PROTECTING THE RIGHTS OF HOME BUYERS IN THE CASE OF PROJECT MORTGAGES FROM THE PRACTICE IN HỒ CHÍ MINH CITY
PROTECTING THE RIGHTS OF HOME BUYERS IN THE CASE OF PROJECT MORTGAGES FROM THE PRACTICE IN HỒ CHÍ MINH CITY
Hoàng Thị Biên
MSc, Faculty of Law – University of Labor and Social Affairs (Branch 2)
ABSTRACT
Mortgaging real estate projects to credit institutions is the right of the investor to mobilize capital during the housing development process. Although the law has regulations aimed at protecting the rights of home buyers, there have been certain inadequacies in practice in Hồ Chí Minh City in recent years. In this article, the author delves into some legal regulations on the sale of houses in mortgaged projects and the risks faced by people when buying houses in mortgaged projects. From there, the author proposes some measures to protect home buyers in mortgaged projects in Hồ Chí Minh City.
Keywords: Protection; housing project; home buyer; mortgage.
I. INTRODUCTION
Hồ Chí Minh City is the locality with the highest population density in the country, with 4,481 people/km², an area of more than 2,095 km², and a population of 938,972 people (“Dân số thành phố Hồ Chí Minh”, 2024). Therefore, the demand for housing to stabilize people’s lives is very high. With the form of purchasing future housing projects, people can buy houses through deferred or installment payments at low prices and can participate from the beginning of the housing construction process. For investors, they can mobilize capital from customers, and to have capital to complete the project, the investor can mortgage the project itself at credit institutions.
In such conditions, homebuyers may face certain disadvantages. To protect homebuyers in mortgaged projects, the state has issued many regulations on the transaction conditions for buying and selling future housing, regulations on the responsibilities and obligations of investors to customers, and regulations for handling violations if any. However, there are many limitations in the actual application, leading to certain consequences and damages for homebuyers. Therefore, evaluating some regulations on protecting homebuyers in mortgaged housing projects and their practical application in Hồ Chí Minh City to contribute to perfecting the law in this field is very necessary.
II. OVERVIEW OF LEGAL REGULATIONS ON THE SALE OF HOUSES IN MORTGAGED PROJECTS
According to Clause 1, Article 317 of the 2015 Civil Code, mortgaging assets is the act of one party (hereinafter referred to as the mortgagor) using assets under their ownership to secure the performance of an obligation without transferring the assets to the other party (hereinafter referred to as the mortgagee). The assets used for mortgaging are diverse and can be either movable or immovable. Future housing is explained in Clause 19, Article 3 of the 2014 Law on Housing as houses that are currently under construction and have not yet been accepted for use.
The mortgage of housing projects by investors is stipulated in Article 147 of the 2014 Law on Housing, specifically: “In cases where investors of housing construction projects are allowed to mortgage the project or mortgage houses constructed within the project at credit institutions currently operating in Vietnam to obtain loans for investment in the project or housing construction.” Thus, in the field of real estate business, it is normal for investors to mortgage projects, houses, and works to obtain bank credit for project development and housing completion, and then discharge the mortgage. This is the right of the investors in carrying out housing projects as permitted by law.
Regarding mortgaged assets at credit institutions, typically, assets mortgaged at credit institutions cannot be bought, sold, or transferred because the mortgaged assets belong to the credit institutions until the release procedures are completed. However, the law has now provided more open and favorable regulations for investors on this matter, as stipulated in Clause 1, Article 147 of the 2014 Law on Housing and Point b, Clause 2, Article 19 of Decree No. 99/2015/NĐ-CP:
“In cases where investors have mortgaged housing construction projects or houses that will be sold or leased-purchased, the investors must attach documents proving the release of the mortgage or a unified agreement among the buyers, lessees, and mortgagees on not having to release the mortgage and being able to buy, sell, or lease-purchase the house. If there is no mortgage on the project or house to be sold or leased-purchased, the investors must clearly commit to taking responsibility in the documents sent to the Department of Construction.”
According to this regulation, investors of mortgaged projects are still entitled to sell, transfer, or lease the housing in the project in two cases:
Firstly, the investors have released the mortgage before signing capital contribution contracts, sales contracts with customers, as specified in the document notifying that the housing is eligible for sale issued by the provincial housing management agency, specifically the Department of Construction where the housing is located.
