PROTECTION OF THE RIGHTS OF BUYERS OF REAL ESTATE AS FUTURE HOUSING ACCORDING TO THE LAW ON MORTGAGE OF PROPERTY FROM THE PRACTICE IN HỒ CHÍ MINH CITY
PROTECTION OF THE RIGHTS OF BUYERS OF REAL ESTATE AS FUTURE HOUSING ACCORDING TO THE LAW ON MORTGAGE OF PROPERTY FROM THE PRACTICE IN HỒ CHÍ MINH CITY
Đinh Thị Thanh Nga
PhD, Faculty of Law, Saigon University
ABSTRACT
The article presents the current status of legal regulations on mortgages in the relationship of buying and selling real estate as future housing in connection with the rights of real estate buyers and the practical implementation of some real estate projects in Hồ Chí Minh City. From there, comments on the law on this issue are drawn in the context of the 2024 Law on Land, the 2024 Law on Real Estate Transactions, and the 2023 Law on Housing, which will take effect from August 1st, 2024.
Keywords: real estate buyer, mortgage of property, future housing
I. INTRODUCTION
Mortgage is a common measure in real estate transactions to supplement financial resources, helping investors to implement real estate business projects or helping real estate buyers overcome financial difficulties to own a house through the participation of credit institutions as mortgagees.
For future housing mortgage, the buyer may face risks because the subject of the contract is unfinished housing that cannot be put into use or may have been completed but the buyer cannot establish ownership due to the seller’s fault and other reasons beyond the buyer’s control. Thus, in the real estate purchase and sale relationship of future housing with a mortgage measure, the buyer is in a weaker position compared to the investor, and protecting their rights is necessary.
According to the 2023 Law on Housing, future housing is housing that is under construction or has not been accepted for use according to the provisions of construction law. This definition has addressed the shortcomings of the 2014 Law on Housing, but it differs from the definition of existing and future assets in the 2015 Civil Code.
According to Article 108 of the 2015 Civil Code, existing assets are assets that have been formed and the subject has established ownership rights or other rights to the asset before or at the time of transaction establishment. Future assets include: unformed assets; formed assets but the subject establishes ownership rights after the transaction establishment. However, the author believes that the definition of the specialized law, the 2023 Law on Housing, will be prioritized and this is also the concept of future housing mentioned in this article.
The sale of future housing takes place between the housing project investor and the future housing buyer built in the project. According to current law, the mortgage can be conducted by the project investor or the future housing buyer with the mortgagee being credit institutions operating in Vietnam.
II. PROTECTION OF THE RIGHTS OF FUTURE HOUSING BUYERS IN CASE OF INVESTOR MORTGAGE OF THE PROJECT OR HOUSING BUILT IN THE PROJECT
The 2014 Law on Housing and the 2014 Law on Real Estate Transactions both allow investors to mortgage projects or housing built in the project at credit institutions to borrow capital for project investment or housing construction. This right is utilized by most investors to supplement capital for project implementation.
Article 19 of Decree No. 99/2015/NĐ-CP stipulates that to protect the rights of buyers, if the investor has mortgaged the housing and wants to sell or lease-purchase that housing, they must release the mortgage before signing a purchase or lease-purchase contract with the customer, unless agreed upon by the capital contributor, buyer, lessee, and mortgagee. The release of the mortgage must be clearly stated in the housing eligibility notification document of the provincial housing management agency where the housing is located.
To ensure buyers accurately understand the legal status of the real estate, Article 6 of the 2014 Law on Real Estate Transactions states that real estate businesses are responsible for publicly disclosing information about real estate, including information on ownership and use restrictions. Real estate businesses must disclose this information on the company’s website, at the Project Management Office (for real estate investment business projects), at the exchange (for cases conducted through the exchange) regarding the mortgage of the house, construction works, and real estate projects put into business, if any (Point b, Clause 1, Article 4 of Decree No. 02/2022/NĐ-CP).
