Realizing mortgaged assets is one of the bases for terminating a mortgage; therefore, realizing mortgaged assets will affect the rights and interests of parties in the mortgage relationship as well as other related parties. According to Article 299 of the 2015 Civil Code, realizing mortgaged assets is performed in the following three cases: i) An obligator fails to perform or perform not as agreed an obligation when it falls due; ii) An obligator must perform the secured obligation before the time limit due to his/her violation of the obligation as agreed or prescribed by law; iii) Other cases as agreed by the parties or prescribed by law. In this article, TNTP will specifically analyze the cases of realizing mortgaged assets according to current legal regulations.
1. First case: An obligator fails to perform or perform not as agreed an obligation when it falls due
In the first case, the secured obligation is usually related to borrowing and payments, including obligations to pay interest, compensation for damages, and other costs. If the parties do not agree on the scope of mortgage security, any breach of obligation may lead to a case where the mortgagee has the right to realise mortgaged assets.
2. Second case: An obligator must perform the secured obligation before the time limit due to his/her violation of the obligation as agreed or prescribed by law
For the second case, depending on the parties’ agreement, the right-holder may realise mortgaged assets to recover the secured obligation prematurely if the obligated party breaches the agreement. Apart from cases of realizing mortgaged assets as agreed, specialized law also stipulates cases where mortgaged assets may be realised even if the secured obligation is not yet due or not breached. For example, if the mortgagor is undergoing bankruptcy proceedings at the competent People’s Court, the Court may suspend the contract not yet due and require realizing mortgaged assets to secure the suspended obligation (Article 53.1 (b) of the 2014 Bankruptcy Law).
3. Third case: Other cases as agreed by the parties or prescribed by law
In the third case, based on the basic principle of civil law that parties’ agreements must be respected, the entities related to the mortgaged assets have the right to agree and unify with each other on realizing mortgaged assets to benefit all parties. However, such agreements should not be contrary to social ethics, not violate legal regulations, nor affect the legal rights and interests of third parties. For example, the parties may agree that if the mortgagee discovers risks that seriously reduce the value of the mortgaged assets, the mortgagee has the right to request realizing mortgaged assets.
Above is TNTP’s article on “Legal regulations on the cases of realizing mortgaged assets”. We hope this article will be useful to the readers.
Sincerely,
