REALWorld Law

What sort of security is typically created or entered into by an investor who is borrowing to acquire or develop real estate?

As a general rule, there are no restrictions on granting security to foreign lenders.

Parties may not choose any law other than Romanian law to govern mortgage agreements referring to assets located in Romania. 

Last modified 13 Mar 2025

What sort of security is typically created or entered into by an investor who is borrowing to acquire or develop real estate?

To create a valid mortgage over real estate, the agreement must be notarized. Notary fees are provided by the law in a progressive manner, depending on the value of the secured amounts. A fee is also payable for the registration of the mortgage in the Land Book. The fee is RON 100 plus 0.1% of the amount of the debt which the mortgage secures. If the mortgage is transferred by way of an assignment agreement, a fee of RON 100 is payable for the registration of the mortgage in the Land Book in the assignee's name.

To transfer a debt secured by an immovable mortgage, the assignment agreement must be notarized and the notary’s fee is calculated by applying a percentage of 0.45% to the value of the assigned debt.

Last modified 13 Mar 2025

What sort of security is typically created or entered into by an investor who is borrowing to acquire or develop real estate?

In Romanian Law, the concepts of both financial assistance and corporate benefit are well known and are particularly applicable to joint stock companies.

Financial assistance rules

Under Romanian Company Law, a joint stock company may not advance funds or make loans or provide security interests for the subscription or acquisition of its own shares by a third party. This rule does not apply to transactions entered into by credit institutions and other financial institutions in the normal course of their business, or to transactions involving the purchase of shares by or for the company’s employees, as long as the operations do not result in the net assets becoming worth less than the total value of the subscribed registered capital and the reserves that the law or the articles of association of the company prevents them being distributed.

Corporate benefit rules

Under Romanian law, companies are established for the purpose of obtaining profit. Consequently, it is not possible for a company to unilaterally assume obligations that reduce its patrimony (ie by granting a guarantee and creating security, especially in favour of a third party) without achieving a certain form of consideration in return. Otherwise, if the security interest or guarantee has been granted in lack of any corporate benefit for the respective company, there is the risk that the security interest or guarantee may be challenged by a third-party creditor.

Several methods are used on the market to mitigate this risk (ie including all security providers as borrowers under the facility, structuring the transaction so that the Romanian company receives a part of the proceeds of the loan or a fee for the provision of the guarantee/security). Nevertheless, where the benefit received by the guarantor/security provider is not proportionate to the risk undertaken, there is a higher risk that the transaction will be voided for corporate benefit grounds.

Other rules

In the case of joint stock companies, the board of directors or, as the case may be, the managing board, may enter into transactions in the company’s name and account, by which the company acquires or disposes of leases, changes or creates charges over the company's assets, the value of which exceeds half of the book value of the company’s assets at the time the agreement is concluded, only with the approval of the shareholders in a general meeting. For listed companies these conditions refer to the total value of fixed assets, less receivables, and the threshold is set at 20%.

Last modified 13 Mar 2025

What sort of security is typically created or entered into by an investor who is borrowing to acquire or develop real estate?

There are no restrictions on payments to foreign lenders under loan agreements or security documents.

Last modified 13 Mar 2025

What sort of security is typically created or entered into by an investor who is borrowing to acquire or develop real estate?

Under Romanian law, the rank of a secured debt is determined by the timing of its registration with the relevant public registers. Based on the order established by registration, the creditor has the right to recover his debt with priority over the non-registered creditors and over the creditors whose claims were registered subsequently. Existing secured debt may become postponed to newly created debt in some circumstances either by way of agreement or by the operation of law.

Contractual arrangements

A creditor can agree to subordinate its security interest to that of another creditor by means of a subordination agreement. The agreement will regulate the subordination of the debt as well as the security and will cover matters such as rights of enforcement.

In the event of bankruptcy, however, this type of agreement becomes ineffective because Romanian insolvency law lays down the order in which debts are to be discharged.

Subordination by operation of law

The Romanian Civil Code provides that if a lower ranking creditor pays a superior creditor the amount of the debt, it succeeds to the rank of the superior creditor. The lower ranking creditor may wish to do this where the superior creditor decides to sell the asset at a value that would not cover the amount of both debts. Consequently, an agreement between the parties can make it possible for existing debt to be postponed to newly created debt.

