In the activities of credit institutions in general and banks in particular, to ensure the borrower’s payment obligations to the loan, banks often take measures to ensure the fulfillment of the borrower’s obligations. One of the most common methods is mortgaging assets. However, does the bank have the right to seize the secured asset without the consent of the mortgagor? In the following article, TNTP’s lawyer will give his opinion on this issue.
1. What is a mortgage?
According to Article 317 of the Civil Code 2015, Mortgage of property is the use of property owned by one party (hereinafter referred to as the mortgagor) to ensure their performance of obligations and not handing over the property to the other party (hereinafter referred to as the mortgagee). In addition, the parties can agree to hand over the mortgaged property to a third person for keeping.
Therefore, mortgaging assets for bank lending activities is to ensure the borrower’s payment obligations. At that time, the borrower still has the right to own their property and use the mortgaged property if the parties agree so. However, this property must be registered as a security interest and cannot be transferred to any other party while it is still mortgaged.
2. Register mortgaged assets
• According to the provisions of Article 292 of the 2015 Civil Code on measures to ensure the performance of obligations, a mortgage of asset is a type of security to ensure the performance of obligations in civil relations between the parties.
• With Article 298 of the Civil Code on registration of security, the mortgage must be registered under the provisions of law at competent agencies.
Thus, the mortgage in bank lending activities will also have to be registered with competent authorities to ensure validity.
3. The Bank’s right to seize the security assets
• Because the secured assets are still owned by the securing party, the seizure of these assets must comply with the conditions agreed upon by the parties, as well as the provisions of law.
According to the provisions of Article 299 of the Civil Code 2015, cases where collateral is entitled to be seized include:
– When the secured obligation is due to be performed, the obligor fails to perform or perform the obligation incorrectly.
– The obligor must perform the secured obligation before the deadline due to a breach of obligation according to the agreement or according to the provisions of law.
– Other cases agreed upon by the parties or prescribed by law.
Thus, in case the borrower fails to fulfill its payment obligations, or there is an agreement between the borrower and the bank on other cases in which collateral is allowed to be seized, the borrower’s secured assets will be seized according to the provisions of law.
• At the same time, the provisions in Article 303 of the Civil Code 2015 are also applied, according to which the securing party and the secured party have the right to agree on one of the following methods which pledged and mortgaged assets will be handled:
a) Auction of assets;
b) The secured party sells the property itself;
c) The secured party receives the property itself as a substitute for the performance of the securing party’s obligations;
d) Other methods.
In case there is no agreement on the method of disposing of secured assets according to the provisions herein, the assets will be auctioned, unless otherwise prescribed by law.
From those provisions, it appears that one of the methods of handling pledged and mortgaged assets is that the secured party receives the assets itself as a substitute for the performance of the securing party’s obligations. In other words, the bank has the right to repossess security assets to replace the performance of the mortgagor’s obligations.
4. Does the bank have the right to seize the asset without the consent of the Mortgagor?
• Applying the provisions in Clause 2, Article 7 of Resolution 42/2017/QH14 on pilot handling of bad debts of credit institutions, the credit institutions can seize the secured asset without consent of the mortgagor when the following 5 conditions are met:
– Occurrence of any case in terms of seizure of security asset prescribed in Article 299 of the Civil Code;
– The security agreement indicates the grantor’s consent to the credit institution’s right to seize the security asset upon the occurrence of the case of treating collateral as per the law;
– The secured transaction or security interest has been registered as prescribed by law;
– The security asset is not in dispute in a case that has been accepted but remained unsolved or has been resolving at an authorized court; the security asset is not put under temporary emergency measures; and the security asset is not distrained or under judgment enforcement as prescribed by law;
– The credit institution or bad debt purchaser/manager has fulfilled the obligation to publish information as prescribed by law.
Therefore, it appears that many credit institutions have applied the above regulations to seize the security asset when all five conditions in Resolution 42/2017 are met without the consent of the mortgagor. However, Resolution 42/2017 has expired on January 1, 2024. At the moment, credit institutions cannot seize secured assets without the consent of the mortgagor according to the law.
• However, applying the provisions in Article 301 of the Civil Code 2015, which state that in case the person holding the security asset does not hand over the asset, the secured party is entitled to request the Court to resolve, except when the relevant law provides other.
Thus, in case the party mortgagor does not hand over the asset, the bank has the right to request a competent Court to resolve it. They must go through a legal process to be able to proceed with foreclosure activities. This ensures the borrower’s rights and ensures that the bank does not have too much power to unilaterally conduct asset seizure activities.
Due to the nature of the security asset, although it has been mortgaged at the bank, the ownership still belongs to the mortgagor. The bank’s ability to arbitrarily seize the mortgaged asset without the mortgagor’s consent may violate the rights of the mortgagor while they still own the property. Therefore, TNTP believes that according to the current law, although the Bank has the right to seize assets, it does not have the right to enforce the right to seize assets without the consent of the Mortgagor. The seizure of assets will be resolved according to legal proceedings to ensure the rights of the parties in the security transaction.
Above is an article by TNTP’s lawyer on the topic: “Does the bank have the right to seize security assets without the consent of the security asset owner?”. We hope this article brings value to our readers.
Best regards,
