PROPERTY IN THAILAND, Part 11 Title _ the problem of mortgages on properties

A couple of years ago, we were approached by a group of buyers at a development in Thailand. The buyers all lived overseas and were not Thai.

Over a couple of years they had all fully paid for 30-year leases on houses and lots at the development that had been built for them. The houses were complete and the buyers were using them.

Members of the group said they were concerned. They thought the developers might be having financial problems. They really liked the developers and didn't want to insult them, but wanted to make sure their interests were protected.

We asked if the leases on the land and houses had ever been registered with the land office. The owners thought not. They asked that we register the titles for them immediately.

So we went to the land office to check. What we found out wasn't good news. The developers had never registered the long leases. Instead they had mortgages on the title deeds that included the houses of our clients.

If a land owner borrows money from a bank, the bank can secure it by putting a mortgage on the property. If the buyer defaults, the bank can foreclose the mortgage by a legal process that allows the property to be sold at public auction.

The bank can then be repaid out of the proceeds of the sale.

How did this all affect our clients? Well, a mortgage on a land title deed blocks the registration of a long lease on it, because if there were a long lease on the property it would mean that a party other than the bank would have an interest in the property that couldn't legally be dissolved by the foreclosure process.

Also, you'll recall that in an earlier column we mentioned that that the owner gets an original copy of the title deed and there is another original that the land office keeps. As a matter of practice in Thailand, the bank takes the borrower's copy of the title deed so the borrower can't try to do something like register some other interest on the property while the bank has a mortgage on it.

So what about the long leases for which our clients had paid these developers? They couldn't be registered because of the mortgages the bank had on the properties.

Of course, we immediately asked the developer to ask the bank to accept partial payment of the loan and release just the plots on which our clients had houses, because the mortgaged deeds consisted of many plots. In fact, this is how many developers finance the development of their land _ they mortgage all of it and pay the bank back a little at a time, as individual lots are sold. The bank releases the lots as it is paid. This enables the buyer to register his or her interest on the lot released by the bank.

But in this case the developers claimed they were out of money and didn't even have enough to pay off part of the mortgage.

So what happened? The long leases couldn't be registered because there was already a mortgage on the property and the bank wouldn't terminate the mortgage because the developers claimed they didn't have enough money to pay off the loan.

What would happen if, in the situation above, the bank foreclosed the mortgage? The property, including our clients' houses, would be sold at public auction and the bank would get paid. If there was anything left over after the bank was paid, the creditors, including our clients would have a claim on it, but in situations like these, the creditors aren't likely to get much.

This is a pretty bad situation for our clients, right? They innocently paid for houses that might eventually be taken from them. But it points to something we've mentioned before. If our clients had obtained a title report on this property before buying, they would never have bought at this development.

If you're buying or long leasing property in Thailand, beware. Get a title report before you pay.

James Finch of Chavalit Finch and Partners (
and Nilobon Tangprasit of Siam City Law Offices Ltd (
Researchers: Arnon Rungthanakarn and Sitra Horsinchai.
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Questions? Contact us at theemail addresses above.

About the author

Writer: James Finch & Nilobon Tangprasit