Transfer in favor of banks of the property owned by the consumer in default following to 18 unpaid instalments
In implementation of the Directive of the European Parliament and European Council dated 4 February 2014 (the 2014/17/UE so-called Mortgage Credit Directive or “Direttiva Mutui”), the Italian Council of Ministers approved the Legislative Decree no. 72 of 21 April 2016 (hereinafter the “Decree”), published on 20 May 2016, in force since 4 June, even if certain specific technical provisions will require the issuing of ad hoc rules by the Bank of Italy and the CICR (ministerial committee for credit and savings).
The Decree, in accordance with the Mortgage Credit Directive, aims at guaranteeing a high- level protection of consumers (which are defined as individuals acting for scopes that are not related to commercial, entrepreneurial or professional activities), also for the pre-contractual stage, which is to be complied with by banks and other entities authorised to grant loans (defined as “financers”).
The Decree applies to “credit contracts” entered into by consumers, which are defined as contracts for the granting of credits in the form of extensions, loans or other financial facilities, secured by mortgage over the property right or other right in rem on residential assets, or any credit directed to the purchasing of the right of property over land or assets.
Through the introduction of Articles 120 septies and 120 octies in the legislative decree no. 385/1993 (Banking Consolidated Act), banks and financial intermediaries must comply with diligence, fairness and transparency duties in the execution of credit contracts, as well as with specific publicity obligations, consisting in information that is not suitable to create false expectations in the consumer in relation to availability or costs of the credit, with particular reference to interest rates, TAEG (the “overall” final yearly rate inclusive of any charge) and any possible ancillary services needed for obtaining the credit.
The lender is also obliged to properly evaluate the credit worthiness of the consumer, in order to assess the chances that he/she will be eventually able to fulfil his/her repayment obligations.
The most relevant innovation brought by the Decree, however, lays in the introduction of Art. 120 quinquiesdecies of the Banking Consolidated Act, according to which the credit contracts may provide for a specific clause stating that the default by the consumer may trigger the transfer to the lender of the property given as security of the contract (or the proceeds obtained by the sale of the property), causing the discharge of the whole indebtedness of the borrower (even in the case in which the value of the transferred property is lower than the amount of the outstanding debt).
If the value of the property or the amount of the proceeds obtained by the sale of same are higher than the secured debt, the consumer will be entitled to get the surplus.
The lender cannot ask for insertion of the said clause as a condition to granting the relevant loan. Additionally, the lender must ensure that the consumer is provided with a free legal advice
– by an independent lawyer – on the effects and expediency of inserting such clause in the loan agreement.
In order to trigger the transfer of the property, the consumer must have incurred a “qualified” default, consisting in failure to pay at least 18 instalments. A delay from 30 to 180 days from the expiration date, does not qualify as default.
In case of default the value of the property is assessed by an appraiser jointly instructed by the parties or, in lack of agreement, appointed by the president of the competent court.
In any case, the clause of transfer of the property may not be inserted in case of subrogation in the credit contract pursuant to Art. 120 quater of the Banking Consolidated Act.
The new law provisions on the direct transfer of ownership to the lender are very similar to those just introduced by the law decree 59 of 4 May 2016 for loans granted to companies, and in the same way are aimed at simplifying the recovery of non-performing credits.
Compared to the law decree no. 59/2016 (which must still be converted into law, and may be subject to further amendments), the Decree gives more time to the consumer to remedy his/her default and avoid that the lender enforces the right to transfer the property.
In addition, the transfer of the property as provided for by the Decree will cause the full discharge of the indebtedness of the borrower, even when the property value is lower than the outstanding debt (whilst such discharge is not envisaged by law decree no. 59/2016 in case of loans to companies).
Also, the compulsory free-of-charge assistance to the consumer by a consultant represents an additional protection which is not given to companies under law decree no. 59/2016.
In any case, the Decree does not specify on a practical basis how the transfer is perfected, whilst law decree no. 59/2016 specifically states that the default of the borrower is a condition of the transfer and that the transfer is then perfected with retroactive effects as soon as the appraiser in charge for assessing the value of the property communicates his evaluation to the debtor and to the bank. As soon as the communication is served, the lender will then be entitled to appear before a Notary and proceed with the transfer of the property, without need for the borrower to be present.