Last time we talked generally about home finance, focusing mostly on the terms of the loan and what it is legally required to include. This time we'll concentrate on mortgages.
In Thailand, mortgages are contracts between lenders and owners of property to secure lending and are the way a bank ensures borrowers pay back loans. If a borrower doesn't pay, of course, the bank will foreclose the mortgage and the property will be sold at public auction.
The law of mortgages contains a few points that will help you understand the way financing is offered to foreigners. A mortgage must be in writing, for example. The mortgage must also state the sum owed or a maximum amount for which the mortgaged property is assigned as security. Finally, it must designate exactly the property it covers and be registered at the proper land office. The existence of the mortgage is noted on the back of the title deed that is kept at the land office. Before you sign anything, a lawyer or other expert in mortgages should review and explain the document to you.
Under section 705 of the Civil and Commercial Code, only the owner of a property may mortgage it. This creates practical limitations on your ability to get financing, because foreigners generally cannot own land. A foreigner may, however, buy a freehold interest in a condominium unit as long as 49% or less of the residential floor space of the condominium is owned by foreigners. So a foreigner can own and mortgage a condominium.
As for free-standing houses, a foreigner in Thailand can own one, but not the land under it. In theory a foreigner could mortgage the house, but not the land on which it sits. For now, no bank of the several we contacted lends to foreigners to finance a house purchase. The reason for this is that if the lease on the land is not renewed the foreigner has the right and obligation to demolish the house. And if the house were the security for a loan and if it had to be destroyed at the end of the lease, this would be disaster for the bank.
Because of Section 705, land and/or a house owned by a Thai company could be mortgaged by that company. Likewise, many foreigners in Thailand have their land and/or houses in the names of Thai friends or spouses. These friends or spouses could get financing by granting mortgages on the property.
What if a property is already subject to a mortgage when you buy it? Much land being sold in Thailand has already been mortgaged by the developer. Section 717 of the Civil and Commercial Code specifically states that if a property is divided up into parcels, the lender can consent to having the mortgage lifted as to a particular parcel. You should have a title search on any property before you buy it. If it has a mortgage on it you should secure a release of the mortgage as a condition of purchase. Traditionally this happens at the time the ownership is transferred at the land office. If the home is in a development you should also have the title search determine if the common areas are free of mortgages.
There is some consumer protection in connection with mortgages built into the Civil and Commercial Code. Section 728 provides that to foreclose a mortgage the lender must first give the borrower notice of default and demand that the borrower perform by a fixed date. If the borrower doesn't pay by the date specified the lender must then go to court to have the mortgaged property sold at public auction. Of course, the borrower would have to have notice of this and could raise any legal objections to the judge.
James Finch of Chavalit Finch and Partners (finch@chavalitfinchlaw.com)
and Nilobon Tangprasit of Siam City Law Offices Ltd (nilobon@siamcitylaw.com).
Researchers: Arnon Rungthanakarn and Sitra Horsinchai.
For more information visit www.chavalitfinchlaw.com.
Questions? Contact us at the email addresses above.