Land Collateral And Thai Law

[Abrak]

Some months ago I bought a Condo on a 30 year lease (with a maybe another 30 attached).

Recently I enquired why it had not been transfered and registered at the Land Department. I was informed that the freehold title was in their name and that I had no claim on it and that it had recently been pledged as collateral against a loan. I realize the two sentences are effectively non-sequitors but that is what I was told.

I have all the relevant proof of payment for the lease and payment for lease registration so I find the response rather non-sensical. Obviously, I do not have claim over title because I have no claim over freehold, so the first half of their reply is simply stating a fact that I already knew while I would have thought that the second half of the sentence, under normal circumstances, would effectively be an admission of fraud. Either they sold be a lease on a title they had already pledged as collateral (defrauding me) or they have pledged a title (without registering the encumbrance) as collateral, defrauding the bank.

As it is extremely rare for a party to send you an admission of fraud I have to assume this is not the case.

There that means that the party concerned can either lease it out legitimately even though collaterilizing a loan (in which case why not just register) or that they have notified the bank concerned prior to the pledge of the lease and of collateralized the balance of the freehold (which would be an odd way of a bank to finance itself given the mismatch of assets and liabilities.)

All in all it makes no sense to me. I wondered if anyone knew the legal position with regards to pledging freeholds? Do they have to be free of encumbrances? And if they sold me a lease and then pledged title before registration does my claim come ahead of the banks? Is the developer tacitly admitting to fraud? To the extent he his, I will assume he is talking nonsense because while committing fraud is nonsense, committing and admitting fraud to the party concerned is sheer lunacy and I would like to think that the developer is not mad.

P.S. If anyone has any legal paragraph to point to that would be of help.

[thaiwanderer]

Based on what you say, IMHUO it appears:-

Until it is registered your lease is only 3 years.

The mortage takes precedence over any claim over the property you may have as it is registered and your lease is not. And even if your lease were now registered the mortgage takes precedence as it was registered before.

Selling a lease where a mortgage already exists on the property is not in itself fraud. Depending on the lease you may in theory have a contractual claim against the Lessor.

Registering a mortgage after signing (but not registering) a lease may be dishonest (towards the mortgagor) but that is of no real use to you. The mortgagor's security is not endangered because the lease is not yet registered.

If your lease were now to be registered (are they even offering to do that?) it would rank behind the mortgagor's interest (and any other interests that may have been registered in the meantime). The terms of the mortgage may well prohibit the mortgagor from granting leases anyway. Even if your lease is now registered if the mortgagee defaults the mortgagor can seek ownership of the unit and you will be left out in the cold.

There is nothing in itself wrong with choosing to take a lease out on an already mortgaged property if you are aware of it and the potential consequences (and it is reflected in the price) - but that does not appear to be the case here (although the fault for that would I am afraid appear to be yours).

At present it appears you have a contractual claim against someone who may not have any unencumbered assets - and if i am reading it right do not seem too concerned about you?

Whilst of little comfort to you I am a little confused as to why at the time you entered the lease you did not know for sure whether there was a mortgage on the property and why your lease was not registered immediately?

Edited April 9, 2009 by thaiwanderer

[Abrak]

Thaiwanderer,

Thanks for what appears to be a totally clear clear (and logical) explanation of the current position under Thai Law even if it was of little comfort to me.

The last question is an entirely valid one. I am not entirely stupid so I did check the title was free of encumbrance at the Land Office at time of purchase (which I took to be on receipt of monies from to register and acknowledge transfer). So, to that extent, I did know whether there was not a registered encumbrance at the time of transaction.

It appears that from what you are saying that Thai Law only recognizes transfer at the time it is registered at the Land Office rather than at the time both parties show intent. While this makes sense in some respects it would also seem to give a developer enormous scope for 'fraud' at least in spirit.

For instance, in so far as any development is not complete, the transfer of any ownership cannot be registered at the Land Department. Presumably any developer could 'sell' leases and take monies from as many people as he wished on the same unit and the only one that would be recognized under the law would be the first one registered upon completion. Of course a developer acting is such a 'bad faith' way probably wouldnt be in a position to register the lease to any of the multiple buyer on the basis that the underlying land to develop his project was pledged to a bank for finance for which the developer probably has no intention of paying.

My point being, that while you are probably right about the legal position because it would explain the developers explanation. It is however, difficult to reconcile it with normal operating practices here. I am not even convinced that it doesnt run against what has actually happened legally here.

For instance when a Condo has gone into rehabilitation, previous 'buyers' of units have been left high and dry due to the banks prior claim on the land that was used to develop the unit. On 'exiting' rehab, to the extent the building as it existed, was under the same corporate entity, the previous owner still has substantial claim on his unit, despite the fact that the subsequent owner of the project might be a third party.

If recognition of leasehold rights was solely down to its recognised registration at the Land Department and a developer is free to sell/pledge it as many times as he likes beforehand because he does have to honor his promises, then I am surprised that developers regularly manage to sell condos off plan to the extent that it is standard practice.

[thaiwanderer]

Abrak,

These are my layman understandings based on minimal information - you should take legal advice as soon as possible.

I do not disagree with what you say about developers generally. There is of course scope for abuse. Indeed I am sometimes surprised there isn't more outright fraud, although with world finances the way they are that may change for the worse.

Offplan has inherent dangers for the buyer that could in theory be mitigated in varying ways and degrees. However developers often are simply not selling their properties with those protections. Yet buyers still want to make that bargain. If the developers can get away with not risking their own money (and are open about it) then we can't really blame them. I am more surprised buyers generally go along with it all. However I am a little puzzled by the developer's apparent attitude in your situation - it appears he is not even pretending there is not a problem - has that always been the case?

(As an OT side point I believe upon registration of a condominium building the land must be free of mortgage).

I was not saying a non-registered lease means you have no rights but they appear to be contractual only. If your lease predates the mortgage it may be possible for the court to order the title to be amended to reflect your interest taking precedence over the mortgage. You would have to take expert legal advice over that but even if possible i would expect a massive bunfight with the bank and the costs to be prohibitive.

Was your lease not registered because the development was incomplete?

What was the original plan for regsitration?