is necessary to ensure a safe and healthy mortgage operating environment promote credit market for parties in need

2 Concepts and constitutive elements of off-planed assets 2.1 Concepts

Vietnamese law recognizes "off-plan property" in many different legal documents and especially the 2015 Civil Code

Clause 2, Article 108, the 2015 Civil Code regulate: “Off-plan property includes: a) Non-formed property; b) Formed property that the entity has established his/her ownership rights after the time of transaction establishment.”

10 Nguyễn Quang Hương Trà, “Thế chấp bất động sản theo quy định pháp luật Việt Nam hiện hành”, tr49

Assets formed in the future include both movable and immovable property.11Assets formed in the future may be: apartments, villas that have been partially completed or have been built in whole but have not yet been issued with a certificate of ownership; property being means of transport subject to registration of ownership but not yet registered; machinery, production lines and equipment have been ordered to be purchased by the method of goods arriving at the port, there is a sale and purchase contract, and the bill of lading has arrived but the buyer has not paid enough money to the seller, after the party complete the payment for the seller to hand over the goods…

2.2 Constitutive elements of off-planed assets

There are two factors used to determine off-plan assets, including:

the physical state of the property - the property has not been formed according to the standard of physical form and has not been fully owned the properties, features and uses of that type of property at the time of entering into the contract; however, it will certainly have or be formed in the future;

(ii) Legal element: This element represents the legal status of the property Even when the property has been formed, the physical factors are ensured, but only after the transaction is established, the owners will establish the ownership rights;

It can be said that these are two necessary and sufficient factors to determine whether it is an existing asset or an asset formed in the future

11 Tổng cục Thi hành án dân sự, “Khái quát chung về pháp luật THADS tại Việt Nam, những khó khăn vướng mắc trong quá trình thi hành án dân sự”, Tài liệu Hội thảo: Trao đổi kinh nghiệm trong lĩnh vực thi hành án dân sự giữa Đại sứ quán Pháp tại Hà Nội và Tổng cục Thi hành án dân sự, Bộ Tư pháp, được tổ chức tại Hà Nội, ngày 07.7.2017

C Specific legal issues 1 Mortgage establishment

1.1 Involved subjects

Mortgage relationship is established to form a legal relationship between the parties, in which the rights and obligations of the parties are guaranteed by law The subject of the mortgage relationship consists of two parties, one party is called the mortgagor, the other is called the mortgagee

(1) Mortgagor

The mortgagor in a mortgage relationship performing an obligation means a party that commits to the other in an obligation relationship secured by that security relationship to the property under his/her ownership or by performing a certain task to secure the performance of obligations

Thus, in a mortgage relationship, the mortgagor is the party that commits before the obligee in the secured obligation relationship to the security of the performance of a civil obligation Usually, the mortgagor is also the "obligee" party in the secured obligation relationship For example, B borrows money from A and B mortgages his property as security for that payment

In addition, in the case of mortgage of property to secure a third party's obligations, the mortgagor is the party that uses its property to secure the performance of another's obligations Accordingly, "third party" is just a term used to refer to the guarantor in case they are not concurrently the civil obligor in the obligation relationship secured by that security measure The mortgagor in this case is not the borrower After the sale of the secured property, even if the value of the property sold is not enough to repay the loan, the liability (also known as the obligation) of the mortgagor will end after the sale When the property is sold, the borrower must continue to repay the debt The reason why the mortgagor's obligation terminates after the security property is sold is because this is a measure to secure the object, the mortgagor's obligation in this case is limited to the value of the property only

guaranteed This means that the mortgagor uses the value of the collateral to secure the performance of a civil obligation

(2) Mortgagee

The mortgagee in a mortgage relationship is the party that accepts the other party's commitment to secure the performance of a civil obligation with property Thus, the mortgagee is always the party with the "right" in the secured obligation relationship When the obligation is due, the mortgagee has the right to require the mortgagor to fully perform the commitments entered into in the contract; If you do not do it voluntarily, you may be forced to do it

The mortgagee's rights in respect of the mortgaged property shall not be terminated or voided by subsequent transactions in relation to the mortgaged property Any alteration to the original collateral does not deprive the mortgagee of its security because the mortgagee targets the value of the property, not the “form of existence of the mortgaged property” Even if the collateral is destroyed or disappeared, the mortgagee's right to demand payment is preserved

