Banking & Finance Law
As part of the recent reforms of the bank credit system, the Italian legislator intervened on the so called Patto Marciano, which allows banks and other entities authorised to grant credit facilities to obtain the transfer in their favor of the property of the borrower (or third-party guarantor) granted as security of the loan, in case of default by the borrower. This instrument was introduced under article 120-quinquiesdecies of the Italian Consolidated Banking Act (CBA) for consumer real estate loans and article 48-bis of the CBA for corporate loans by, respectively, the Legislative Decree of 21 April 2016, no. 72, implementing the European Directive 2014/17/EU of 4 February 2014 and the Legislative Decree of 3 May 2016, n. 59, converted with amendments into Law 30 June 2016, no. 119.
The Patto Marciano has been generally accepted by case law. This becase, unlike the so called Patto Commissorio (which is forbidden under Article 2744 of the Italian Civil Code), Patto Marciano ensures equivalence between the value of the transferred asset and the guaranteed amount: the creditor may keep the asset mortgaged only if the estimation is made after the debtor defaults and the excess amount is returned to the debtor. To ensure such a result, the new provisions of the CDA provide that the estimation of the property value (at the time of the default) is entrusted with an independent third party.
1. Article 120-quinquiesdecies of the CDA: consumer real estate loans
Article 120-quinquiesdecies of the CDA (“Consumer default”) falls under the new Section I-bis on “Consumer real estate loans” and provides for two different applications of the Patto Marciano:
- on the one hand, the loan agreement will have to contain a special provision according to which the borrower will transfer the real estate property granted as security of the loan to the creditor (or other company of its group which is authorised to purchase, manage and sell real estate assets) subject to the borrower’s default, and
- on the other hand, the loan agreement shall contain a special provision according to which the real estate property granted as security of the loan can be transferred to third parties by the lender through a special power of attorney contained in the loan agreement, or transferred to the lender subject to the borrower’s default and the transfer of the property from such lender to the third party.
The two provisions can be included in the same loan agreement but they will be alternative to one another.
- Condition precedent
In the event that the transfer is conditioned to the borrower’s default, as per item (a) above, the condition precedent is satisfied at the time in which the estimate value of the property is communicated to the debtor, or, when such estimate is higher than the debt amount, when the surplus is refunded to the debtor.
- The provision
The clause on Patto Marciano can only be included at the time of execution of the loan agreement and can only concern the mortgaged real estate property. Furthermore, being the debtor a consumer, the lender cannot ask for inclusion of said clause as a condition to granting the relevant loan (therefore, a draft loan agreement not containing such Patto Marciano provision must be offered to the consumer debtor, even if including different economic terms). Also, the debtor shall be provided with qualified advice when reaching the loan agreement.
- “Qualified” default
In order to trigger the transfer of the property, the consumer debtor must have incurred in a “qualified” default (inadempimento rilevante) represented by failure to pay at least eighteen monthly installments. Moreover, the lender can terminate the agreement in case of failure to pay at least seven instalments, also when non-consecutive, pursuant to article 40, paragraph 2, of the CDA.
- Discharge of the borrower
Article 120-quinquesdecies of the CDA also provides that the transfer to the lender of the property granted as security to the loan (or the proceeds obtained by the sale of such property), cause the discharge of the whole indebtedness of the borrower (even when the value of the transferred property is lower than the amount of the outstanding debt).
This is justified by the protection to be given to consumers and, therefore, is not applicable to corporate loans under article 48-bis of the CDA.
2. Article 48-bis of the CDA: corporate loans
The Patto Marciano has been recently extended to corporate loans. Differently from article 120-quinquiesdecies, article 48-bis of the CDA (“Loans to businesses secured by conditioned real estate transfer”) offers one application of the rule only. Parties to a loan agreement can only include a clause providing for the conditioned transfer of real estate property or other in rem right to the lender (or other company of its group which is authorised to purchase, manage and sell real estate assets).
- Condition precedent (see above)
As in case sub (a) under paragraph 1 above, the transfer shall be subject to the borrower’s default. Please refer to paragraph 1.1 above.
- The provision
The clause on Patto Marciano can be included in the loan agreement both at the time of execution and at a later stage by a notarial deed. The real estate property cannot be used as main private residence (abitazione principale) of the owner, its spouse, children or close relatives. A mortgage can be created over the asset, also at the time of execution of the Patto Marciano provision, so that ordinary enforcement procedures may be exercised.
- “Qualified” default
For the purpose of article 48-bis of the CDA, a “qualified” default occurs if no payment is made:
- for more than nine months as of the elapse of a minimum of three instalments, also non-consecutive ones, in case of repayment in monthly instalments;
- for more than nine months as of the elapse of one instalment only, when the debtor is obliged to repay the loan according to instalments having deadlines expiring later than on a monthly basis;
- for more than nine months as of elapse of the deadline, in case of bullet loans.
- Discharge of the borrower
As mentioned under paragraph 1.4 above, article 48-bis of the CDA is silent on the potential discharge of the borrower following the transfer of the in rem right over the real estate property to the lender.
The lack of such a provision for corporate loans, which is instead present for consumer loans, gave rise to divergent opinions among scholars. Some of them believe the provision to be applicable by analogy to corporate loans. Some others, on the other hand, state that the legislator would have expressly provided for the discharge of the borrower in corporate loans if this was the intent of the law.
3. The agreement between trade associations and the implementing ministerial decree
On February 12, the Italian Banking Association (ABI) and the Entrepreneurs Association (Confindustria) entered into an Agreement on credit granting and enhancement of new security which, among other things, concerns the new measure of article 48-bis of the CDA.
The Agreement specifies that that “these transactions are carried out with economically and financially stable companies and, with regard to existing contracts, the new guarantee does not constitute a forbearance measure pursuant to EU Regulation 2015/227 of the European Commission. However, it is possible for banks to assess these transactions also with companies having “unlikely to pay” debts or exposures past due and/or overdrawn for more than 90 days. In this case, economic conditions may also be amended (i.e. amount, duration and/or reduction of the loan cost)”.
Furthermore, the Agreement also provides some food for discussion over the borrower’s discharge following the transfer of the in rem right. In particular, while it clarifies that the parties may expressly provide that “the clause providing for the conditional transfer of a real estate property and, therefore, the purchase by the bank of its ownership, may cause – if expressly agreed – the discharge of the debtor from its whole debt“, it also seems to imply that such discharging effect cannot be automatic, but must be specifically agreed between the parties.
For the time being, the Italian Minister for the Economy and Finance has started a public consultation on the decree implementing article 120-quinquiesdecies of the CDA: The consultation ended on 5 February 2018.
The Italian legislator seems to have finally acknowledged that the primary interest of the weak party (i.e. the debtor) is credit access. By promoting a flexible guarantee and fast recovery times, the Patto Marciano can undoubtedly improve access to credit and, in general, strengthen the economy.