Both land and the buildings on the land can be mortgaged to a lender under Romanian law.
2.1 The distinction between mortgages on land and buildings on the land?
There is no distinction under Romanian law between a mortgage over land and a mortgage over the buildings on the land. In both instances the mortgagee would have the benefit of the same rights and means of redress against the mortgagor.
2.2 Are mortgage certificates for a certain value issued? What is the cost? Are they transferable?
In Romania, mortgage certificates (i.e. preliminary mortgage agreements indicating the mortgagor’s creditworthiness) are not common in practice.
2.3 Can second ranking security be taken? If so, how is it registered? Is a priority deed also registered?
Second ranking security can be taken over any real property (whether land or buildings). A second ranking mortgage is registered in the Land Book following the same procedure as the registration of a first ranking mortgage. It is possible to change the ranking on the Land Book.
2.4 Can the real estate be transferred to a third party (being still subject to the mortgage) without the lender’s consent?
In practice, mortgagees usually include in the mortgage agreement a prohibition on the mortgagors selling or otherwise disposing of the charged property. This prohibition is registered with the Land Book. Consequently, the transfer of real estate subject to mortgage (or any other disposal acts, including the creation of additional mortgages) should not be registered with the Land Book without the prior written consent of the lender.
However, under the Civil Code of Romania (the “Civil Code”) any transfers (and other acts of disposition as well) of the mortgaged assets to a third party are valid notwithstanding any provisions to the contrary in the mortgage agreement. Such acts are valid even if the transferee was aware of the contractual prohibition on the mortgagor to dispose of the mortgaged assets.
Moreover, under the Civil Code, any provisions in a mortgage agreement that require the mortgagor to make, on the lender’s demand, the immediate and anticipated payment of the secured amount by reason of that mortgagor having granted another charge on those mortgaged assets (i.e. negative pledges) are deemed void.
2.5 Are there any preferred creditors (other than a prior ranking mortgage holders)?
The Civil Procedure Code provides that claims consisting of judicial, enforcement and legal costs (including costs with the forced sale of the asset and the transfer of ownership and registration of the new owner) and the costs of conservation of the relevant asset(s) are privileged in case of the distribution of proceeds resulted from the enforcement of a debtor’s assets (whether movable or immovable)
The Civil Code also provides for certain privileged security interests in movable property. These special security interests arise by operation of law for the benefit of certain type of creditors such as:
- the seller of a movable asset to secure the buyer’s obligation to make a deferred price payment, unless the asset is acquired for business purposes; or
- the creditor exercising a retention right over a movable asset.
The above privileged security interests operate by law and do not need to be registered with any public registry (such as Land Book or Publicity Register).
Furthermore, the Civil Code provides that certain types of privileged creditors whose claims with respect to real estate assets are secured by way of legal mortgages (i.e. mortgages created by law). Such privileged creditors include (inter alios):
- the seller of a real estate asset, to secured the buyer’s obligation to make a deferred price payment (the same applies to claims consisting of price differences payable by acquirers under an exchange of a real estate asset with another asset plus a price difference);
- the potential acquirer of the real estate asset, for the restitution of anticipated price payments made under a pre-sale purchase agreement;
- the lender of the purchase price of a real estate asset, for the restitution of the loan;
- the architects and contractors involved in the development, rebuilding or repair of a real estate asset, for their claims with respect to the relevant works.
These legal mortgages must be registered in the Land Book and acquire their priority depending on the time they are registered. Generally, the registration of a privileged security interest is either made by their holder within a certain time frame.
2.6 Can “all monies” mortgages be taken?
An “all monies” mortgage (i.e. a mortgage whereby the mortgaged property stands as security for an indebtedness that is not determined at the time the mortgage is created) is not possible under Romanian law. The secured amount must be determined in or (reasonably) determinable from the mortgage agreement.
2.7 Can a landlord’s right to receive rent be charged, assigned or transferred to a lender by way of security? If so, how?
The landlord’s right to receive rent may be charged to a lender by way of a movable mortgage. Such mortgage will be registered with the Publicity Register for Secured Transactions (“Publicity Register”) and with the Land Book and hence will acquire its priority rank.
In the event of enforcement, the lender may direct that the obligations due to the landlord be paid to the lender directly.
2.8 It is customary/possible for a lender to take a charge/security over bank accounts of the borrower? Is it usual for lenders to contractually restrict rights to withdraw funds in accounts until the scheduled interest and capital repayments are made?
Security may be created over a borrower’s bank accounts by way of movable mortgages. Such movable mortgages will be registered with the Publicity Register and will therefore be ranked in order of registration.
Lenders customarily request to be granted control over the bank accounts (either by law, if it is the account bank where the mortgaged accounts are open, or by way of a three party agreement or a notice and acknowledgment mechanism concluded with the account bank and the mortgagor). It is also a usual practice that lenders, borrowers and (account) banks enter into accounts agreements setting out the borrower’s obligations to collect its revenues in certain accounts and to make payments to the lenders throughout the term of a facility agreement.
Lenders may contractually restrict the debtor’s rights to withdraw funds, but do not customarily do so. In any case, in the event of enforcement the lender may direct the bank with whom the charged accounts have been opened to block them and allow no future payments to be made from them.
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