EN ECB -PUBLIC  
 
OPINION OF THE EUROPEAN CENTRAL BANK  
of 18 December 2015  
on discharge of mortgage -backed  debts through transfer of title over immovable property  
(CON/20 15/56) 
 
Introduction and legal basis  
On 25 November 2015 a draft law on the discharge of debt obligations assumed through credit  
agreements  by ‘payment in kind’ through the transfer of mortgaged property  (hereinafter the  ‘draft   
legislative provisions’ )1 was adopted by the Chamber of Deputies of the Romanian Parliament and, on 9 
December 2015, was  submitted for promulgation to the President of Romania. This is the last step in the 
legislative procedure before the draft legislative provisions become legal ly binding  and of general 
application in Romania. The draft legislative provisions have not yet been promul gated by the President 
of Romania,  who has the right to send the draft legislative provisions back to the Parliament for re-
examination2. On 14 December 2015 the European Central Bank (ECB) was informed by the Banca 
Naţională a României  (BNR) about the draft legislative provisions .   
In light of the above,  and in view of the potential impact of the draft legislative provisions on the stability of 
financial institutions and markets in Romania, t he ECB has decided  to deliver an own initiative opinion on 
the draft legislative provisions , since it has not been formally consulted by the Romanian legislator . The 
ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the 
Functioni ng of the European Union and the sixth  indent of Article 2(1) of Council Decision 98/415/EC3, as 
the draft legislative provisions relate to rules applicable to financial institutions insofar as they materially 
influence the stability of financial instituti ons and markets . In accordance with the first sentence of 
Article  17.5 of the Rules of Procedure of the European Central Bank, the Governing Council has adopted 
this opinion . 
 
1.  Purpose of the draft legislative provisions  
1.1   According to the explanato ry memorandum, the aim of the draft legislative provisions is to balance 
the interests of the parties in a default or foreclosure situation related to credit  agreements  secured 
by a mortgage arrangement . In this respect, the scope of the draft legislative provisions covers any  
credit agreement between natural persons  and financial institutions  which is secured by a 
mortgage arrangement  (hereinafter a ‘credit agreement’) . In addition, t he draft legislative provisions 
                                                 
1  The ECB notes  that the legislative initiative for the preparation of the draft legislative provisions was taken by 
members of the Romanian Parliament.  
2  Alternatively, t he President  of Romania has the right to send the draft legislative provisions to the Constitutional 
Court, for review.  
3  Council Decision 98/415/EC of 29 June 1998 on the consultation of the Europ ean Central Bank by national 
authorities regarding draft legislative provisions (OJ L 189, 3.7.1998, p. 42).  
ECB -PUBLIC  
2 aim to transpose into Romanian law certai n provisions of Directive 2014/17/EU  of the European 
Parliament and of the Council4.  
1.2  Article 1(2) of the draft legislative provisions establish es a general right f or debtor s to discharge 
their debts and all accessory obligations under a credit agreem ent by transfer ring to the creditor the 
ownership title over the mortgaged immovable property , subject to compliance with the conditions 
set out in Article 4. 
1.3  Article 4 of the draft legislative provisions sets out the following conditions for the full discharge  of 
the debt: (i) the debtor is a natural person and the creditor  is a credit institution , non- bank financial 
institution or an assignee of personal claims ; (ii) the parties , or their predecessors, have entered 
into a credit agreement; and (iii) the property tendered in order to discharge the debt  is the property 
mortgaged to secure the creditor’s claims under the credit agreement . 
1.4  The remaining key provisions of the draft legislative provisions lay down the particulars of the 
procedure for t he mandatory transfer of title over a debtor’s immovable property. Debtor s can notify 
creditor s at any time of their deci sion to transfer the ownership of  immovable property in discharge 
of their debt under a credit agreement. Following such notification, creditor s are under an obligation 
to convene with the notifying debtors before a public notary in order to execute the deed for the 
transfer of title in exchange for the discharge of all obligations under the credit agreement. Debtors 
may initiate court pr oceedings against c reditor s who fail to comply with this obligation,  petitioning 
the court for the issuance of a court order in lieu  of a transfer deed.  Both t he procedure before the 
public notary  and such court proceedings  may also be initiated by co- debtors or guarantors.  It is 
worth noting that, according to Article 6(1), once the procedure has been initiated by sending the 
notification, the creditor ’s right of  recourse ag ainst all co-debtors and personal or mortgage 
guarantors is extinguished.   
1.5 Pursuant  to Article 11 of the draft legislative provisions , the law applies both to credit agreements 
concluded after its entry into force as well as to all outstanding credit agreements.  
 