If the business fails to fulfill this obligation, it may be subject to administrative penalties under Decree No. 16/2022/NĐ-CP, with fines ranging from 100 million to 120 million VND. The issue is that these fines do not include additional penalties such as temporary suspension of activities and are insignificant compared to the enormous profits generated from selling future housing to customers. Therefore, investors are willing to ignore this obligation and accept the fines, leaving customers at a significant disadvantage when buying mortgaged houses.
In addition to the right to mortgage projects and future housing, if the investor is allocated land by the State with land use fees, leases land with one-time rental payment for the entire lease term, they also have the right to mortgage land use rights and their assets attached to the land at credit institutions to secure loans as stipulated in Article 174 of the 2013 Law on Land. However, current legal documents do not clearly specify whether future assets attached to the land are included in the mortgaged assets when mortgaging project land use rights and how to handle these assets.
It should also be noted that the 2014 Law on Housing only requires the investor to release the mortgage on future housing before opening for sale but does not stipulate the obligation to release the mortgage on the project or land use rights. Taking advantage of this loophole, some investors have mortgaged the land use rights of the entire project but still advertise for sale under the form of reservation contracts, deposit contracts, cooperation contracts, and capital contribution contracts (Duy, 2022).
Additionally, according to Article 55 of the 2014 Law on Real Estate Transactions, before selling or lease-purchasing future housing, the investor must notify the provincial housing management agency about the housing’s eligibility for sale or lease-purchase. Within 15 days from the date of receiving the notification, the provincial housing management agency is responsible for responding in writing to the investor about the housing’s eligibility for sale or lease-purchase.
However, after receiving the eligibility confirmation from the Department of Construction, if the investor mortgages the project or the housing built in the project and still uses that document to advertise for sale, the buyer may find it difficult to detect. Only when the investor’s overdue debt leads to the bank reclaiming the property will the buyer become aware of it.
Recently, the case of Phú Thạnh Apartment residents in Tân Phú District, after more than 10 years of stable residence and having paid 95% of the purchase price to the investor, still have not received the Land Use Rights Certificate. Additionally, 214 apartments were recently notified by the bank to be processed as collateral because the investor had mortgaged these apartments to the bank since 2010 (Đình, 2024).
Previously, Hoàng Quân Company also mortgaged its housing projects to the bank despite having sold them to customers, leading to many lawsuits. Some residents who purchased houses 20 years ago still do not have ownership rights (Đình, 2015) (Bùi, 2022).
Following these incidents, customers who purchased apartments in the projects can only hope for the goodwill of both the mortgagee bank to delay debt processing and the favorable business situation of the investor to release the mortgage on the apartments (Viết, 2024). Alternatively, they may be drawn into lengthy legal proceedings where they are both faultless and unaware of when they will receive legal ownership of the house they are living in.
Thus, the deliberate profiteering of the seller not being strictly controlled by the law has caused significant damage to the rights of future real estate buyers. To address these limitations, Article 183 of the 2023 Law on Housing has clearly stipulated that mortgaging the project or housing of the housing construction investment project investor must include mortgaging land use rights.
In case the housing construction investment project investor has mortgaged part or all of the project or housing and needs to raise capital as per the provisions of the housing law or needs to sell or lease-purchase that housing, they must release the mortgage on part or all of the project or housing and land use rights before signing the contract unless otherwise agreed by the buyer, lessee, and mortgagee of social housing.
The determination that housing has been released from mortgage before signing a purchase or lease-purchase contract with customers must be clearly stated in the housing eligibility notification document of the provincial housing management agency where the housing is located, replacing the previous written response of the Department of Construction on sales conditions.
The investor is responsible for providing customers with the housing eligibility notification document when signing a purchase or lease-purchase contract. In the case of capital mobilization, the investor must provide the capital contributor with the credit institution’s mortgage release document when signing the capital contribution contract. The 2023 Law on Housing also removes the case where the mortgage release is not required if agreed by the capital contributor, buyer, lessee, and mortgagee.
