This article provides you with essential information about mortgages, which are one type of collateral or security for debt repayment, whether it is land, a house, a condominium, a factory, a warehouse, or other buildings.
On the one hand, it is a stable guarantee because the creditor is still entitled to be paid even though the ownership of the mortgaged property has been transferred to a third party. (Section 702 paragraph 2 of the Civil and Commercial Code, CCC)
On the other hand, the mortgagee still has full rights to use the property, including the right to transfer it or enter into another security for debt repayment. Also, receive all the fruits of it until the mortgagee has notified the mortgagor or the transferee of his intention to enforce the mortgage. (Sections 702, 710, and 721 of the CCC)
A mortgage is a contract whereby the mortgagor assigns a property to the mortgagee as security for the performance of an obligation without delivering the mortgaged property to the mortgagee (Section 702 of the CCC).
Available Property for Mortgage
All immovable property can be mortgaged. Also, some movable property registered according to the law can be mortgaged, e.g., vessels with a tonnage of five tonnes or more, floating houses, etc.
Who Can Do the Mortgage?
Only the owner of the property can enter into a mortgage contract, but it is possible to provide collateral or security for debt repayment for somebody else. (Sections 705 and 709 of the CCC)
Form of Mortgage Contract
All contracts in Thailand are subject to contract validation, meaning mortgages need to follow the general rules of making a contract and the special rules of it, e.g., Sections 714, 704, and 708 of the CCC.
1- Be made in writing and registered by the authorized official,
2- Specify the property mortgaged.
3- Contained in Thai currency with a certain amount or maximum security repayment.
Extent of Mortgage
A mortgage is a security for the debt’s performance and also includes the following accessories: (Sections 715, 704, and 708 of the CCC)
1- Interest as agreed rate or legal rate.
2- Compensation for non-performance of the repayment.
3- Fees for enforcement of the mortgage.
Even if part of the debt performance is completed, the mortgage extends to the whole property whenever the debt performance has not been completed. Also, if a mortgaged property is divided into parcels, it still extends to each and every one of those parcels.
Importantly, a mortgage over land does not extend to the buildings upon such land after the contract date, unless there is a special clause to that effect. (Sections 716, 717, and 719 of the CCC)
How To Enforce?
When the debtor fails to repay, there will be two options for the creditor (Sections 728 and 729 of the CCC);
First, filing the case with the court for an order ordering the property to be seized and sold by public auction Before filing the case, the mortgagee must notify the debtor in writing to perform the debt within a reasonable time frame. If the debtor fails to comply with such a notice, the creditor can file the case in court.
Second, filing a case with the court for and claiming foreclosure of the property is subject to the following conditions:
1- The debtor has failed to pay interest for five years;
2- The value of the property is not greater than the outstanding balance due; and
3- There are no other registered mortgages or preferential rights on the property mortgage.
Mortgages are one of the most common sureties used around the world, but each country has its own laws and rules concerning this surety. So before being a mortgagee or mortgagor or being a part of another contract with another surety as a ‘sale with the right of redemption’, for more information please contact us.