Property Mortgages in Thailand. In the realm of Thai property finance, a mortgage is far more than a contractual security agreement. It is a registered real right—a powerful legal interest that attaches to the land itself, binding all subsequent owners and competing creditors according to a strict statutory hierarchy. Yet this power is contingent. A mortgage, no matter how meticulously drafted, is only as strong as the due diligence that precedes its registration. For lenders, investors, and borrowers alike, the failure to conduct forensic-level scrutiny of title, capacity, and enforceability can transform a seemingly secure collateral position into a protracted, and often futile, enforcement battle. This article provides a comprehensive, depth-driven analysis of the due diligence imperatives governing property mortgages in Thailand.
The Statutory Bedrock: Understanding the Mortgage as a Real Right
The legal foundation of the Thai mortgage is codified in Sections 702 to 746 of the Civil and Commercial Code (CCC) . Section 702 defines a mortgage as a contract whereby the mortgagor assigns a property to the mortgagee as security for an obligation, without delivering possession . Critically, Section 702 further provides that the mortgagee is entitled to be paid out of the mortgaged property in preference to ordinary creditors, regardless of whether ownership has transferred to a third party . This preferential status, however, is not automatic. It is activated exclusively through registration at the competent Provincial Land Office .
Section 714 of the CCC is unambiguous: a contract of mortgage must be made in writing and registered by the competent official . An unregistered mortgage, or one registered defectively, confers no real right. It is, at best, a personal obligation unenforceable against third parties and, at worst, legally void . This foundational requirement is the first and most critical due diligence checkpoint: verify that the mortgage is, or will be, properly registered upon the title deed itself.
Title Deed Verification: The Threshold Inquiry
The mortgageability of Thai real estate is intrinsically linked to the class and condition of its title deed. Due diligence must commence with an original title deed inspection at the local Land Office—photocopies are legally insufficient and routinely rejected by institutional lenders .
Chanote (Nor Sor 4 Jor) represents the gold standard. Backed by precise GPS survey coordinates and permanent boundary markers, it is the only title universally accepted by Thai banks and institutional lenders . Nor Sor 3 Gor and Nor Sor 3 are possessory certificates, not full titles. While they can be mortgaged, lenders apply significant loan-to-value (LTV) discounts, require additional guarantees, or may reject them outright . Sor Kor 1 and similar occupation certificates are generally non-mortgageable as institutional collateral .
The due diligence imperative extends beyond classification. The examiner must:
-
Trace the chain of ownership for any irregular transfers or suspicious gaps .
-
Verify that the registered owner matches the mortgagor’s identity documents.
-
Inspect the reverse side of the Chanote for existing encumbrances—prior mortgages, servitudes, usufructs, superficies, or lease registrations .
-
Conduct a physical site survey by a licensed surveyor to confirm boundary markers align with the cadastral plan; encroachment onto public land or neighboring property renders the collateral effectively worthless .
Mortgageable Interests: Beyond Freehold Land
While freehold land with Chanote title is the preferred collateral, Thai law permits mortgage of other interests, each carrying distinct due diligence considerations:
Condominium Units: Mortgageable if held in freehold and within the foreign ownership quota (49% of total unit area). Lenders require verification of the condominium juristic person’s registration, building completion certificates, and foreign exchange transaction (FET) forms evidencing offshore fund remittance for foreign buyers .
Leaseholds, Usufructs, and Superficies: These registered real rights may be mortgageable, but lenders impose stringent conditions. A common requirement is that the remaining term must substantially exceed the loan repayment period (often 10-15 years post-loan maturity) . The lessor’s consent is typically mandatory .
Buildings on Leased Land: Where the mortgagor owns the building but not the underlying land, the mortgage must be registered separately. This requires clear evidence of separable ownership rights and, critically, the landowner’s written consent .
Corporate Due Diligence: Where the mortgagor is a juristic entity, the examiner must obtain current DBD extracts (less than 30 days old) to verify: authorized directors, shareholding structure, paid-up capital, and—most critically—a valid board resolution specifically authorizing the mortgage transaction . Signing authorities must be confirmed against the company affidavit.
The Foreign Dimension: Structural Complexities and Prohibitions
The intersection of mortgage law with Thailand’s foreign ownership restrictions creates unique due diligence obligations.