This is an important change to protect buyers because, with the previous regulation, the investor and the bank could easily agree to allow the investor to still advertise the project mortgaged at the bank.
According to the 2023 Law on Real Estate Transactions, the conditions for future housing and construction works to be put into business are more strictly defined than the 2014 Law in Article 24, requiring projects to publicly disclose information before being put into business. The obligation to provide information by investors is also more comprehensively and detailedly defined in Article 6 of the 2024 Law on Real Estate Transactions.
Before putting real estate or real estate projects into business, real estate businesses must fully, honestly, and accurately disclose information as required by law on the housing and real estate market information system and the real estate business’s website. This includes documents from competent state agencies on future housing eligible for sale, lease-purchase, and restrictions on ownership and use rights of real estate, mortgage of housing, construction works, construction floor area, land use rights, and real estate projects put into business.
These positive changes are significant steps to protect the rights of future real estate buyers, who are disadvantaged in accessing authentic information about the nature and characteristics of the contract subject as well as negotiating the establishment of this relationship. However, stronger sanctions than the current Decree No. 16/2022/NĐ-CP on administrative penalties in the construction field are still needed. It is not only necessary to increase fines but also to add temporary suspension of operating licenses and publicly announce the names of violating enterprises.
III. PROTECTION OF THE RIGHTS OF BUYERS IN CASE THE BUYER MORTGAGES FUTURE HOUSING IN THE INVESTOR’S PROJECT
The 2014 and 2023 Laws on Housing both allow buyers to mortgage future housing in housing construction investment projects with full conditions: having a housing purchase contract signed with the investor, having a document on the transfer of the housing purchase contract if being the assignee of the housing purchase contract as prescribed, having documents proving payment for the house to the investor as per the agreed schedule in the purchase contract, and not being subject to complaints, lawsuits, or disputes over the housing purchase contract or the transfer of the housing purchase contract (Article 148 of the 2014 Law on Housing and Article 184 of the 2023 Law on Housing).
In terms of form, both the 2014 and 2023 Laws on Housing stipulate that in cases of purchase, lease-purchase, donation, exchange, capital contribution, or mortgage of housing, notarization and certification are required, except for some cases such as organizations donating gratitude houses, compassionate houses, and great unity houses; purchase, lease-purchase of public property; purchase, lease-purchase of housing where one party is an organization, etc.
However, the law does not clearly specify whether contracts for future housing need to be notarized and certified. Thus, there is a viewpoint that the mortgage of future housing also needs to be notarized and certified.
The author believes that the mortgage contract for future housing between individuals and credit institutions should only be notarized and certified upon request. The asset only truly has guaranteed value when it becomes existing housing, completed for use, or if the investor has already mortgaged it and the bank continues to accept the mortgage from the buyer, the risk still belongs to the bank.
Article 25 of Decree No. 99/2022/NĐ-CP on registration of security measures also stipulates that the mortgage of future housing does not fall under the mandatory registration case but under the optional registration case. For mortgages conducted by the investor, it is associated with land use rights and has an effect against third parties, so it needs to be notarized and registered for secure transactions.
Another issue related to the rights of future housing buyers is Article 1 of Circular 22/2023/TT-NHNN amending Circular 41/2016/TT-NHNN, effective from July 1st, 2024, which regulates the capital safety ratio for banks and foreign bank branches, specifying:
“A housing mortgage loan is a real estate-secured loan for individuals to buy houses, including:
a) A real estate-secured loan for individuals to buy houses that meet the following conditions:
i) The repayment source is not rental income generated from the loan;
ii) The house has been completed for handover according to the housing purchase contract…
b) Loans to buy social housing, buy houses under government support programs and projects are determined according to housing law regulations.”
After Circular 22 was issued, the Hồ Chí Minh City Real Estate Association (HoREA) petitioned for amendments, arguing that the regulation limits the legal rights of future real estate buyers and is inconsistent with other related legal provisions by only allowing the mortgage of existing houses (Mạnh, 2024).
