Debtors in difficulty – either as result of the excessive growth of the currency exchange rate or due to the significant increase of reference indexes forming the variable interest (ROBOR, EURIBOR, LIBOR etc.) – have the possibility to obtain a re-balancing of the credit agreements in court, only for the future, by using the new datio in solutum law. Even if the re-balancing of the credit agreement is a priority pursuant to the law (i.e. the debtor pays a fair rate and keeps the house, as well), the debtor may choose to transfer the real estate used to secure the loan to the creditor, the consequence being the cancellation of the debt. The loan agreement freezes throughout the whole datio in solutum procedure, meaning that the debtor is exempted from paying his installments and any enforced execution is blocked under the law. The new datio in solutum law is complementary to the unfair terms procedure and does not exclude such an endeavour.
On 13 April 2016, the Parliament of Romania adopted the Bill of Law concerning the transfer of title (subsequently known as Datio in Solutum Law no. 77/2016) with 207 votes for and one vote against.
The law was adopted when, between 2006 and 2009, borrowers (especially in Swiss Francs) were affected by the major growth of the Swiss franc and by the unilateral increase in interests by banks, either on occasion of the implementation of the Government Emergency Ordinance 50/2010 (norm that transposed the European Directive 2008/48), or by means of a restructuring addendum for debtors that had difficulties in paying their installments. In other words, certain banks on the market understood to help the clients that had difficulties in paying their installments by means of a restructuring/rescheduling of payments exclusively referring to the increase in the interest rate applicable to the credit agreement.
Moreover, in most situations, given the financial crisis in 2008, the asset secured by borrowers no longer covered the value of the credit. Thus, if a borrower was to be executed by the bank, he would be deprived of the real estate brought as security (generally the apartment or house where he lived with his family), and for the remaining debt he would be executed until the end of his life by retaining an amount of at least 1/3 of the monthly revenues of the borrower.
Thus, pursuant to Law 77/2016 on the transfer of title, in the initial form, borrowers had the possibility to file a notification with the Bank showing their intention to deliver the secured asset to the bank. In this situation, the Bank had two options: either to accept the notification and take over the real estate, with the cancellation of borrower’s debt; or to dispute the court notification, which was to verify the compliance with legal terms.
Pursuant to Law 77/2016 in its initial form, the debtor had to comply with 4 conditions to resort to the legal procedure: the debtor must be a consumer; the good brought as security must be used for living; the borrowed amount should not exceed the amount of euro 250,000 upon the offering of the loan; the consumer must not have been convicted by final decision for any offense related to the credit agreement given by the bank.
Between May and October 2016, almost all notifications on the transfer of title were disputed by banks in court or were not considered by credit institutions, in which situation the debtor had to sue the bank.
As part of the disputes filed against title transfer notifications, banks have raised unconstitutionality exceptions in thousands of files, the law finally reaching the Constitutional Court.
By means of Decision 623/25.10.2016, the Constitutional Court showed that the law on the transfer of title is constitutional only to the extent the judge analyzes the theory of unforeseeability. In other words, in addition to the 4 conditions mentioned above, the Constitutional Court “changes” the title transfer law by adding an additional condition: the unforeseeability. In this context, courts of law have the duty to analyze, in each case, the intervention of an exceptional event, independent from parties’ will, which could not have been reasonably foreseen upon the conclusion of the contract as to the size and effects thereof, and which resulted into an unbalance between rights and obligations of the two parties: the bank and the borrower. Thus, after the application of the unforeseeability theory based upon Law 77/2016 on the transfer of title, the judge could have ordered the delivery of the real estate to the bank and the cancellation of borrower’s debt, or the re-balancing of the credit agreement by applying a LEU-CHF exchange rate lower than the rate of the National Bank of Romania, such solutions following to be ordered only after the court has found that the event was an exceptional one during the credit agreement.
While some courts of law (minority) showed that the doubling of the LEU-CHF exchange rate, the economic crisis in 2008 and certain unfortunate moments in the life of a family (death) are exceptional events that might result into the application of the law on the transfer of title, others (majority) found that there is no exceptional event resulting into the transfer of title or the re-balancing of the credit agreement. Thus, courts of law have made absurd decisions pursuant to which, even if debtor’s revenues were insufficient to pay the monthly installment, they considered that the borrower has the possibility to pay such installments if he has undertaken this risk through a not negotiated contract.
After the decision 623/25.10.2016, the Constitutional Court has made several other decisions to construe the provisions of Law 77/2016, but the most important clarification could be considered the one made by Decision 62/07.02.2017, the CCR declaring as unconstitutional the law converting in Lei the credits contracted in Swiss francs.
