A law which has proved controversial and been heavily criticised by the banking community in Romania as well as by the National Bank of Romania and European Central Bank, was published in the Romanian Official Gazette on 28 April 2016 and will come into force 15 days after publication.
The law called “Darea in Plata” (Latin legal term meaning literally “giving for payment”) provides the right for consumers that have contracted loans secured with a mortgage over at least one immovable asset for housing purposes, to extinguish all the obligations generated by that loan, in full, with no additional costs, by transferring the ownership of the immovable(s) securing the loan to the creditor, regardless of the value of the immovable at the moment when the transfer is made, at the sole discretion of a debtor.
The law applies not only to future loan contracts but also to ongoing loan agreements (even to those undertaking an enforcement procedure) concluded between credit institutions/non-banking financial institutions/assignees of loan receivables, as creditors, on one side and consumers, as debtors, on the other side, provided that the following conditions are cumulatively met:
- The creditor and the debtor are part of the abovementioned categories (i.e. consumer and credit institutions, non-banking financial institutions and assignees of loan receivables);
- The total borrowed amount does not exceed the RON equivalent of EUR 250,000;
- The loan was contracted by a debtor with the purpose to purchase, build, extend, improve, arrange or rehabilitate a building for housing purposes, or the loan, regardless of the purposes for which it was granted, is secured by at least a building for housing purposes;
- The debtor has not been convicted by a definitive court ruling for crimes related to the loan for which the transfer for payment is requested.
The provisions of the law apply to third party obligors as well (i.e. the obligations of a third party co-debtor or personal guarantee/security provider will be extinguished by means of the transfer of the immovable(s) under the law). If a loan is secured with more than one immovable asset, all the immovable assets will have to be transferred to the creditor in order for the loan obligations to be extinguished.
The law provides for a special procedure described in very basic terms whereby a debtor may deliver to the creditor a request through a public notary, lawyer or official bailiff to take over the immovable(s) for the account of the debt under the loan agreement. If the notified creditor does not abide by the provisions of the law, the debtor may request the competent court to pass a ruling confirming the transfer of the immovable(s) to the creditor and extinguishment of the debt.
The loans granted pursuant to the “First House” Programme regulated under Government Emergency Ordinance no. 60/2009 are specifically exempt from the application of the law.
The law creates uncertainty for the Romanian retail banking sector, especially as it applies to ongoing loan agreements and raises concerns as it does not set any eligibility criteria for the debtors in order to ensure the law serves its intended social aim.
Criticisms of the new law are mainly focussed around the fact that it breaches certain constitutional rights, interferes in the contractual and proprietary rights of credit/financial institutions, has not been based on an impact study, is not correlated with the rest of the applicable legal provisions, and represents a major macroeconomic risk. Following the passing of the law, most banks in Romania have already increased the down payment requirements. The law will also have implications on portfolios transfers and the (still new in Romania) covered bonds market.