The author believes that this Circular is a guideline on the capital safety ratio, not a guideline on credit operations to grant loans. Besides the concept of housing mortgage loans, the Circular also introduces the concept of real estate-secured loans (loans for individuals and legal entities to purchase real estate, implement real estate projects, and secured by the real estate, real estate projects formed from the loan according to the legal provisions on secured transactions).
Accordingly, housing mortgage loans will have a lower credit risk coefficient applied according to Clause 11, Article 9, compared to the credit risk coefficient of real estate-secured loans according to Clause 10, Article 9. With the definitions of Circular 41/2016/TT-NHNN and Circular 22/2023/TT-NHNN, future housing purchase loans fall under real estate-secured loans, except for loans to buy social housing and houses under government support programs and projects.
Thus, Circular 22/2023/TT-NHNN does not restrict but rather expands benefits for buyers of future social housing projects.
IV. CONCLUSION
From the above analysis, it can be seen that the regulations on asset mortgage according to the 2023 Law on Housing, the 2023 Law on Real Estate Transactions, the 2024 Law on Land, and credit laws have made efforts to overcome the shortcomings in previous legal documents to more positively and effectively protect the rights of buyers, who are considered disadvantaged in the real estate purchase and sale relationship of future housing projects.
The acceleration of the enforcement of the 2023 Law on Housing, the 2023 Law on Real Estate Transactions, and the 2024 Law on Land to August 1st, 2024, instead of January 1st, 2025, also demonstrates the determination to promptly remove the irrationalities arising from the legal mechanism that has caused frustration and affected the legitimate rights of people when they buy housing projects.
It is hoped that the forthcoming implementing documents and sanctioning measures will be amended and supplemented to continue protecting ownership rights for buyers of legal housing development projects, supporting and making the real estate market transparent, and fully unlocking the potential of land resources.
REFERENCES
- Mạnh Hùng (2024), Proposal for individuals to borrow money to buy future housing, retrieved from https://baochinhphu.vn/kien-nghi-cho-ca-nhan-vay-tien-mua-nha-o-hinh-thanh-trong-tuong-lai-10224013015562452.htm
- Bùi Tuyết (2022), 20 years of buying a house without receiving the red book, retrieved from https://thoibaonganhang.vn/20-nam-mua-nha-chua-duoc-ban-giao-so-do-134597.html
- Duy Quang (2022), Exposing tricks of mortgaging apartment projects, investors still massively… selling, retrieved from https://tienphong.vn/lat-tay-chieu-tro-da-the-chap-du-an-chung-cu-chu-dau-tu-van-ram-ro-mo-ban-post1474395.tpo
- Đình Sơn (2024), 214 residents of Phú Thạnh Apartment at risk of losing their homes, retrieved from https://thanhnien.vn/214-nguoi-dan-chung-cu-phu-thanh-nguy-co-mat-nha-185240622164831841.htm
- Đình Dân (2015), Hoàng Quân sells mortgaged apartments?, retrieved from https://tuoitre.vn/hoang-quan-ban-can-ho-da-the-chap-734108.htm
- Nguyễn Thị Hồng Nhung (2022), Some legal issues on buying and selling future housing, Vietnam Lawyer Electronic Journal, https://lsvn.vn/mot-so-van-de-phap-ly-ve-mua-ban-nha-o-hinh-thanh-trong-tuong-lai1657031860-a120837.html
- Phan Phương Nam – Ngô Gia Hoàng (2023), Ensuring the rights of house buyers in mortgaged real estate projects, Legislative Research Journal No. 12 (484), June 2023
- Viết Dũng (2024), The case of hundreds of Phú Thạnh Apartment suddenly being “foreclosed”: The investor requests to repay the debt within 3 years, retrieved from https://baoxaydung.com.vn/vu-hang-tram-can-ho-chung-cu-phu-thanh-bong-dung-bi-siet-no-chu-dau-tu-xin-tra-no-trong-3-nam-378012.html
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