The new mortgage-walkaway law
In an election year such as this one, that is the kind of law that has the power to make many politicians look proudly in the mirror and, slightly rising their chin, say with great satisfaction: “Yes, I’ve done something good for the people!”
The mortgage-walkaway law has stirred a lot of passionate debates, unparalleled by any other legislative initiative pertaining to financial matters. No other law has generated so much dispute and verbal commotion, so many bitter accusations exchanged between its supporters and their opposition. The new law has made such an impact that when typing the Romanian word for law in Google search the top result refers to the mortgage-walkaway law (Legea dării in plat).
It is also surprising how so many people seem to be overjoyed with the approval of a law that helps individuals ditch their properties, as it were, instead of fighting for a law that might help them keep their properties. Anyway…
But is the enforcement of the law a sign that debtors and lenders have signed the “peace diktat”? I still believe we haven’t heard the last cannon shot fired in this battle, and it would be wrong for us to think that people can now simply go to the bank, toss their apartment keys on the bankers’ desks and walk happily towards new horizons. And I also believe that individuals who may feel inspired by Marin Preda’s character Ilie Moromete, hoping they could simply tell the bank “I’m skint” and ditch their properties, would still have to fork out a lot of cash before they can eventually be free of debt.
I’ve asked Andrei Șărban, one of the most appreciated lawyers specializing in banking, who is also an insolvency practitioner, if the procedure laid out by the new law is as simple as it is claimed to be.
Șărban is adamant when he warns that individuals hoping to free themselves from debt are in for a procedure that involves an expensive, painful and lengthy lawsuit: “Firstly, the new law stipulates that all costs related to lawyer, notary and court enforcement officer fees are to be covered by debtors or by the individuals who resort to the law. At the end of the procedure, debtors are exonerated from the payment of debts to their creditors.
What about the fees for court enforcement officers, who are in charge with the foreclosure files? Under the law and civil practice, foreclosure expenses are kept separate from overall debt and are covered by the lender in one single situation: when the lender waives the foreclosure procedure, a scenario that is not covered by the mortgage-walkaway law. We should not forget about potential fees for evaluators, real estate register taxes, and so on. In a nutshell, we are talking about the equivalent of a large number of installments that have to be paid all at once.”
Secondly, Serban points out that the new law will generate a lot of work for lawyers with solid experience in banking, even though some attorneys representing bank customers claim they have already created the necessary application forms and everything should run smoothly. “This ‘simple’ notification, granting banks a 10-day window to file a legal challenge and 30 days in which they can contact a notary for the property transfer papers, actually involves two notifications: one to the bank and one to the court enforcement officer, who handles the foreclosure file. The law introduces the suspension of contractual obligations, but it omits to specify whose responsibility it is to inform the court enforcement officer, who may sell the property in the meantime. So, a seemingly ‘simple procedure’ suddenly becomes complicated, according to Andrei Șărban.
People would be wrong to think that the law has been designed as a tool helping homeowners “ditch” properties that can no longer be paid for. In reality, most individuals who make use of the new law are going to find themselves waiting in breathless anticipation to see if their bank files a legal challenge in the first ten days. If that doesn’t happen, they will be able to relax a little, and go to the bank to negotiate “better” conditions. The lawyer’s talent and professional expertise is again going to make a difference, as in their position as negotiators for the bank or for the customer they will try to obtain a less radical, negotiated solution. “I cannot understand why mediators or the banking mediators’ office is not involved in this process; or even the much-discussed Center for Alternative Resolution of Banking Disputes,” said Șărban.
The mortgage-walkaway law has stirred a lot of passionate debates, unparalleled by any other legislative initiative pertaining to financial matters. No other law has generated so much dispute and verbal commotion, so many bitter accusations exchanged between its supporters and their opposition. The new law has made such an impact that when typing the Romanian word for law in Google search the top result refers to the mortgage-walkaway law (Legea dării in plat).
It is also surprising how so many people seem to be overjoyed with the approval of a law that helps individuals ditch their properties, as it were, instead of fighting for a law that might help them keep their properties. Anyway…
But is the enforcement of the law a sign that debtors and lenders have signed the “peace diktat”? I still believe we haven’t heard the last cannon shot fired in this battle, and it would be wrong for us to think that people can now simply go to the bank, toss their apartment keys on the bankers’ desks and walk happily towards new horizons. And I also believe that individuals who may feel inspired by Marin Preda’s character Ilie Moromete, hoping they could simply tell the bank “I’m skint” and ditch their properties, would still have to fork out a lot of cash before they can eventually be free of debt.
I’ve asked Andrei Șărban, one of the most appreciated lawyers specializing in banking, who is also an insolvency practitioner, if the procedure laid out by the new law is as simple as it is claimed to be.
Șărban is adamant when he warns that individuals hoping to free themselves from debt are in for a procedure that involves an expensive, painful and lengthy lawsuit: “Firstly, the new law stipulates that all costs related to lawyer, notary and court enforcement officer fees are to be covered by debtors or by the individuals who resort to the law. At the end of the procedure, debtors are exonerated from the payment of debts to their creditors.
What about the fees for court enforcement officers, who are in charge with the foreclosure files? Under the law and civil practice, foreclosure expenses are kept separate from overall debt and are covered by the lender in one single situation: when the lender waives the foreclosure procedure, a scenario that is not covered by the mortgage-walkaway law. We should not forget about potential fees for evaluators, real estate register taxes, and so on. In a nutshell, we are talking about the equivalent of a large number of installments that have to be paid all at once.”
Secondly, Serban points out that the new law will generate a lot of work for lawyers with solid experience in banking, even though some attorneys representing bank customers claim they have already created the necessary application forms and everything should run smoothly. “This ‘simple’ notification, granting banks a 10-day window to file a legal challenge and 30 days in which they can contact a notary for the property transfer papers, actually involves two notifications: one to the bank and one to the court enforcement officer, who handles the foreclosure file. The law introduces the suspension of contractual obligations, but it omits to specify whose responsibility it is to inform the court enforcement officer, who may sell the property in the meantime. So, a seemingly ‘simple procedure’ suddenly becomes complicated, according to Andrei Șărban.
People would be wrong to think that the law has been designed as a tool helping homeowners “ditch” properties that can no longer be paid for. In reality, most individuals who make use of the new law are going to find themselves waiting in breathless anticipation to see if their bank files a legal challenge in the first ten days. If that doesn’t happen, they will be able to relax a little, and go to the bank to negotiate “better” conditions. The lawyer’s talent and professional expertise is again going to make a difference, as in their position as negotiators for the bank or for the customer they will try to obtain a less radical, negotiated solution. “I cannot understand why mediators or the banking mediators’ office is not involved in this process; or even the much-discussed Center for Alternative Resolution of Banking Disputes,” said Șărban.
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