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How Foreign Banks and Lenders Can Secure Mortgages and Enforce Them on Romanian Property

The article outlines how foreign banks and lenders can structure and register Romanian mortgages over local real estate to secure cross-border loans. It then explains enforcement routes in case of default, from starting enforcement procedures to judicial auctions, and how these interact with foreign finance documents.

For international banks and credit funds, Romania has become an increasingly attractive jurisdiction: EU membership, a modern civil code, a constitutive land book system and a growing real estate market mean that foreign lenders routinely finance Romanian assets. From a lender’s perspective, the key questions are always the same: Can we take robust security over Romanian real estate? How do we perfect it and preserve priority? And, crucially, what does enforcement look like in practice when a borrower defaults?

This article provides a practical roadmap for foreign financial institutions that want to structure, register and enforce mortgages over Romanian immovable property. It blends the main rules of the Romanian Civil Code, the Civil Procedure Code and land book legislation with market practice drawn from real estate finance transactions handled for international lenders.

Creating Valid Mortgages under Romanian Law

1. Concept of a mortgage in the Romanian Civil Code

Under the Romanian Civil Code, a mortgage (ipotecă) is defined as a real right over movable or immovable property that secures the performance of an obligation. It is accessory to the secured claim and indivisible: the mortgage follows the debt and typically encumbers the entire asset until the secured obligations are fully repaid, even if part of the debt is paid down in the interim.

Key features that foreign lenders should internalise at the structuring stage:

  • Accessory nature: The mortgage depends on the existence of a valid underlying claim (the loan or other credit exposure). If the claim is extinguished or declared null, the mortgage falls with it.
  • Indivisibility: Even if the borrower repays a portion of the loan, the mortgage usually continues to secure the entire claim until full repayment, unless the parties agree otherwise in the mortgage deed.
  • Scope of secured obligations: Romanian law allows mortgages to secure present and future obligations, revolving facilities, and obligations that are conditional or determinable, provided the mortgage agreement describes the secured obligations and specifies a maximum secured amount.
  • Universality of assets: Since the 2011 Civil Code reform, mortgages can be created over individual assets or over universality of assets (for example, an entire portfolio of immovable property) subject to more detailed drafting and registration.

2. Who can grant and who can hold a Romanian mortgage?

On the granting side, any person with full legal capacity that owns the property or has sufficient rights over it (for example, a long-term superficies right) may grant a mortgage. In corporate deals, the mortgagor is typically a Romanian SPV that owns the asset, but group companies and sponsors may also provide collateral for guarantees or cross-collateralisation structures.

On the lender side, Romanian law does not, as a rule, restrict the ability of foreign corporate lenders to take security over Romanian property. In other words, a bank or fund incorporated abroad can be the mortgagee of record, provided it complies with any licensing or regulatory requirements applicable to its lending activity and any reporting obligations vis-à-vis the National Bank of Romania for cross-border loans.

Professional lending in Romania is a regulated activity; only licensed credit institutions and certain non-bank financial institutions may conduct lending on a professional basis in or from Romania. However, foreign lenders may provide cross-border loans under EU passporting rules (for EU credit institutions) or, in some structures, as occasional lending, while relying on robust local security governed by Romanian law.

3. Governing law and the lex rei sitae principle

Foreign lenders often ask whether they can govern the mortgage agreement by English law, New York law or another familiar system while still taking security over Romanian immovable property. The answer is essentially no: for security over Romanian real estate, Romanian law is mandatory.

Under Romanian private international law and consistent market guidance from leading firms, security agreements over assets located in Romania (including mortgages over immovable property) must be governed by Romanian law. The underlying credit agreement can be governed by a foreign law, but the security package over Romanian immovables is documented in Romanian law security instruments.

In practice, this means:

  • Loan agreements may be governed by English, New York or another foreign law if the parties so choose.
  • The mortgage agreement over the Romanian property is a standalone Romanian law document, typically in authentic notarial form, linked by cross-default and cross-reference provisions to the foreign-law facility agreement.
  • Disputes relating to the mortgage and enforcement over Romanian property will almost always be heard by Romanian courts at the location of the property, regardless of the forum agreed for disputes under the loan agreement.

4. Formal requirements for a valid Romanian real estate mortgage

Unlike many common-law systems where security can be created by relatively simple deeds, Romanian law imposes strict formalities for a valid immovable mortgage:

  • Authentic notarial form: The mortgage agreement over real estate must be concluded in authentic form before a Romanian public notary (or certain Romanian consular offices abroad). Failure to comply results in absolute nullity of the mortgage.
  • Mandatory content: The mortgage deed must identify:
    • the parties (mortgagor, mortgagee and, if different, the borrower);
    • the mortgaged asset, by reference to its land book number, cadastral identifier and location;
    • the secured obligations (under the facility or other finance documents);
    • the maximum secured amount (cap) for which the mortgage is registered, covering principal, interest, fees and enforcement costs as agreed; and
    • any special covenants, negative pledges or additional security provisions.
  • Signatures and corporate approvals: Corporate mortgagors must evidence proper corporate approvals (shareholders’ or board resolutions, powers of attorney) and compliance with any financial assistance, corporate benefit or related-party restrictions under Romanian company law and special legislation.
  • Spousal consent and matrimonial regimes: For individual mortgagors, notaries will analyse matrimonial property regimes and require spousal consent where needed.

