The new Law regulating Real Estate Credit Contracts aims to restore the confidence of borrowers, enhance legal certainty, transparency and understanding of contracts and its terms, as well as the fair balance between the parties.
The new Law on Real Estate Credit Contracts will come into force on 16th June, in order to transpose the Directive 2014/17/EU of 4 February 2014 on credit agreements for consumers relating to residential immovable property.
The law aims to enhance legal certainty and strengthen the protection of natural persons (even if they act as entrepreneurs) who are borrowers or guarantors of loans that are secured by mortgage or other security right on real estate for residential use (including garages and storage rooms with domestic function). It also applies to non-mortgage loans for the purpose of acquiring or retaining land or real estate built or to be built, provided that the borrower or guarantor is a consumer.
Among new aspects of the law, a detailed pre-contractual phase is regulated, with mandatory notarial intervention. The borrower must appear before the notary, chosen by him, at the latest on the day before the granting of the loan public in order to obtain personal, free advice on different aspects of the loan contract and the obligations arising therefrom. The notary is required to draw up a deed, in which he documents the compliance with the time limits, the questions raised by the borrower and the advice given. Under no circumstances may this notarial deed be waived, as it will be an essential requirement for granting the loan deed.
The new norm tries to avoid that unfair terms are introduced in the loan contracts establishing imperative norms on different issues; in particular we must emphasize the express prohibition of the “floor clauses” and the regulation by law of the interest for late payment, without need of agreement, which will be the interest arising form remuneration plus three percentage points.
Another remarkable change is the mandatory distribution of the expenses derived from the loans, so that the lender must pay the notary, the registry and the agency, and the borrower the appraisal. As for the tax on capital transfers and documented legal acts, it stipulates that payment will be made in accordance with the applicable tax regulations, which are now attributed to the financial institution.
Finally, it should be noted that the law ends up resolving the controversial issue of early maturity, increasing the unpaid periods and amounts so that the mortgage creditor can initiate a foreclosure proceeding for the early maturity of the loan. Loans may only be declared past due when 3% of the principal loan or the equivalent of 12 instalments has failed to be paid during the first half of the total agreed term, or 7% or 15 instalments if the defaults occur during the second half of the loan term. We must hope that with the entry into force of the new Law on Real Estate Credit Contracts there will be an important change in our mortgage market, as it improves the position of debtors, with more protection and transparency, and ultimately contributes to greater legal certainty in this important area of contracting.
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