The Romanian Law on Giving Real Estate Collaterals in Payment to Discharge Debts under Loan Agreements (the “Datio in Solutum Law”) entered into force in May 2016.
The law stirred fierce debates before it was adopted, and President Klaus Iohannis even referred it back to the Parliament for review. So far, only two months after its entry into force, dozens of claims of unconstitutionality have already been raised before the Constitutional Court of Romania.
The law applies to mortgage loans of up to EUR 250,000.
Datio in Solutum involves the submission of a notice by a debtor on the transfer of ownership over debtor’s real estate collateral to the bank to repay his/her loan. The lender is called to the notary public for the transfer of the ownership right within no less than 30 days. During this period, any payment obligation to the lender and any court or out-of-court proceedings initiated by the lender against the debtor or his/her property is suspended.
The lender may file legal action against the debtor’s decision. However, until the court issues a final ruling, loan payments and any court or out-of-court proceedings against the debtor remain suspended.
If the lender is not present at the notary public on the notified date or does not file legal action against the procedure, the debtor may ask the court to rule on the transfer of the real estate collateral to the bank in exchange for writing off the loan. Loan payments and any court or out-of-court proceedings against the debtor remain suspended until the court issues a final ruling.
The law stipulates that it was adopted in order to cover loan agreement risks and real estate devaluation risks. Therefore, it will be applicable both to loan agreements which are ongoing at the time of its entry into force and to agreements concluded after this date.
In most cases, it is banks filing legal actions against debtors’ Datio in Solutum notices. In these legal actions, dozens of unconstitutionality claims have been raised by the banks and more than 45 cases have been referred to the Constitutional Court of Romania. The unconstitutionality allegations involve the breach of the ownership right, the non-retroactivity of laws, the predictability of laws, the breach of the separation of powers, freedom of commerce, and legal certainty principles. So far, the Constitutional Court of Romania has not ruled on these claims.
Meanwhile, pursuant to a press release by the National Bank of Romania and the Romanian Bank Association, half of the credit institutions granting mortgage or home loans have decided to raise the applicable down payment required, due to this law.
On June 30, 2016, a regulation for the amendment of the Fiscal Code was published in the Official Journal of Romania. According to this regulation, natural persons transferring ownership of their real estate collaterals to the banks to repay their loans will be exempted from property transfer tax.
The National Union of Notaries Public in Romania (UNNPR) has decided to cut the fees charged for the transfers of real estate collaterals within Datio in Salutum proceedings by 50%. The UNNPR notified the Ministry of Justice of its decision, but a law in this regard is yet to be adopted.
The Datio in Solutum Law has polarized society in a way few legislative acts have managed to do lately. While consumers welcomed the law, the National Bank of Romania and the commercial banks expressed their concern in relation to the drop in banking-system solvency as a result of this law. Moreover, law professionals acknowledge that the law has several inconsistencies which need to be addressed in due course.
Hopefully, the Constitutional Court’s much awaited decision will shed light on the constitutionality of this law.