Secondly, if the mortgage has not been released, the investors are allowed to open for sale with the agreement through a consent memorandum between the customers and the credit institutions where the investors are mortgaging. This means that investors must fully inform buyers about the project being mortgaged at credit institutions and obtain the consent of both parties regarding the opening for sale.
Thus, it can be seen that although housing law recognizes the right of real estate investors to mortgage projects, it also imposes conditions on mortgaging and conditions on selling mortgaged houses to try to protect the rights of homebuyers.
III. RISKS FOR HOME BUYERS IN MORTGAGED PROJECTS FROM THE PRACTICE IN HO CHI MINH CITY
According to the report on the results of monitoring the issuance of certificates to home buyers by the People’s Council of Hồ Chí Minh City, there are currently 60 housing projects in the city where investors have mortgaged the projects to banks and have not yet released the mortgage, so certificates have not been issued to home buyers.
Upon review, many projects registered mortgages for a long time but have not yet completed the mortgage release procedures, affecting the issuance of certificates to home buyers. Among these, 41 out of 60 projects were mortgaged by investors from 2016 to 2023, and some projects have been put into use and handed over to home buyers (Bích Trần, 2023). This is a concerning reality because the legal regulations have not been properly implemented in practice in the area, leading to many disadvantages for home buyers.
Some instances of non-compliance can be attributed to the responsibility of the project investors, as follows:
Firstly, investors have not released the mortgage but have opened for sale to customers. This is particularly prevalent in projects that are just starting construction; investors have not been granted the Land Use Rights Certificate but have mortgaged the project to banks in the form of mortgaging the project’s implementation rights. This often occurs in joint ventures where there are co-investors in the project. In such cases, the landowner, lacking funds, contributes capital in the form of land use rights value, while the other party mortgages the project’s implementation rights to mobilize funds.
Secondly, there are quite a few investors who mortgage both the land and future apartments. These apartments will be released from the mortgage when they reach new owners; however, the land use rights for building the apartments remain mortgaged at credit institutions. If the investor is unable to repay the debt, the rights and interests of the home buyers in the apartments will be affected. The most evident consequence is that home buyers face delays in being granted the Land Use Rights Certificate, the house ownership certificate, and other assets attached to the land.
Thirdly, many investors intentionally violate the regulations by concealing the mortgage status of the project from customers, only providing generic legal documents without informing customers of the legal status of the real estate. According to Clause 1, Article 4 of Decree 02/2022/NĐ-CP, dated January 6, 2022, detailing the implementation of several provisions of the Law on Real Estate Business, real estate business organizations and individuals are required to publicly disclose information about the mortgage status of houses, construction works, and real estate projects on the enterprise’s website, at the project management office, and at the real estate exchange.
However, in practice, many investors intentionally violate this regulation, not clearly disclosing the mortgage status of the project while opening sales to the public. Consequently, due to the lack of information, buyers confidently sign contracts and only realize the situation when it’s too late.
Identifying the causes of this situation, several reasons can be observed:
At first, investors mobilize capital from both credit institutions and customers but do not use the capital for the intended purposes, instead diverting it to other fields or fraudulently appropriating customers’ capital, resulting in the project not being completed on schedule.
For example, the Dream Home Riverside project was introduced to the market by the investor Nhà Mơ and DKRS at the end of 2017 and immediately proceeded to sign deposit contracts for apartment purchases with customers. Since 2018, Nhà Mơ “voluntarily” signed deposit contracts with customers on land not under its ownership, with the estimated amount of capital appropriated from customers through deposit contracts reaching hundreds of billions of VND. However, the project has still not been completed to date (Tô Thị Phương Dung, 2021).
Furthermore, investors mobilize capital from credit institutions and customers but are unable to repay the bank debt. Therefore, when the project is completed, a single asset has two entities with rights: the right to handle the asset by the bank when the debt is overdue and the ownership rights of the customers who have completed their financial obligations.
In this case, the investor has put customers in a situation of asset disputes, despite the customers having fully paid for their assets. This situation has also occurred in several projects in Hồ Chí Minh City, such as the Khang Gia Tân Hương apartment building in Tân Phú district, which was seized and handled by Nam Á Bank due to the mortgage of the project by the investor Khang Gia Real Estate Investment and Development Joint Stock Company (Nhân Sơn, 2019).