Decision no. 62/07.02.2017 of the Constitutional Court states that:
“The adjustment to the new conditions may also be done by means of a conversion of payment installments in national currency to an exchange rate that the court may establish depending on the actual circumstances of the file, to re-balance obligations, an exchange rate that can be the one applicable at the date of concluding the agreement, at the date of the unforeseeability event or at the date of the conversion”.
Moreover, through Decision no. 95/09.08.2017, the Constitutional Court shows that the law on the transfer of title also applies to borrowers that were enforceable executed, deprived of the real estate brought as security and adjudicated during the public auction, the residual debt of the debtor after the capitalization of the security following to be canceled pursuant to the law on the transfer of title.
Based upon the clarifications of the Constitutional Court through the many decisions made concerning the transfer of title and that mainly referred to the borrowers in Swiss francs, consumers hoped that the situation in courts would be favorable.
However, courts in the country, contrary to decisions of the Constitutional Court, showed that the law on the transfer of title did not apply to enforced executions or, moreover, re-balancing requests of borrowers in credit agreements based upon the unforeseeability were rejected in 80-90% of the cases. The transfer of title seemed not to be a feasible solution for borrowers, being eliminated from application through the judicial practice.
Pursuant to a statistic made by Credere in October 2019, based upon the data provided by portal.just.ro, there were 371 title transfer case files pending before the District 6 Court of Law in which judges were analyzing the unforeseeability, decisions being favorable to banks in more than 99% of the cases. To be more exact, 369 case files were favorable for the banks and only 2 cases for the borrowers. And the situation at the Court of Law of District 6 was not unique, given the practice of other courts of law in our country.
By observing the judicial practice, the initiator of the law on transfer of title, senator Daniel Zamfir, has filed, by the end of 2018, a bill of law referring to the amendment of Law 77/2016. Thus, pursuant to the form adopted by the Parliament of Romania in June 2019, the bill of law limited the appreciation of the judge as to the unforeseeability situations. The legislative proposal was declared partially unconstitutional by the Constitutional Court by the reference decision no. 731/2019. The arguments brought by the Court has exceeded everyone’s expectations (banks and consumers) as the contentious constitutional law court found the application of the unforeseeability theory by the courts diffuse and erroneous and invited the Parliament to set clear unforeseeability criteria. These are the most important aspects understood by the Constitutional Court by Decision no. 731/2019:
“The Court understands that, if unforeseeability criteria can be set by interpretation means, the legislator can take advantage thereof and establish unforeseeability situations/criteria”.
“Courts of law answered in a very unclear manner to unforeseeability exigencies, by interpreting the exigencies set by the Decision of the Constitutional Court no. 623 of 25 October 2016 in a manner that was not compliant with the definition of the unforeseeability.”
“Thus, the Court found that foreign exchange differences of a certain size, given the quantum and extension in time, may be considered unforeseeability situation”.
Based upon this decision, the Parliament, through the specialty commissions, has put the initial normative act in line with the Decision no. 731/2019 of the Constitutional Court.
The law on the transfer of title, as amended in May 2020, stipulates the unforeseeability thresholds and sets the situations in which the court of law has the obligation to find the breakage of the contractual imbalance between the bank and the borrower. Thus, pursuant to the law, if the exchange rate has increased by at least 52.6% compared to the date of offering the credit, and the imbalance has remained for more than 6 months, the borrower can obtain the re-balancing of the credit agreement, to the extent there is no amicable understanding with the bank (the threshold is fulfilled for all loans denominated in swiss francs or dollars and very few loans denominated in euro). The 52.6% threshold used by the legislator as benchmark was taken over from the Regulation of the National Bank of Romania no. 24 of 28 October 2011, which referred to the notion of shock to the foreign currency exchange rate. Moreover, this value is higher than the 50% level, which is the level considered relevant by the judicial doctrine in contractual unforeseeability.
If until now the court refused to ascertain the existence of a contractual unbalance in case of a doubling or tripling of the monthly installment and took no measure to reestablish the contractual balance (in more than 90% of the cases), the new regulation that sets unforeseeability criteria obliges the court to find that, in certain situations, there is a contractual imbalance, the re-balancing solution ruled by the court of law remaining its choice, depending on its own evaluation of the case file brought to the court.
Banks will, for sure, contest with the Constitutional Court the amendments to the law on the transfer of title, but Credere considers that there is a minimum risk that they do not pass the constitutionality test, especially if we consider the fact that the new form of the law on the transfer of title reflects the guidance and arguments presented by the Constitutional Court in the hundreds of decisions that made reference to this law.