Opinion of the European Central Bank of 18 December 2015 on discharge of mortgage-backed debts through transfer of title over immovable property (CON/2015/56)
Date: 2015-12-18
Institutions: European Central Bank
Subjects: banking supervision, debt, financial stability, mortgage, principle of legal certainty, real estate credit, real property, redemption, retroactivity of a law, transfer of property

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/2015/56) 

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  legally  binding  and  of  general 

application in Romania. The draft legislative provisions have not  yet been promulgated by the President 

of  Romania,  who  has  the  right  to  send  the  draft  legislative  provisions  back  to  the  Parliament  for  re-
examination 2.  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, the 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 
Functioning of the European Union and the sixth indent of Article 2(1) of Council Decision 98/415/EC 3, as 

the draft legislative provisions relate to rules applicable to financial institutions insofar as they materially 

influence  the  stability  of  financial  institutions  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 explanatory 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, the draft legislative provisions 

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The  ECB  notes  that  the  legislative  initiative  for  the  preparation  of  the  draft  legislative  provisions  was  taken  by 
members of the Romanian Parliament.  

Alternatively,  the  President  of  Romania  has  the  right  to  send  the  draft  legislative  provisions  to  the  Constitutional 
Court, for review. 
Council  Decision  98/415/EC  of  29 June  1998  on  the  consultation  of  the  European  Central  Bank  by  national 
authorities regarding draft legislative provisions (OJ L 189, 3.7.1998, p. 42). 

 
 
 
 
                                                 
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aim  to  transpose  into  Romanian  law  certain  provisions  of  Directive  2014/17/EU  of  the  European 
Parliament and of the Council4.  

1.2   Article  1(2)  of  the  draft  legislative  provisions  establishes  a  general  right  for  debtors  to  discharge 

their debts and all accessory obligations under a credit agreement by transferring 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 the mandatory transfer of title over a debtor’s immovable property. Debtors can notify 

creditors at any time of their decision to transfer the ownership of immovable property in discharge 

of their debt under a credit agreement. Following such notification, creditors 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 proceedings against creditors who fail to comply  with this obligation,  petitioning 

the court for the issuance of a court order in lieu of a transfer deed. Both the 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  against  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  the  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  Romania 

which  significantly  undermine  legal  certainty  and  the  adequate  management  of  credit  risk  in 

financial institutions. The ECB notes that in response to the financial crisis several Union member 

states introduced new legal frameworks on personal debt restructuring, which in a very few cases 

included a limited right to return the mortgaged property in lieu of repayment. However the exercise 

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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). 

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of this right is not left to the discretion of the borrower, but rather is subject to compliance with strict 
economic and other eligibility criteria5.  

2.2 

In  this  respect,  the  ECB  advises  the  Romanian  authorities  to  carefully  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  institutions,  and  to 
prevent  moral  hazard  from  arising  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 

preservation of the soundness of credit institutions and  the prevention  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 expectations 7.  

3.1.2  As  noted  in  paragraph  1.1,  the  draft  legislative  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  Directive  2014/17/EU  requires  Member  States  to  have  in  place  an  appropriate 

regulatory  framework  to  at  least  ensure  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  authorities  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  Member  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 

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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.  
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.  
See Opinion CON/2015/32, paragraph 3.2.2. 
See Article 23, paragraphs (1) to (4) of Directive 2014/17/EU. 
See Article 23(5) of Directive 2014/17/EU. 

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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  authorities  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  clarify  how  they 

interact  with  other  related  laws,  such  as  Law  No  151/2015  on  insolvency  proceedings  for  natural 
persons 10,  and  the  release  of  natural  persons  from  debt  under  that  law.  A  comprehensive  debt 

restructuring  framework  would  be  more  effective  in  addressing  the  unique  challenges  of 

unsustainable  personal  indebtedness.  Such  a  regime  would  set  the  right  incentives  for  affected 

parties  so  that  debtors  who  are  genuinely  over-indebted  and  their  creditors  are  incentivised  to 

agree on a restructuring 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 legislative 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  incentivise  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 anticipation 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.  Higher  interest  rates  and  restrictive 

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. If 

such  risks  to  the  proper  functioning  of  the  credit  channel  were  to  materialise  potential  negative 
spillover effects 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 provisions 12.  

10  

11  
12  

Law no. 151/2015 on insolvency proceedings for natural persons, published in Monitorul Oficial al României, Part I, 
No 464 of 26 June 2015. 
See Opinion CON/2015/14, paragraph 2.3. 
See Opinion CON/2015/32, paragraph 3.1.2. 

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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 impact 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, it is only with the 

benefit of a prior assessment that it might be possible to mitigate ensuing risks to financial 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,  capitalisation  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  measures.  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  

14  

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. 
See Opinions CON/2010/8, paragraphs 2.3 and 2.4, and CON/2010/34, paragraph 2.3. 

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