Mortgage of property is one of nine measures to secure for the performance of obligations as regulated at clause 2 Article 292 of the Civil Code 2015. The mortgage of property at the banks means the use by the borrower (or the mortgagor) of property under its ownership as security for the performance of an obligation to pay the debt without transferring such property to the banks.
According to Article 299 and Article 303 of the Civil Code, the banks can sell the mortgaged property by auction or by themself sell the mortgaged property under the following circumstances:
- The mortgagor fails to perform or performs incorrectly the obligation when it falls due.
- The mortgagor is in breach of its obligation resulting in liability for early performance of the obligation pursuant to an agreement or as stipulated by law.
- In other circumstances as agreed by the parties or as provided by law.
In principle, under any circumstances, the banks must provide written notice to the mortgagor prior to carrying out the realization of the mortgaged property. So, under the prevailing legal regulations of laws, is there any case where the banks are allowed to arbitrarily sell the mortgaged property? The answer is yes if the banks and the mortgagor have a detailed agreemnet on the realisation and method of realisation of the mortaged property.
According to Article 301 of the Civil Code, during the process in which the banks realise the mortgaged property, the mortgagor or any third party currently holding the property fails to deliver it, then the dispute between the relevant parties occurs. Under this circumstance, the banks can only initiate a lawsuit to the competent People’s Court to settle the dispute without being allowed to arbitrarily sell the mortgaged property and then request the civil judgment enforcement agency to realise the mortaged property according to the court judgements or decisions.
Therefore, it can be seen that the banks are allowed to arbitrarily sell the mortgaged property in case there is an agreement on the realization of mortgaged property between the related parties. In addition, when handling the mortgaged property, the banks must comply with the legal regulations and laws related to the procedures for realization of the mortgaged property. In case the banks fail to comply with such legal regulations, such as failing to notify about the realization of the mortgaged property or arbitrarily seizing property in the absence of cooperation of the mortgagor, then the banks are at risk of having to compensate for damage (if any) to the mortgagor and other jointly secured parties.
Above is an overview of when are the banks allowed to arbitrarily sell the mortgaged property. If you have difficulty in finding a Law Firm to advise and support in the legal aspect related to the banking practice, please contact us.
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