2. General observations  
2.1 It is noted  that, given their wide scope,  the draft legislative provisions would apply not only to 
consumer loans but also to commercial loans  of natural persons , and to performing and non -
performing loans  alike. While t he ability of financial institutions to effectively manage credit risk 
depends on a reliable , predictable and stable legal framework  which adequately balances the 
interests of both the creditor and the debtor , the draft legislative provisions introduce 
unprecedented changes  into the legal framework applicable to credit agreements in Rom ania 
which  significantly undermine legal certainty and the adequate management of credit risk in 
financial institutions . The ECB notes that in r espo nse to the financial crisis  several  Union member 
states int roduced new legal frameworks  on per sonal debt  restructuring, which in a very few cases  
included a limited right to return  the mortgaged proper ty in lieu of repayment . Howeve r the exercise 
                                                 
4  Directive 2014/17/EU of the European Parliament and of the Council of 4 February 2014 on credit agreements for 
consumers relating to residential  immovable property and amending Directives 2008/48/EC and 2013/36/EU and 
Regulation (EU) No 1093/2010 (OJ L 60, 28.2.2014, p. 34).  
ECB -PUBLIC  
3 of this right is not left to the  discretion of  the borrower , but rather is subject to compliance with strict 
economic  and ot her eligibility criteria5.  
2.2 In this respect , the ECB advises the Romanian authorities to careful ly consider the impact of the 
draft legislative provisions on existing credit agreements  in order to ensure legal certainty  and 
avoid undue interference with the contractual and property rights of credit instit utions , and to 
prevent moral hazard  from ari sing in the relationship between creditor  and debtor6. The draft 
legislative provisions  should strive to ensure an adequate balance between the general  duty of 
debtors to meet their payment obligations  – which is conducive to a prompt payment culture, the 
preserv ation of  the soundness of credit institutions and the prevent ion of moral hazard – and the 
need to provide assistance to individuals in severe financial difficulties .   
 
3. Specific observations   
3.1 Legal certainty   
3.1.1  It is for the Romanian authorities to assess whether the retroactive character of the draft legislative 
provisions is consistent with Romanian constitutional principles. However , the ECB notes that 
introducing measures with retroactive effect, such as the draft legislative provisions,  risks 
undermining  legal certainty and is not in line with the principle of legitimate expectations7.  
3.1.2  As noted in paragraph 1.1,  the draft le gislative provisions also apply  to credit  agreements for 
consumers relating to residential immovable property  which fall within  the scope of  
Directive  2014/17/EU . In particular , where a credit agreement relates to a foreign currency loan, 
Article 23 of Dir ective 2014/17/EU requires Member States to have in place an appropriate 
regulatory framework to  at least  ensur e that the consumer has a right to convert the credit 
agreement into an alternative currency under specified conditions or  that there are other 
arrangements in place to limit exchange rate risk8. However,  pursuant to Article 23(5) of 
Directive  2014/17/EU , Member  States may  further regulate foreign exchange loans  provided that  
such regulation is not applied with retrospective effect9. Subject to the European Commission’s 
competence to monitor the implementation of Union law , the Romanian authorit ies are invited to 
consider  whether the unilateral right of a  borrower to fully discharge his debt under  a foreign 
exchange loan agreement , as granted under the draft legislative provisions , would be in line with  
Article 23(5)  of Directive  2014/17/EU .  
3.1.3 The ECB is concerned also that the draft legislative provisions do not seem to be in line with 
Article  28(4) of Directive 2014/17/EU, according to which M ember States shall not prevent the 
parties to a credit  agreement from expressly agreeing that return or transfer to the creditor of the 
security or proceeds from the sale of the security  is sufficient to repay the credit. Pursuant to 
                                                 