1.2 Basis for establishing mortgage

1.2.1 Mortgage contracts

Mortgage is a security measure with a complex nature between two factors: property rights and obligatory rights, in which, in that relationship, the contract of mortgage of off – plan properties (obligatory rights) establishes the right (real rights) of the mortgagee to the property formed in the future mortgaged The contract is the basis for establishing the effect of the mortgage measure on the off-plan properties between the parties to the mortgage measure Mortgage security measures prescribed by the Civil Code are essentially security measures formed on the basis of an

12 Đỗ Văn Đại (2014), “Một số vấn đề cơ bản về bảo đảm thực hiện nghĩa vụ dân sự”, tham luận trong Tài liệu Hội thảo quốc tế, Trường Đại học Luật Thành phố Hồ Chí Minh, tr33

Mortgage contract represents the will and agreement between the mortgagor and the mortgagee, whereby, the mortgagor agrees to use the future-formed property under his/her ownership to secure the performance of obligations towards the mortgagee

The mortgage contract also establishes the scope of security of the mortgaged property The secured obligation may be part or all of a civil obligation The scope of security of a mortgage on off-plan property does not exceed the obligation defined in the content of the principal obligation relationship13; only guarantee for the performance of obligations as agreed by the parties

1.2.2 Legal conditions 1.2.2.1 Subjects

The subject of the contract in general, especially the mortgage contract, needs to satisfy the legal capacity or is understood that the subject is not prohibited by law from participating in the mortgage relationship

According to the provisions of law, the subject participating in the security relationship can be an organization or individual participating in a contract or agreement with the application of a security measure

For the mortgagor, the scope of the subject is quite wide, the mortgagor can be an individual, a Vietnamese residing abroad, a legal entity, or a household as long as that subject satisfies the legal requirements relating behavioral competence For the mortgagee, the scope of the subject is more limited Only those who have the power to participate in the lending legal relationship can participate in the mortgage relationship Therefore, banks and credit institutions are the main actors involved in the legal relationship as the mortgagee The law also recognizes the case that the mortgage of an individual or economic organization that is not a credit

13 Trần Đức Dũng (2018), “Thế chấp nhà ở vay vốn ngân hàng theo pháp luật Việt Nam”, Luận văn thạc sỹ luật học, Trường Đại học Mở

institution for the land use rights and land-attached assets of the household or individual using the land when such subject serves certain specific conditions However, in reality, in the mortgage relationship, the common mortgagee is usually economic organizations and credit institutions

1.2.2.2 Off-plan properties as collaterals

In order to become the subject of a mortgage, the property must satisfy the following basic conditions: (i) The mortgaged property must be owned by the mortgagor, (ii) The mortgaged property must not be in dispute over ownership (iii) The collateral is transferable in civil transactions

Off-plan assets formed are one of the separate types of security assets, requiring specific legal mechanisms to regulate and ensure the safety of civil transactions A secured transaction on an off-plan asset is a “conditional” type of transaction

On a case-by-case basis, the mortgage of property to be formed in the future, especially real estate to be formed in the future, must satisfy the following conditions: (i) Conditions on the authenticity of the element that will be "formed in the future" on the physical aspect of the property:

The “future formation” element, or essentially it is the completion of the “physical” element of the asset forming in the future The element of certainty “in the future” is very important because this factor directly affects the security of the collateral Only when this factor is secured, will the mortgagee accept the receipt of the mortgagee's property to secure the debt repayment obligation of the mortgagor or a third party

For example, in case the investor mortgages a house to be formed in the future to be built in the project, the project dossier, the technical design of the project must be approved, and the mortgaged house has completed the construction of the foundation in accordance with the provisions of the law on construction.14 For 14 Points a, b, Clause 1, Article 148 of the Law on Housing 2014

organizations and individuals that build future houses on their lawful residential land plots; Organizations and individuals that buy houses to be formed in the future in the investor's housing construction investment projects must obtain a Construction Permit if they are required to have a Construction Permit.15

(ii) Conditions on the authenticity of the house ownership right to the mortgagor in the future: In principle, only the property owner can use his/her power to dispose of the property own property, except in special cases where there is a decision of the legislator or the owner authorizes another person in accordance with the law Thus, in a future mortgage, the mortgagor is necessarily the future owner of the mortgaged property Because, in the event that the obligor violates the obligations it has previously entered into, the mortgaged property will be handled to compensate for the damage caused by the non-performance of the obligation To perform this function, the mortgaged property must be owned by the mortgagor, otherwise, the mortgagor will not be able to perform the act of assigning (selling) the mortgaged property to pay for the price obligation that the obligor has breached