Foreigners as Mortgagors: A foreign individual cannot mortgage land, as they are statutorily prohibited from owning it . However, a foreigner may mortgage:
-
A condominium unit held within the foreign quota .
-
A building owned separately on leased land .
Critically, Thai banks are generally unwilling to extend mortgage financing to non-resident foreigners absent exceptional relationships or substantial offshore deposits. Loan approval is case-by-case, with no guarantee, and conditions are less favorable than for Thai nationals .
Foreigners as Mortgagees: While Thai law does not prohibit foreign entities from being mortgagees, practical barriers are formidable. A foreign lender cannot easily enforce against Thai land, as the public auction process does not favor foreign ownership. Licensed Thai financial institutions or BOI-promoted entities are the only practical mortgagees .
The Nominee Trap: Due diligence must rigorously exclude nominee structures where a Thai national holds title nominally for a foreign beneficial owner. Such arrangements violate the Land Code and Foreign Business Act; lenders who knowingly accept such collateral risk regulatory sanctions and enforcement failure .
Valuation and Loan-to-Value: The Economic Diligence
Prudent mortgage due diligence requires independent, licensed valuation. Thai lenders underwrite to conservative LTV ratios:
-
Chanote residential: 60-80% of appraised value, depending on borrower profile.
-
Non-Chanote or leasehold: Substantially lower, often below 50% .
The valuation must be current (typically within 3-6 months) and conducted by a Thai Valuers Association-accredited professional. Overvaluation is a systemic risk; lenders must discount speculative projections and prioritize forced-sale value over peak market assumptions .
Enforcement Realities: The Ultimate Test of Collateral
Due diligence is incomplete without a sober assessment of Thailand’s judicial enforcement regime. Unlike common law jurisdictions permitting non-judicial foreclosure, Thailand mandates court-supervised sale .
The 60-Day Notice Requirement: Section 728 of the CCC requires the mortgagee to serve written notice demanding performance within a reasonable time, statutorily interpreted as not less than 60 days . Failure to strictly comply invalidates enforcement.
Judicial Sale Timeline: Obtaining a court judgment typically requires at least one year, longer if the defendant appeals . Post-judgment execution through the Legal Execution Department adds months or years. Total enforcement timelines of 2-4 years are routine .
Prohibition on Appropriation: Section 711 (and related provisions) renders void any agreement permitting the mortgagee to automatically acquire ownership upon default . This pactum commissorium prohibition is absolute.
Foreclosure Alternative: Section 729 permits foreclosure only if: (a) no interest has been paid for five years; (b) the mortgagor fails to prove the property’s value exceeds the debt; and (c) no senior encumbrances exist . This remedy is extremely rare in practice.
Registration Formalities and Costs
A mortgage deed must specify, in Thai currency, either a sum certain or a maximum secured amount . Standard registration fees are:
-
Registration fee: 1% of the mortgage amount (capped at 200,000 THB in some interpretations, though practice varies) .
-
Stamp duty: 0.05% of the mortgage amount .
Temporary government stimulus measures have periodically reduced these fees (e.g., to 0.01%), but such relief is transaction-specific and time-limited . Due diligence must verify current fee schedules at the specific Land Office.
Discharge and Extinguishment
Upon full repayment, the mortgagee must execute a discharge deed registered at the Land Office to cancel the encumbrance . Failure to obtain and register discharge creates a cloud on title, impairing future transactions. Due diligence on existing mortgages must confirm formal, registered discharge.
Conclusion: Diligence as the Only Defense
Thailand’s mortgage system is legally sophisticated, offering lenders a powerful real right—but only when every procedural, documentary, and registration requirement is met with precision. The margin for error is vanishingly small. An improperly verified title, an unregistered deed, a defective corporate authorization, or an overlooked prior encumbrance can vitiate the entire security.
For lenders, due diligence is not a preliminary courtesy; it is the sole mechanism by which a mortgage transforms from a piece of paper into an enforceable real right. For borrowers, understanding the diligence lenders will apply is the key to structuring financeable collateral. In the Kingdom, a mortgage is only as good as the investigation that preceded its registration. Anything less is not security—it is speculation.
