Risk of losing home due to mortgaging property to lend to others

Risk

In January 2011, a business in Hai Duong City, represented by Mr. Bui Van B., borrowed 1 billion VND from Vietnam International Commercial Joint Stock Bank (VIB). The loan was secured by a passenger car and the property of a third party, Ms. Nguyen Thi C. (also in Hai Duong City), who mortgaged the land use right certificate and property attached to the land in her name.

After 1 year, the above enterprise did not pay the debt as committed in the contract. VIB filed a lawsuit, demanding that the enterprise pay the principal and interest.

Ms. C. requested the court to declare the mortgage contract that she signed without reading its contents invalid, and at the same time requested the bank to return the land use rights certificate.

The first instance judgment of the Hai Duong City People's Court determined that the above credit contract was completely voluntary and legal. The third-party mortgage contract between the bank and Ms. C. was notarized and registered as a mortgage at the Land Use Registration Office in accordance with the law.

According to the court's decision, the enterprise must pay the principal and interest to VIB of more than VND3.2 billion. In case the enterprise fails to repay the debt, the bank has the right to request the enforcement agency to sell the mortgaged property to recover the debt.

According to the enforcement officer of the Hai Duong City Civil Judgment Enforcement Office, the time limit for voluntary enforcement has expired but the party subject to enforcement has not yet complied. Upon verification, this enterprise has ceased operations and abandoned its business address since 2012. During the trial, this enterprise was also absent for unknown reasons.

To ensure the strictness of the law, the Hai Duong City Civil Judgment Enforcement Office calculated the plan to apply coercive measures and seize mortgaged assets. Thanks to good advocacy and persuasion, the above complicated case ended at the end of 2023 without having to apply coercive measures.

A cautionary tale

According to the Civil Judgment Enforcement Department of Hai Duong City, the above incident is a wake-up call for third parties who mortgage their property to others (who may be relatives, friends) to borrow from banks. In some cases, the mortgaged property is the property of a third party but they are unable to pay. In these situations, the third party is at risk of losing the property. Part of the reason is that the person who mortgages the property to others for a loan is not fully aware of the legal consequences when a bad situation occurs, because of trust, or even not reading or carefully studying the documents, terms, and papers related to the mortgage contract.

According to the Hai Duong City Civil Judgment Enforcement Department, judgment enforcement cases related to disputes over credit contracts and mortgage contracts account for a large proportion of current judgment enforcement cases.

According to the advice of a lawyer in Hai Duong, when handing over assets to guarantee another person to borrow money from a bank, the owner of the assets must research and consider carefully. Because if they have voluntarily signed a mortgage contract, they cannot shirk responsibility. There have been cases where a team of "loan brokers" took advantage of the lack of knowledge of some individuals, when "doing" the bank loan procedures, they appropriated up to 9 parts, only transferring 1 part. In these cases, in theory, the bank has the right to handle the mortgaged assets to recover the debt, but in reality, handling the mortgaged assets of a third party always encounters many troubles.

To limit the risk of disputes when receiving collateral from a third party, both the bank and the borrower need to pay special attention to the contract, terms, regulations and need to closely assess the collateral. The party standing as a guarantor for the borrower is often a relative or friend of the borrower, but when the guarantee obligation arises, they can also find a way to evade, leading to the risk of the bank losing capital. On the contrary, if the borrower has complications and does not properly perform the contract, the guarantor will inevitably be involved.

*The names of the characters in this article have been changed.