Can we build a house on land that is mortgaged at a bank?

Legal question:

 

My family is mortgaging a piece of land at the bank to borrow 2 billion VND. Currently, I want to apply for a construction license for a house on the mortgaged land. Is it possible? Does the bank require any commitment from me, and what are the procedures to apply for the construction license in this case? Sincerely thank you!

 

Answer:

 

Thank you for sending your question to FDVN Law Company (FDVN). Regarding your consultation request, after researching relevant legal regulations, FDVN has some exchanges as follows:

 

[1] Can we build a house on the mortgaged land at the bank?

 

Pursuant to Article 321 of Civil Code 2015, the rights of the mortgagor are prescribed as follows:

 

“1. Exploit, and to enjoy the yield and income derived from, the property, except where the yield and income also form part of the mortgaged property as agreed.

 

2. Invest in order to increase the value of the mortgaged property…”

 

Therefore, according to the regulations, for assets such as land use rights, you still have the right to increase the value of the mortgaged property, including the construction of a house on the land.

 [2] The procedure for building a house on land currently mortgaged at the bank

 

Due to your land being mortgaged in the bank, in terms of procedures, aside from obtaining a construction permit, it depends on the content of the mortgage contract and the credit agreement you signed with the bank to determine whether you need to notify the bank about building a house on the land. If the contract stipulates that you must notify or obtain approval from the bank holding the mortgaged property, you need to follow the procedures for notification, seek approval, and request the bank to provide necessary documents for obtaining the construction permit. These documents may include notarized copies of land use rights certificates or documents with the content "original held at the bank." In practice, the bank will issue a letter of consent for you to build a house on the mortgaged land and may require you to sign additional commitments regarding the mortgage of all assets attached to the land that may arise in the future to avoid disputes during the handling of mortgaged assets later on.

 

a) Conditions for granting construction permits for separate houses (Article 93 of the Construction  law 2014)

 

* Conditions for granting construction permits for separate houses  in urban areas:

 

-  Conformable with land use purposes as prescribed by the Law on land and architectural management regulations adopted by competent state agencies

 

- Ensuring safety for the works and adjacent works and meeting requirements on environmental protection and fire and explosion prevention and fighting; ensuring safety for technical infrastructure and protection corridors of irrigation works, dikes, energy works, traffic works, cultural heritage zones, historical-cultural relics; ensuring safety distance to fire- or explosion-prone and hazardous facilities, and important works related to national defense and security;

 

- Having their construction designs made under Clause 7, Article 79 of the Construction law 2014;

 

*Conditions for granting definite-term construction permits for separate houses (Clause 3, Article 1 of the Construction Law amended in 2020)  

 

- The construction works are located in areas with construction zone planning, sub-zone planning for construction of function zones or detailed planning or detailed planning for construction of function zones approved and announced by competent state agencies but not yet implemented, for which there are no land appropriation decisions of competent state agencies;

 

- Suitable to the size of works prescribed by provincial-level People’s Committees for each area and the existence duration of works according to plans for implementation of construction zone planning, sub-zone planning for construction of function zones or detailed planning or detailed planning for construction of function zones approved by competent state agencies;

 

- Conformable with land use purposes defined in lawful documents on land of the applicant for definite-term construction permit;

 

- Upon expiry of the existence duration stated in the definite-term construction permit and issuance of land appropriation decision by a competent state agency, the project owner shall undertake to demolish the works; if the project owner fails to demolish the works, the demolition shall be coerced and the project owner shall bear all demolition costs. After this period, if the construction planning is still not yet implemented, the project owner is allowed to use the construction work until a land appropriation decision is issued by competent state agency. The demolition shall be assisted in accordance with provisions of the Law on land.

 

- Ensuring safety for the works and adjacent works and meeting requirements on environmental protection and fire and explosion prevention and fighting; ensuring safety for technical infrastructure and protection corridors of irrigation works, dikes, energy works, traffic works, cultural heritage zones, historical-cultural relics; ensuring safety distance to fire- or explosion-prone and hazardous facilities, and important works related to national defense and security;

 

- Having their construction designs made under Clause 7, Article 79 of the Construction law 2014;

 

b) Procedures for construction permits

 

* A dossier to request for construction permits (Pursuant to Clause 1, Article 95 of the Construction law 2014)

 

 - An application for a construction permit;

 

- A copy of one of the papers proving land use rights as prescribed by the land law;

 

- Construction designing drawings;

 

- A written commitment to ensure safety for adjacent works, for construction works adjacent to other works.

 

* Authority to issue construction permits for separate houses: Provincial-level People’s Committees (Clause 37, Article 1 of  the Amended Construction Law 2020)

 

*   The time limit for the grant of a construction permit: 15 days for separate houses

 

[3] Legal consequences when the mortgagee fails to fulfill payment obligations.

 

According to the provisions of Article 299 of the Civil Code of 2015, it specifies the handling of secured assets in various 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 time limit due to his/her violation against the obligation as agreed or prescribed by law.

 

3. Other cases as agreed by the parties or prescribed by law.”

 

In this case, you use the certificate of land use rights for mortgage purposes. Therefore, the provisions of Article 325 of the Civil Code 2015 apply, which stipulates:

 

“Article 325. Mortgage on land use rights without mortgage of property on land

 

1. With respect to mortgage on land use rights without mortgage property on that land but the land user is also the owner of the property on land; such property shall also part of the realized property, unless otherwise agreed.

 

2. With respect to mortgage on land use rights that the land user is not also the owner of the property on land, such owner may keep using such land within his/her rights and obligations during the realization of the land use rights. The rights and obligations of the mortgagor in relation with the owner of the property on land shall be transferred to the transferee of the land use rights, unless otherwise agreed.”

 

Therefore, if you fail to fulfill your repayment obligation by the due date, the secured asset in this case, which is the right to use the land, will be processed through auction if there is no other agreement between you and the bank. The above is the advisory opinion of FDVN regarding your consultation request based on the research of legal regulations. We hope that FDVN's advice will be helpful to you.

 

According to Hoang Tran Ngoc Anh - FDVN Law Firm

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