For example, in case an organization or individual mortgages a house to be formed in the future on their lawful residential land parcel, there must be a document certifying the lawful residential land use right in accordance with the land law.16 In case the buyer of a house of the investor in a housing investment project mortgages the house to be formed in the future, there must be a house purchase and sale contract signed with the investor and a written transfer of the contract house purchase and sale contract (if the transferee is the transferee of the house purchase and sale contract), have documents proving that the house purchase price has been paid to the investor according to the schedule agreed upon in the purchase and sale contract and is not in the have complaints, lawsuits or disputes about the house purchase and sale contract or the transfer of the house purchase and sale contract.17

15 Points c, Clause 1, Article 148 of the Law on Housing 2014 16 Points c, Clause 1, Article 148 of the Law on Housing 2014 17 Points c, Clause 1, Article 148 of the Law on Housing 2014

(iii) Conditions on the legal status of assets formed in the future: Assets formed in the future must be in the legal status of “unmortgage” Accordingly, assets formed in the future cannot be mortgaged many times under different asset statuses to secure the performance of many obligations This regulation represents a rather deep intervention in the mortgage relationship with off-plan property, demonstrating the necessary caution of legislators to minimize risks and arising disputes related to mortgage the assets which are in the state of “forming in the future”

(iv) Conditions about the safety of collateral: The mortgaged property must not be in dispute with other entities Undisputed mortgage means when the mortgage has determined that the mortgaged property belongs to the mortgagor Restrictions on collateral should be communicated to the mortgagee by the mortgagor at or before the conclusion of the contract This condition has the role of helping to reduce risks for the mortgagee, ensuring the disposal of the property when the mortgagor fails to perform its obligations, thereby maintaining the stability of the credit relationship in general

(v) Condition about the transferability of collateral: This condition concerns the transferability of collateral in civil transactions This condition comes from the function of "guaranteeing performance of obligations" of the real estate mortgage measure as a "backup amount of finance" in case the obligor fails to perform the obligation.18 If the obligor fails to perform, the property will be disposed of The law allows coercion on collateral as an effective measure to help creditors recover debts even if the debtor has the ability but does not perform the obligations Through the handling of assets, the property value after handling will have the role of remediating and compensating for damage caused by such violations Therefore, the security property must satisfy the condition that it is the subject of the contract of sale, or in other words, the property must be transferable through the sale and purchase contract

18 Trường Đại học Luật Hà Nội (2014), Báo cáo phúc trình Đề tài khoa học cấp Trường: “Hoàn thiện chế định pháp luật về giao dịch bảo đảm”, TS Phạm Văn Tuyết làm chủ nhiệm, Hà Nội

That is, title can be transferred to another person in exchange for an amount to be deducted for the value of the breached obligation for which the collateral has been secured This is a prerequisite for performing the important function of collateral, which is to ensure that the secured obligation will be performed

There are two basic factors to confirm that a property is transferable in civil transactions, that is: The property is not associated with personal factors and the property is not prohibited by law (property) is banned from circulation or has a seizure decision issued by a competent state agency)

2 Legal effect

2.1 Effect of the mortgage security measure between the parties

As mentioned above, the contract is the basis for establishing the effect of the mortgage measure on the property to be formed in the future between the parties to the mortgage measure This means that the validity of the mortgage contract will directly affect the validity of the mortgage security between the parties The contract must be valid for the mortgage measure established between the parties to take effect Mortgage contract is a form of civil contract The contract is formed based on the agreement of the parties' will Accordingly, there must be an offeror and the other party must accept that offer and not continue to make a new offer The mortgage contract must satisfy the provisions of the law to be valid

(i) Contracting parties need to satisfy behavioral capacity (ii) The subject matter of the contract is enforceable (iii) Ensure the form of the contract

The mortgage term is also the basis for determining the legally binding rights and obligations of the subject parties in the mortgage The time of entering into a contract depends on the form of the contract (Article 400 of the Civil Code) Meanwhile, the Civil Code does not stipulate that the form of mortgage of property

must be in writing, so the parties have the right to choose a suitable form of contract according to Article 119 of the Code

The time when the mortgage becomes effective can be one of the following three times: the time of notarization or authentication (for mortgages that must be notarized or authenticated), the time of registration (for the mortgage that must be registered) and the time of signing (for cases that do not have to be notarized or registered)