From the customers’ perspective: With the desire to have a home to settle down and build a career, buyers have not hesitated to spend large sums of money to purchase houses in the projects of real estate investors without thoroughly researching the financial resources of the investors and whether recent projects have handed over houses to buyers on time.
It is very evident that buyers are the weaker party as they do not fully understand the legal regulations on house transactions in projects and find it difficult to access comprehensive and accurate information about the projects. The contracts presented at signing are mainly standard contracts prepared by investors, which may result in an imbalance of rights between investors and customers (Ninh Thị Hiền, Ngô Gia Hoàng, 2021).
From the credit institution’s perspective: The responsibility for fulfilling their duties and managing strictly lies with the mortgagee. However, there are bank branches that loosen management, or are even lenient, leading to investors using loans for improper purposes. Therefore, commercial banks need to fulfill their responsibilities and take measures to supervise the proper use of credit loans by investors, and closely monitor future mortgaged assets to ensure loan recovery.
Thus, the mortgaging of projects by investors is in line with current legal regulations. This is an effective capital mobilization channel for real estate project investors to develop projects and products for the real estate market. If investors fulfill their commitments and comply with current legal regulations regarding mortgaging, releasing mortgages, or paying the mortgagees, the rights of customers will naturally be ensured. However, if investors do not fulfill their obligations to the mortgagees, it can lead to several consequences:
Firstly, the purchase contracts between home buyers of future housing in projects where investors have not fulfilled their obligations to the bank and have not released the mortgage may be invalidated in the event of a dispute. In this case, the home buyer has the right to reclaim their money, and the seller takes back the house.
If the purchase contract does not specify terms regarding penalties for violations or unilateral termination of the contract when the investor fails to release the mortgage, deliver the house on time, or complete the procedures for issuing the house ownership certificate as initially agreed, the home buyer will not be compensated, cannot unilaterally terminate the contract to reclaim their money, cannot obtain loans or mortgage the house, and cannot transfer it to others. They can only transfer it back to the investor, which affects their rights and interests. In this case, the buyer spends both time and money without any results.
Secondly, delayed handover by the investor: This occurs when the investor delivers the house later than initially agreed. Customers may have fulfilled their financial obligations to the investor, but the investor has not met their obligations, causing anxiety and frustration for the buyers.
Thirdly, the investor has handed over the house to the buyer, and the buyer has been living in it for some time, but has not received the “pink book” because the investor has mortgaged the land use rights and assets attached to the land to the banks. This is a common situation in Hồ Chí Minh City in recent times, causing frustration among residents because the certificates have not been issued due to the investor not releasing the mortgage. In this case, the home buyer’s rights are limited as they can only live in the house and cannot conduct any transactions with the house they have purchased.
IV. MEASURES TO PROTECT HOME BUYERS IN MORTGAGED PROJECTS IN HO CHI MINH CITY
- Public Disclosure of Mortgaged Projects
The responsibility for disclosing information about mortgaged projects primarily belongs to the project investors; however, many investors still deliberately violate this obligation. Although sanctions have been applied to violations of information disclosure obligations, they are not sufficiently deterrent. According to Decree No. 16/2022/NĐ-CP, acts of non-disclosure, incomplete disclosure, or incorrect disclosure of real estate projects and housing investment projects can be fined from 100,000,000 VND to 120,000,000 VND. For housing projects worth hundreds of billions of VND, such penalties are too low, and many investors might exploit this by accepting the violation and paying the fine.
The responsibility for information disclosure and monitoring mortgaged housing projects also falls under the Department of Construction. Point b, Clause 2, Article 19 of Decree No. 99/2015/NĐ-CP stipulates that the Department of Construction must be responsible for notifying or not issuing notifications of housing eligible for sale or lease-purchase after receiving the investor’s request dossier.
In recent years, Hồ Chí Minh City has publicized mortgaged projects to the public, with the city disclosing 70 projects mortgaged at credit institutions in 2016, the first time the city undertook this task. In 2022, according to the report on the results of monitoring the issuance of certificates to home buyers by the People’s Council of Hồ Chí Minh City, there were 60 housing projects where the investors mortgaged to banks (Đình Sơn, 2023). This helped prospective home buyers update the situation of projects to make the most informed decisions. However, this activity should be conducted regularly and more widely accessible through electronic access channels instead of waiting for specific notifications from the competent authorities.