Last modified 13 Mar 2025

What sort of security is typically created or entered into by an investor who is borrowing to acquire or develop real estate?

Security documents, such as mortgage agreements, which refer to assets located in Romania can be governed only by Romanian law. The courts will not recognise clauses which purport to make a foreign law apply.

Mortgages created by entities over their shares in Romanian companies, must be governed by Romanian law unless the shares belong to a listed company, in which case the law of the market on which the shares are being traded is applicable. 

Last modified 13 Mar 2025

What sort of security is typically created or entered into by an investor who is borrowing to acquire or develop real estate?

Under Romanian Legislation, in order to make its security enforceable against third parties, the holder must register its security in the relevant registers (eg the Land Book, the Romanian National Registry for Movable Security Publicity). Any unregistered security is not enforceable against third parties; the holder of the security is in the position of a regular unsecured creditor. In the case of movable mortgages, a perfected mortgage (meaning a mortgage which is effective and binding on third parties) always has priority over one which has not been perfected.

Last modified 13 Mar 2025

What sort of security is typically created or entered into by an investor who is borrowing to acquire or develop real estate?

Environmental protection legislation is based on the 'polluter pays' principle (the person causing the pollution is liable). Where there are several polluters, they are jointly liable towards third parties and the authorities, but between them their liability is proportionate to their actual fault.

A lender's liability per se is not expressly regulated by the law. Nonetheless, environmental risks that might affect the value of a property charged with a mortgage in favour of the lender need to be taken into consideration.

Last modified 13 Mar 2025

What sort of security is typically created or entered into by an investor who is borrowing to acquire or develop real estate?

The enforcement of an immovable mortgage is a judicial procedure governed by the Romanian Code of Civil Procedure. It may only be conducted by a bailiff and under the supervision of a court of law. The commencement of enforcement proceedings against real property must be registered in the Land Book.

In order to be enforceable, a mortgage must comply with the following requirements:

• The obligation resulting from the loan that it secures must be certain (ie its existence must be proved), payable (ie the amount must have been previously determined) and due (ie although outstanding, not yet satisfied by the borrower).
• The creditor should have title to enforce. Under Romanian law, validly concluded mortgage agreements constitute enforceable titles.

The assets subject to the security can be disposed of by public auction or, if the price resulting from a valuation of the asset will be obtained and the parties agree, by direct sale.

Last modified 13 Mar 2025

What sort of security is typically created or entered into by an investor who is borrowing to acquire or develop real estate?

If financial difficulties arise, the debtor may make private arrangements with its creditors in order to reschedule its debt.

Other alternatives are the ad-hoc mandate (in which the debtor will ask a court to appoint a person to conduct its business) or the preventive concordatum (where the debtor losses its right to conduct its business and a person is appointed by a court to try and reach an agreement with the creditors).

Last modified 13 Mar 2025

What sort of security is typically created or entered into by an investor who is borrowing to acquire or develop real estate?

As a rule, at the commencement of insolvency proceedings against a debtor, all court and out-of-court actions in respect of claims against the relevant debtor and its assets are suspended by operation of law. Nonetheless, a secured creditor has the right to request the insolvency judge, summoning the creditors' committee, the special administrator and the judicial administrator, the overturn of the suspension of claims with regard to its debts if the following conditions are met:

a. if the value of the secured asset, determined by an evaluator according to international valuation standards, covers the value of the secured obligation or parts of the secured obligations, provided that:

• the secured asset is not an indispensable part of the reorganisation procedure; or
• (where the secured asset is part of an independent structure) a separate sale of that asset will not diminish the value of the assets remaining in the same structure; or

b. if there is no adequate protection of the secured claim against the corresponding secured asset due to:

• a decrease in value of the secured asset or existence of a real danger for the secured asset to suffer a considerable reduction in value;
• growth in other secured claims (by accrual of interest, for example) that have rank in priority; or
• there is no insurance policy protecting the secured asset against perish or damage.