2.2 Effect against third party

The antagonistic effect against a third party in a security transaction comes into effect when a lawful security transaction is established The rights and obligations in the security transaction arise not only for the subjects directly participating in the security transaction (secured party and securing party) Such transactions still creates validity and change rights and obligations for even a third party who is not the subject of the secured transaction.19

The civil law of Vietnam explicitly provides for two methods of giving rise to an antagonistic effect against a third party of a security (Article 297): (1) Holding (or seizing) the security property; security and (2) Registration of security interest These two methods have the same antagonistic validity However, for a future-formed property mortgage relationship, the method of registration of security is the only feasible method

“Third party” here can be an individual or an organization other than the direct subject of the guarantor and the secured party in the mortgage transaction These include other unsecured or secured creditors, buyers, tenants, transferees of secured assets and so on

19 Nguyễn Xuân Bình, Hiệu lực đối kháng với người thứ ba trong bộ luật Dân sự 2015,Tạp chí công lý,2016, https://congly.vn/hieu-luc-doi-khang-voi-nguoi-thu-ba-trong-bo-luat-dan-su-2015- 142646.html , Truy cập ngày 20/4/2022

Registration is a mandatory procedure for a mortgage of a future property to take effect against a third party Unlike a property pledge, the conditions for the property mortgage measure to take effect are opposed to a third party's, thereby, making the mortgagee's right (which is including obligatory right’s characteristics) becomes a right (which is including real right’s characteristics) is required to register to publicize the rights established on the mortgaged property.20 Registration of mortgage of future land-attached assets means that the Land Registry Office records information on mortgage of future-formed land-attached assets in the cadastral book or the land register mortgage assets attached to the land formed in the future.21

Mortgage is effective against third parties from the time of registration

Registration of collateral is for the purpose of publicity and transparency of the legal value of the collateral The registration of property under the real estate registration system of countries has some differences, but the legal value of real estate registration has two types of values: 1) The registration creates an antagonistic effect on the third party; 2) The registration has legal validity between the parties - is the condition giving rise to the real estate – related rights

The registration is divided into 2 cases: the case where registration is mandatory and the case where registration is required

The following cases must be registered: a) Mortgage of land use rights; b) Mortgage of land-attached assets in case such property has been certified with ownership rights on the Certificate of land use rights, ownership of houses and other land-attached assets; c) Pledge of aircraft, mortgage of aircraft; d) Mortgage of ships

20 Nhà Pháp luật Việt – Pháp (2012), Kỷ yếu Tọa đàm về sửa đổi Bộ luật Dân sự, phần các biện pháp bảo đảm thực hiện nghĩa vụ, Hà Nội, 11-12/1/2012, tr.11-12

21 NCS, Phan Ngọc Hà, Đăng ký thế chấp quyền sử dụng đất và tài sản gắn liền với đất tại ngân hàng thương mại cổ phần,2022, https://tapchitoaan.vn/bai-viet/phap-luat/dang-ky-the-chap- quyen-su-dung-dat-va-tai-san-gan-lien-voi-dat-tai-ngan-hang-thuong-mai-co-phan5999.html, Truy cập ngày 25/4/2022

The following cases are registered upon request: a) Mortgage of other movable property; b) Mortgage of future land-attached assets; c) Preserve ownership in case of purchase and sale of land-attached assets or future-formed land-attached assets; purchase and sale of aircraft and ships; purchase and sale of other movable assets with retention of ownership rights

2.3 Termination of mortgage

The mortgage of the property terminates in the following cases: (1) The obligation secured by the mortgage terminates; (2) The mortgage of the property is canceled or replaced by another security measure; (3) The mortgage has been disposed of; (4) As agreed by the parties

Regulations on grounds for terminating the mortgage of property have an important meaning in determining the rights and obligations of the parties in the mortgage relationship In case of termination of mortgage, the parties are no longer bound by the mortgage contract The mortgagor may sell the mortgaged property or put the mortgaged property into circulation without the consent of the mortgagee At the same time, the mortgagee has no right to request the mortgagor to hand over the mortgaged property to him/her for settlement after the mortgage has been settled in accordance with the Law

Normally, when the parties fulfill their obligations, the obligation ends Or in some cases where the law provides for the termination of obligations under Article 72 of the Civil Code, the legal entities guaranteeing those obligations will also terminate During the performance of the obligation, the parties may cancel the mortgage agreement or replace it with other security measures such as pledge, guarantee, etc., then the mortgage shall terminate In case the mortgagor fails to perform or improperly performs an obligation but has the mortgaged property handled to pay the main obligation, after handling the security property, the mortgage will also terminate