5  In particular , temporary arrangements were put in place in Portugal that provided for the possibility of datio in 
solutum  where a debtor was confronted with very difficult financial constraints. Moreover, in Spain the return of 
residential immovable property in lieu  of repayment  was permitted subject to strict eligibility requirements.   
6  See Opinions  CON/2010/8, paragraph 2.4, and CON/2010/34, paragraph 2.1. All ECB opinions are available on the 
ECB website at www.ecb.europa.eu.   
7  See Opinion CON/2015/32, paragraph 3.2.2.  
8  See Article 23, paragraphs (1) to (4) of Directive 2014/17/EU.  
9    See Article 23(5) of Directive 2014/17/EU.  
ECB -PUBLIC  
4 Article  3 of the draft  legislative provisions, by way of derogation from the relevant provisions of the 
Romanian Civil Code, debtors have the right to fully discharge their obligations by transferring 
ownership over mortgaged immovable property to their creditors. Creditors do not have the right to 
oppose the transfer of the mortgaged immovable property if the credit agreement falls within the 
scope of the draft legislative provisions and satisfies the related conditions for the applicability of 
the draft legislative provisions.  The Romanian authorit ies are invited to liaise with the European 
Commission as to whether the draft legislative provisions are compatible with  
Directive  2014/17/EU .  
3.1.4  The ECB also considers that the draft legislative provisions  should sufficiently cl arify how t hey 
interact with other related law s, such as Law No 151/ 2015 on insolvency proce edings  for natural 
persons10, and th e release of natural persons from debt under that law.  A comprehensive debt 
restructuring framework would be more effective in ad dressing the unique challenges of 
unsustainable  personal indebtedness. Such a regime would set the right in centives for affected 
parties so th at debtors  who are genuinely over -indebted and their creditors are incentivised to 
agree on a restructur ing either  on a bilateral basis or in a multilateral setting, for example as part  of 
formal proceedings , such as insolvency proceedings .  
3.2 Effects on the Romanian economy   
3.2.1  Granting general rights , such as those provided for in Article 1(2)  of the draft leg islative provisions , 
which are not targeted exclusively at debtors in need of social protection, may lead to moral 
hazard,  and undermine the future supply of credit. Such rights can potentially incentivi se debtors 
who have no genuine need for protection to speculate on changes in real estate prices and to stop 
meeting their obligations, even if they have the means to do so in full. In anticipat ion of  the negative 
impact that such rights  could have on payment discipline in Romania, banks could be pushed to 
tighten lending conditions and boost advance payments. H igher interest rates  and restricti ve 
lending to households and small businesses may  adversely affect economic growth and job  
creation.  Therefore any such rights should be targeted at vulnerable borrowers , and be 
accompanied by effective safeguards to prevent strategic defaults and avoid a negative impact on 
future lending. In the absence of any such conditions, the normal functioning of  credit institutions 
may be strongly impaired, which might affect  adversely the soundness of individual credit 
institutions  and – through contagion effects –  pose substantial risks to the whole financial system. I f 
such risks to the prop er functioning of the credit channel were to materialise potential negative 
spillover e ffects on the economy  would be likely11. 
3.2.2 The draft legislative provisions might also lead to a deterioration of foreign investor sentiment due 
to a perceived increase in legal uncertainty and country risk. Consequently , the ECB suggests that 
the Romanian authorities carry out a thorough analysis of the possible effects on the Romanian 
economy of introducing the draft legislative provisions12.  
                                                 
10  Law no. 151/2015 on insolvency proceedings for natural persons, published in Monitorul Oficial al Rom âniei, Part I, 
No 464 of 26 June 2015.  
11  See Opinion CON/2015/14, paragraph 2.3.  
12  See Opinion CON/2015/32, paragraph 3.1.2.  
ECB -PUBLIC  
5 3.3 Effects on financial stability   
3.3.1 From a financial stability perspective, potential concerns  about the impact  on credit institutions, 
which need to be assessed from the outset, are related to: (i) the risks associated with foreign 
currency loans; (ii) the retrospective effects of the draft legislative provisions , also affecting 
outstanding credit arrangements ; and (iii) the implications  for prudential requirements for credit 
institutions in relation to mortgages on residential property  to appropriately reflect the riskiness of 
related portfolios . Therefore, the ECB stresses the importance of a thorough impac t analysis of the 
practical implications of the draft legislative provisions for the business of domestic credit institutions and, more broadly, for the Romanian real estate market. Given the significance of the 
interests at stake, both for affected credit  and other financial institutions, as mandatory recipients of 
real estate assets, as well as the owners of other real estate assets in Romania, i t is only with the 
benefit of a prior assessment that it m ight be possible to mitigate ensuing risks to financi al stability . 
3.3.2 As regards the longer -term effects on financial stability, the ECB notes that the draft legislative 
provisions will also apply to foreign currency loans. The ECB considers that, when introducing 
measures in relation to settling foreign currency loans, due consideration should always be given to 
fair burden- sharing among all stakeholders, thus also averting moral hazard in the future. The ECB 
has, on several occasions, pointed out the risks associated with foreign currency loans
13. The draft 
legislative provisions do not seem to contain any safeguards in this respect.  
3.4 Effects on the banking sector   
The draft legislative provisions  may have negative implications for credit institutions, with a 
potential impact on profitability, capitali sation and future lending capacity, the functioning of the 
financial system, as well as on the overall cost and conditions of credit14. In a worst case scenario,  
such implications could lead to capital shortfalls , potentially requiring prudential mea sures . It is 
noted that, should the draft legislative provisions enter into force, Romanian credit institutions 
would need to engage in the business of managing the real estate assets tendered to them in 
discharge of debts due to them under credit agreements.  
 
This opinion will be published on the ECB’s website.  
  Done at Frankfurt am Main, 18 December 2015.  
 [signed]  
 
The President of the ECB  
Mario DRAGHI  
                                                 
13  See, most  recently,  Opinion CON/2015/32.  Regarding foreign currency loans in Hungary, see also Opinions 
CON/2011/87, CON/2012/27, CON/2014/59, CON/2014/72 and CON/2014/76 and,  regarding foreign currency loans 
in Poland, Opinion CON/2015/26.  
14  See Opinions CON/2010/8 , paragraphs 2.3 and 2.4,  and CON/2010/34, paragraph 2.3.