Should the insolvency judge accept the application for overturning the suspension, the creditor’s security may be enforced pursuant to the general enforcement rules.

There are nonetheless several agreements which, if executed by the debtor within a certain (legally determined) period of time prior to the opening of insolvency proceedings – known as the 'grey period' – are treated as being to the detriment of the debtor’s creditors and thus may be challenged by an insolvency official (ie the judicial administrator or liquidator). By way of example, these agreements include:

• free transfer deeds executed in the 2 years prior to the opening of the insolvency procedure, except for sponsorships for humanitarian purposes;
• commercial transactions entered into less than 6 months prior to the opening of insolvency proceedings in which the value of the debtor’s performance exceeds the benefit it received;
• agreements entered into less than two years prior to the opening of insolvency proceedings, where all parties intended to put assets beyond the reach of the debtor's creditors or to affect such creditors’ rights in any manner whatsoever;
• transfers of ownership effected less than 6 months prior to the opening of insolvency proceedings in order to settle a previous debt, if the amount the relevant creditor would receive if the debtor became bankrupt would be lower than the value of the ownership transferred;
• the giving of a guarantee enforceable against a specific asset for a previously unsecured debt, created less than 6 months prior to the opening of insolvency proceedings;
• prepayments of debts, performed less than 6 months prior to the opening of insolvency proceedings, if the due date for such debts was established at a date subsequent to the opening of the insolvency proceedings;
• transfer or assumption of debts deeds executed by the debtor less than 2 years prior to the opening of the insolvency proceedings, with the intention to hide/delay the insolvency or defraud a creditor; or
• transactions involving a shareholding of at least 20% of a company’s share capital, entered into less than two years prior to the opening of insolvency proceedings.

The insolvency official may apply for these transactions to be annulled, and this in turn may trigger the annulment of related security agreements as well. Such an application may be filed within one year from the expiry of the period laid down for drafting the report detailing the causes of the insolvency, but no later than 16 months from the opening of the insolvency proceedings.

Last modified 13 Mar 2025

What sort of security is typically created or entered into by an investor who is borrowing to acquire or develop real estate?

Secured creditors are entitled to preferential treatment when the amounts received from the sale of the secured assets in liquidation proceedings are distributed. The order of distribution is as follows:

a. expenses related to the insolvency proceedings and the sale of assets. In this respect, there might be a risk that the remaining amount may not cover the entire value of the secured claim. Thus, the portion of the claim that has not been settled following liquidation proceedings becomes unsecured and will be paid, following the regular order;

b. the secured creditor’s claim; and

c. rest of the creditors according to the general rules.

If the secured creditors have been paid or the debtor’s assets are not secured or mortgaged, Romanian insolvency law provides that the following payment order be applied:

• expenses related to the insolvency proceedings and the sale of assets;
• receivables arising fromintermediary financings granted to the debtor with the approval of the creditors’ meeting, as well as those related to obtaining financial resources to support the implementation of the reorganisation plan;
• receivables arising from financings granted in the proceedings for the prevention of insolvency and practitioner's fees in such proceedings;
• salaries and other receivables arising from labour relations;
• receivables resulting from the continuation of the debtor's activity after the opening of the insolvency proceedings, damages which may be requested by the debtor's co-contractors in case of unilateral termination of the agreements to which they were parties and receivables of third party purchasers in good faith which return to the debtor the assets or their equivalent value after the annulment of the corresponding transfer agreements;
• claims for payment of taxes;
• receivables due to third parties who have legal responsibilities for the support of others and receivables which are judicially approved for the care of the debtor (if he is a natural person) and his family;
• banking unsecured credits, with the related expenses and interest, receivables resulting from product deliveries, service provision or other works and rent;
• other unsecured receivables; and
• subordinated receivables, in the following order of preference:

a. the receivables of shareholders holding at least 10% of the share capital;

b. benefits undistributed to shareholders; and

c. receivables arising from gratuitous acts, eg donations.

Creditors in any one of the above categories, receive payment pro rata, and those from the lower ranking categories are paid only once liabilities to preferred secured creditors are fully paid off.

Last modified 13 Mar 2025