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Thailand: Mortgage and surety update

Supattra Sathapornnanon
Thai law governing surety and mortgages is found in the Civil and Commercial Code (CCC) and has been relatively stable over the years.

Amendments were passed by the National Legislative Assembly on October 2 2014, which in due course will be enacted into law. The amendments were made to provide better protection and fairness to a surety and mortgagor who are not principal debtors.

While most of the amendments are not retroactive, several do apply to existing contracts. It may be necessary to review existing contracts in light of the new amendments.

An obligation secured by a surety must be expressly prescribed by the contract of suretyship, including objectives, nature of the obligation, maximum liability and timeframe (with some exceptions).

Any agreement providing that the surety take liability similar to or as a joint debtor should be void.

When a debtor is in default, the creditor must notify the surety in writing within 60 days of the date the debtor is in default. Otherwise, the surety will not be liable for interest and other charges arising after the lapse of said 60 days.

In cases where the creditor does any act to reduce the secured obligation, the surety may be discharged upon performance of the reduced obligation. Any agreement which increases the liability of a surety is void.

If a creditor grants an extension of time for performance, the surety will be discharged unless it agrees to such extension of time, after it has been granted.

In the case of a mortgage of property to secure indebtedness by a third party, the mortgagor's liability is limited to the value of the mortgaged property. Any agreement which provides for a mortgagor being liable for more than the value of the property is void.

When a debtor is in default, the mortgagee must notify the debtor in writing to perform its obligation within a reasonable time (not less than 60 days).

In the event of a mortgagor mortgaging its property as security by a third party, the mortgagee must deliver written notice to the mortgagor within 15 days of the date the debtor is notified. Otherwise, the mortgagor will not be liable for interest and other charges arising after the lapse of 15 days.

A mortgagee may request the court to allow foreclosure of the mortgage (instead of a public auction) if the debtor has failed to pay interest for five years, and the value of the property is less than the unpaid amount.

With the consent of the mortgagor, a mortgagee may proceed with the sale of the mortgaged property by public auction (without filing an action in court), if there is no other mortgage on the same property.

There is no progress to report on enactment of the Secured Lending Bill, which would allow, for example, registration of security interests over moveable property, and charges over bank accounts.

Supattra Sathapornnanon

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