Abstract
In real estate transactions, it is not uncommon for land use rights to be mortgaged to a bank while the land user still wishes to transfer those rights to another person. This raises an important legal question: Can mortgaged land be transferred? If so, what conditions must be satisfied, and what are the legal consequences if the parties proceed with the transfer before the mortgage is discharged? This article analyzes the current legal provisions governing land, civil transactions, and secured transactions in order to clarify the limits of the mortgagor’s right of disposition, assess practical application, and propose recommendations for improving the law.
Keywords: mortgage of land use rights, land transfer, secured transactions, mortgage discharge, right of disposition over property.
1. Introduction
A mortgage of land use rights is one of the most commonly used measures for securing the performance of obligations. In credit transactions, banks frequently require borrowers to use land use rights or assets attached to land as collateral for loans.
However, during the performance of a credit agreement, a borrower may still wish to transfer the land use rights. For example, the land user may wish to sell the land to repay a bank loan, transfer it to another person for the implementation of an investment project, or restructure his or her assets.
In practice, many people believe that land that has been mortgaged cannot be sold under any circumstances. Conversely, another view holds that the land user remains the lawful owner of the asset and therefore retains the right to freely dispose of it.
These differing perceptions have resulted in numerous disputes concerning the validity of transfer agreements, the responsibilities of banks, and the rights of transferees. Therefore, accurately determining whether land under mortgage may be transferred is of significant practical importance.
2. Overview of the Mortgage of Land Use Rights
Article 317 of the 2015 Civil Code provides:
“A mortgage of property is the use by one party of property owned by that party to secure the performance of an obligation without transferring possession of the property to the mortgagee.”¹
With respect to land use rights, a mortgage is established through a mortgage agreement between the land user and a credit institution.
The essence of a mortgage transaction is that the mortgagor does not transfer ownership or land use rights to the bank; rather, those rights are merely used as security for the performance of the repayment obligation.
Accordingly, as a matter of principle, the land user remains entitled to possess, exploit, and use the land during the mortgage period.
However, the right of disposition is limited by the rights and interests of the mortgagee.
3. Conditions for the Transfer of Land Use Rights under Current Law
Clause 1 Article 45 of the 2024 Land Law provides that a land user may exercise the right to transfer land use rights when the following conditions are satisfied:
- A Certificate of Land Use Rights has been issued;
- The land is not subject to any dispute;
- The land use rights are not subject to distraint for judgment enforcement purposes;
- The land remains within its permitted term of use.²
However, where the land use rights are mortgaged, it is also necessary to consider the provisions of the Civil Code governing secured transactions.
4. Can Mortgaged Land Be Transferred?
4.1. General Principle: Transfer Is Permitted with the Mortgagee’s Consent
Clause 8 Article 320 of the 2015 Civil Code provides that the mortgagor:
“Must not sell, replace, exchange, or donate the mortgaged property, except with the consent of the mortgagee or as otherwise provided by law.”³
This provision demonstrates that Vietnamese law does not absolutely prohibit the transfer of mortgaged land.
On the contrary, such a transaction may still be carried out if the mortgagee—namely, the bank or credit institution holding the security interest—gives its consent.
The rationale is that the bank’s interest in the secured asset must be protected. If the land user transfers the property without the bank’s approval, there is a significant risk that the collateral securing the loan will be impaired.
4.2. Transfer for the Purpose of Discharging the Mortgage
This is the most common scenario in practice.
Typically, the process is carried out as follows:
- The buyer and seller enter into a deposit agreement;
- The buyer pays part of the purchase price so that the seller can repay the bank loan;
- The bank carries out the mortgage discharge procedures;
- The Land Registration Office removes the registration of the security measure;
- The parties execute the official transfer agreement.
This model is widely used in real estate transactions involving bank-financed properties.
From a legal perspective, it represents a balanced solution that protects the interests of all three parties: the seller, the buyer, and the bank.
4.3. Transfer Without the Bank’s Consent
This situation gives rise to the greatest number of disputes.
If a land user unilaterally executes a transfer agreement while the land use rights remain registered as mortgaged, the transaction may face significant legal risks.
First, the buyer may be unable to complete the registration of ownership because the mortgage registration remains recorded in the land registration system.
Second, the bank retains the right to enforce against the collateral if the borrower breaches the repayment obligation.
Third, the transfer agreement may become the subject of disputes and prolonged litigation.
Although such a civil transaction is not automatically invalid in all circumstances, a transfer conducted in breach of the mortgagor’s obligations may give rise to liability for damages.
5. Legal Consequences for the Transferee
One issue frequently debated in practice is whether a purchaser should be protected if he or she was unaware that the land was mortgaged.
As a matter of principle, mortgage registration information is public information. A transferee has a duty to investigate the legal status of the real property before entering into a transaction.
If the purchaser fails to verify the registration status of the secured transaction, he or she may face risks such as:
- Inability to register the transfer of land use rights;
- Enforcement of the property by the bank;
- Involvement in court proceedings and disputes.
Therefore, verifying the mortgage status of a property before signing a transfer agreement is an essential requirement in real estate transactions.
6. Commentary and Evaluation
The current legal framework allowing the transfer of mortgaged land with the mortgagee’s consent is reasonable.
First, it safeguards the land user’s right to dispose of property.
Second, it simultaneously protects the interests of credit institutions in relation to secured assets.
Third, it facilitates greater flexibility in real estate transactions and contributes to the efficient operation of the property market.
Nevertheless, certain shortcomings remain.
Many individuals do not clearly understand the distinction between:
- Mortgaged land;
- Land subject to distraint or seizure;
- Land subject to restrictions on transactions.
Furthermore, public access to information concerning mortgage registration is still not sufficiently convenient.
As a result, many purchasers discover that a property is mortgaged only after they have paid a deposit or entered into a contract.
7. Recommendations for Improving the Law
To reduce the likelihood of disputes, the following measures should be considered:
First, improve public access to databases containing information on the mortgage status of land use rights.
Second, provide clearer regulations regarding the responsibility of notaries to verify the status of secured transactions before notarizing transfer agreements.
Third, enhance coordination mechanisms between banks and land registration authorities in mortgage discharge procedures.
Fourth, strengthen legal awareness campaigns to help the public better understand the conditions governing the transfer of mortgaged land.
8. Conclusion
Land mortgaged to a bank is not property that is prohibited from being transferred. However, the land user’s right to transfer the property is limited by the rights of the mortgagee.
Under current law, a land user may still transfer mortgaged land use rights if the bank consents or if the mortgage is discharged in accordance with legal procedures.
Conversely, an unauthorized transfer made without the mortgagee’s approval may result in significant adverse legal consequences for both the transferor and the transferee.
Therefore, before entering into any real estate transaction, the parties should carefully verify the legal status of the property and fully comply with the regulations governing secured transactions in order to ensure the legal safety and effectiveness of the transaction.
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Khuong Ngoc Lan