Mortgage is a measure to ensure the implementation of obligations which is popularly applied in current practice. This measure is often used in the loan procedures at the Bank through Credit Contracts or Mortgage Contracts to ensure their loan. However, many disputes arise because the Bank arbitrarily auctioned the mortgaged property without the consent of the mortgagor when they cannot pay the loan. In this article, TNTP will analyze more clearly whether the banks have the right to auction mortgaged property without the consent of the mortgagor.

1. In what cases are banks allowed to dispose of mortgaged property?

• Pursuant to Article 299 of the Civil Code 2015 prescribed Cases of disposal of collateral, mortgaged property can be disposed of in the following cases:

“1. An obligator fails to perform or perform not as agreed an obligation when it falls due.
2. 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.
3. Other cases as agreed by the parties or prescribed by law.”

• Pursuant to Clause 6, Article 320 of the Civil Code 2015 prescribed Obligations of the mortgagor, the mortgagor is obliged to deliver the mortgaged property to the mortgagee for realization in one of the cases prescribed in Article 299 of this Code.

Based on the above regulations, in principle, Banks have the right to dispose of the collateral and the mortgagors must deliver the mortgaged property when they fail to perform their obligations. At the same time, the Banks must notify the mortgagor in writing before proceeding with the realization of collateral according to Article 300 of the Civil Code 2015 on Notification of disposal of collateral.

However, normally the mortgagors will try to reach an agreement with the Banks before the mortgaged property is disposed of. In case the parties cannot agree on a debt settlement solution, the Banks will proceed to collateral disposal. In fact, the mortgagor who is the owner of the mortgaged property often refuses to deliver and does not cooperate with the Bank in collateral disposal.

2. If the mortgagor does not agree, does the Bank have the right to arbitrarily auction the mortgaged property?

• According to the regulations of Clause 2, Article 7 of Resolution 42/2017/QH14 on pilot settlement of bad debts of credit institutions, the Bank is only allowed to conduct collateral disposal with the consent of the mortgagor, specifically:

“Article 7. Right to seize collateral

2. A credit institution or the bad debt purchaser/manager is entitled to seize collateral put up by a grantor or holder of collateral only if it satisfies fully the following conditions:
a) Occurrence of any case in terms of disposal of collateral prescribed in Article 299 of the Civil Code;
b) The security agreement clearly indicates the grantor’s consent to the credit institution’s right to seize the collateral upon the occurrence of the case of collateral disposal as per the law;
c) The secured transaction or security interests have been registered as prescribed by law;
d) The collateral is not in dispute in a case that has been accepted but remained unsolved or has been resolved at an authorized court; the collateral is not put under temporary emergency measures; and the collateral is not distrained or under judgment enforcement as prescribed by law;
dd) The credit institution or bad debt purchaser/manager has published information as prescribed in Clause 3 or Clause 4 of this Article.”

Thus, if the Contract signed by the parties does not contain content showing that the securing party agrees with the Bank having the right to seize the collateral of the bad debt when a case of realization of collateral occurs according to the regulations of law, the Bank does not have the right to seize the collateral.

• Pursuant to Clause 6, Article 52 of Decree 21/2021/ND-CP on Delivery of collateral, disposal of pledged properties, mortgaged properties, in case securing parties or individuals holding properties do not hand over collateral, secured parties have the rights to consider and conduct inspection of collateral to prevent dispersion of collateral, disposal or request courts for resolution.

Thus, it can be seen that without the consent of the mortgagor, the Bank is not allowed to arbitrarily conduct the disposal of the collateral by any measures. In case the debtor does not deliver the collateral to the Bank, the Bank only has the right to review and inspect the collateral to prevent the dispersion of the collateral, to be in disposal or request the competent Court to settle disputes according to the regulations of law.

Above are the contents and legal sharing of TNTP’s lawyer on: “Does the bank have the right to auction mortgaged assets without the consent of the mortgagor?” We hope this article is useful to readers.