One of the most delicate aspects in real estate financing transactions is the security connected to the loan. The main problems faced by businesspeople and advisors not familiar with the Italian real estate market are related to the procedures and timing requested for the enforcement of the security. Such enforcement has to precede the drawdown of the loan in 90 percent of all cases.
The most important security requested in real estate financing transactions is, of course, the mortgage over the real estate property. This is the core of real estate financing transactions. Depending on the complexity of the transactions, further security can be requested. This includes a pledge on the shares or quotas of the company owner of the property and, as the case may be, a pledge on the share or quotas of the controlling company. Security can also be requested to pledge on the bank account balance or, alternatively, assignment of the bank account’s credits, assignment of the insurance indemnities, the assignment of lease rental payments and the assignment of VAT credits.
During real estate financing negotiations, often too little attention is paid to the security package. The security package tends to play a secondary role within the overall transaction. For those not familiar with the Italian real estate market, however, enforcement of the security package (and, in particular, of the mortgage) is the main cause of last-minute closing postponements in Italian real estate financing transactions.
Knowledge of some general Italian principles and negotiation strategies may be helpful in avoiding unnecessary delays. There are several ways to avoid last-minute closing problems with regard to two common condition precedents: the mortgage registration certificate and the notarial report.
Pursuant to Italian law, the mortgage is a security that becomes enforceable upon the registration at the Italian Real Estate Registry where the property is located. The mortgage registration is executed by the public officer of the registry upon written request (registration notice) based on a valid title (for example, the deed of the mortgage).
Once the registration is completed, the public officer releases a registration certificate. The certificate is a document requested by the lender to gather evidence of the mortgage’s lawful registration. The delivery of the registration certificate is generally indicated as a condition precedent to the drawdown. However, such a registration procedure is generally not completed on the same day of the request: Each real estate registry has its own timing for registration, taking, in certain cases, up to four days to release the certificate.
Such a delay may prevent the drawdown from being executed on the closing date. Therefore, in the typical scenario of a loan requested for the purchase of a real estate property, the drawdown could not be completed on the date of the purchase. This may cause last-minute problems. Timing is important in these types of transactions. All parties involved (including the seller and any possible previous lender) should agree in advance on all closing technicalities and verify, together with the public notary, the registration timing requested for the release of the registration certificate by the competent real estate registry.
The delivery of the notarial report on the real estate registry attesting the lack of previous mortgages or of any other encumbrances on the property (confirming the representations and warranties released by the borrower) is another condition generally requested by the lender for the drawdown of the loan. The importance of this document could wrongly be undervalued. It is important to request the report in advance, even before the signing of the loan agreement. This is because its preparation could, in some cases, require weeks of work. In addition, it could give important evidence of unknown (even to the borrower) encumbrances on the property that might not be revealed even by a careful legal due diligence. Knowing in advance the existence of such encumbrances could provide the time to find a solution for the cancellation and avoid last-minute surprises that could result in the parties deciding not to close the deal.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.