- Responsibility on the Part of Home Buyers
Home buyers should take the time to thoroughly research information about the investor, the investor’s reputation in the real estate market, and the investors’ liquidity with credit institutions. According to the housing law regulations analyzed in part 2.1, this information will be clearly shown in the notification about housing eligible for sale as announced by the Department of Construction.
Therefore, before signing a purchase contract, home buyers in the project should ask the investor to provide documents proving the mortgage release of the intended apartment purchase. Additionally, credit institutions that accept project mortgages usually bind the condition that customers must pay into the investor’s account opened at that credit institution (to manage cash flow, recover debts, etc.). Hence, this is also an important point for customers to consider when buying mortgaged projects to protect their rights.
- Responsibility for Supervising the Proper Use of Loan Capital by Investors from the Credit Institution
Credit institutions that accept project mortgages must also supervise the construction progress of the project, closely follow the collection of money from customers, and so on. If a reputable credit institution accepts the project mortgage, it also means an additional channel for supervising the investor in building the project to ensure that the investor uses the loan capital for its intended purpose and ensures the bank’s ability to recover the loan.
Therefore, the law needs to supplement regulations to enhance the bank’s responsibility in managing mortgaged assets. If the mobilized capital is not closely supervised, investors may misuse it, investing money in multiple projects simultaneously, leading to the risk of investors losing their ability to repay, failing to complete the project, and handing over housing to customers. At this point, not only the home buyers’ rights but also the rights of the mortgaging bank will be affected. Hence, once accepting the housing project mortgage, the bank must take responsibility for managing and supervising the mortgaged assets.
V. CONCLUSION
From the practical experiences of house transactions in future housing projects where investors have mortgaged them in Hồ Chí Minh City in recent years, it can be seen that there are still many investors violating regulations by opening for sale without releasing the mortgage or deliberately concealing information from customers, leading to unfortunate disadvantages for customers. These violations are partly due to the legal regulations being insufficiently stringent in practical application and the sanctions being too light.
In recent years, the state has continually updated and issued legal documents regulating this issue. The 2023 Law on Housing, the 2023 Law on Real Estate Business, and the 2024 Law on Land have been passed and are about to take effect. It is hoped that in the near future, home buyers in housing projects will have their rights protected in the best possible way.
REFERENCES
- Government. (2015). Decree No. 99/2015/NĐ-CP dated October 20th, 2015 detailing and guiding the implementation of several provisions of the 2014 Law on Housing.
- Bích, T. (2023). Hồ Chí Minh City currently has 60 mortgaged projects preventing residents from obtaining the pink book. Women’s Newspaper Online. Retrieved from https://www.phunuonline.com.vn/tphcm-co-60-du-an-dang-cam-ngan-hang-khien-nguoi-dan-khong-duoc-cap-giay-hong-a1495711.html
- Population of Hồ Chí Minh City. (2024). Retrieved from https://danso.info/dan-so-tp-ho-chi-minh/
- Dung, T.T.P. (2021). Violations when businesses engage in future housing. Retrieved from https://luatminhkhue.vn/sai-pham-khi-cac-doanh-nghiep-kinh-doanh-nha-o-hinh-thanh-trong-tuong-lai.aspx
- Hiền, N.T. and Hoàng, N.G. (2024). Discussion on the form and content of apartment purchase contracts. Democracy and Law Journal. Retrieved from https://tcdcpl.moj.gov.vn/qt/tintuc/Pages/phap-luat-kinh-te.aspx?ItemID=392
- Sơn, Đ. (2023). The pink book of 60 projects mortgaged by investors to banks. Youth Newspaper Online. Retrieved from https://thanhnien.vn/so-hong-60-du-an-bi-chu-dau-tu-the-chap-ngan-hang-185230708141212738.htm
- Sơn, N. (2019). Hundreds of residents panicked as Khang Gia apartment seized by the bank. People’s Police Newspaper Online. Retrieved from https://cand.com.vn/Ban-doc-cand/Hang-tram-cu-dan-hoang-mang-vi-chung-cu-Khang-Gia-bi-ngan-hang-siet-no-i512812
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