In practice, loan documentation and term sheets are often agreed in English between the foreign lender and Romanian borrower, after which local counsel prepares bilingual Romanian/English drafts of the mortgage for execution before a local notary. The English text is typically for convenience only; the Romanian version is the legally binding one.

5. Types of immovable property and common security structures

Foreign banks typically secure:

  • Commercial real estate: office buildings, shopping centres, logistics facilities, hotels and mixed-use developments;
  • Residential portfolios: build-to-rent complexes, condominium units or portfolios of apartments;
  • Land banks and development sites: land plots (intravilan or extravilan) acquired for future development;
  • Industrial assets: factories, warehouses, energy projects (including renewable energy plants) and associated land rights.

In large financings, the real estate mortgage is often part of a broader security package that also includes movable security over receivables, bank accounts, shares and equipment, documented in separate security agreements and perfected in different registries (notably the Electronic Archive for Security Interests in Movable Property).

6. Negative pledges and further encumbrances

Foreign lenders almost always request negative pledges restricting the borrower from creating subsequent security over the encumbered assets without the lender’s consent. Under Romanian law, negative pledges in mortgage agreements are generally enforceable as contractual obligations, but they do not prevent a later mortgage from being validly registered in the land book. Priority is determined primarily by registration time, so the practical protection of a negative pledge is via contractual remedies (events of default) and close monitoring of the land book rather than by blocking subsequent registrations altogether.

Registration in the Land Book and Priority Rules

1. The Romanian land book system in brief

Romania operates a modern cadastre and land book (carte funciară) system governed mainly by Law no. 7/1996 on cadastre and real estate publicity, as amended. The land book fulfils both a descriptive and legal publicity function: each immovable property is uniquely identified and the land book records rights in rem, encumbrances and certain personal rights relating to the property.

For foreign lenders, several points are particularly important:

  • Constitutive effect (for most new registrations): For many real estate rights, including ownership and mortgages in fully “converted” areas, registration in the land book is required for the right to be opposable and, in some cases, for the right to arise at all.
  • Centralised, reliable records: The land book system is centralised and now largely digital. Extracts may be obtained online via the National Agency for Cadastre and Land Registration, facilitating due diligence and ongoing monitoring.
  • Publicity and reliance: Third parties and lenders may rely on the land book entries in good faith; acquiring parties and secured creditors are generally protected if they rely on the public record unless they had actual knowledge of irregularities.

2. Perfection of mortgages through land book registration

Executing a mortgage agreement before a notary is only the first step. To be effective against third parties and to obtain a rank in the order of priorities, the mortgage must be registered in the land book of the relevant property. Registration is made on the basis of the authentic mortgage deed and supporting documents (title deeds, corporate approvals, cadastral documentation).

From a lender’s perspective:

  • The date and time of registration determine the priority rank of the mortgage vis-à-vis other mortgages and encumbrances over the same property, subject to certain exceptions provided by law.
  • The mortgage entry will show:
    • the identity of the mortgagee (or security agent, if accepted by the registry);
    • the maximum secured amount;
    • a reference to the secured obligations; and
    • any subordination or intercreditor arrangements noted in the land book.
  • Absent registration, the mortgage may still be valid between the parties but will not be effective against third parties and may be subordinated to later-registered encumbrances.

In addition, mortgages over immovable property are often also registered in the Electronic Archive for Security Interests in Movable Property when they secure mixed collateral packages or when lenders want an extra layer of publicity, although the decisive register for real estate remains the land book.

3. Priority between competing mortgages and other encumbrances

Romanian law follows a clear “first in time, first in right” approach for mortgages: earlier registrations in the land book generally take priority over later ones, within the same category of rights. Priority between mortgages is determined by the order of their registration; a first-ranking mortgage is paid from enforcement proceeds before a second-ranking mortgage, and so on.

However, several nuances matter for foreign lenders:

  • Legal mortgages and special preferences: Certain legal mortgages or statutory liens (for example, for unpaid taxes or social security contributions) may enjoy special priority regardless of registration, so lenders should always conduct a full legal due diligence and enquire about outstanding public liabilities.
  • Registration of rank changes and intercreditor arrangements: If lenders agree to subordinate one mortgage to another (for example, in a senior/mezzanine financing), rank changes should be documented and registered in the land book to be effective against third parties.
  • Effect of amendments and increases: Amendments that increase the maximum secured amount or materially alter the secured obligations may require fresh registration and could affect priority if not handled properly.
  • Pre-existing encumbrances: In acquisitions financed by foreign banks, it is common to arrange for release or refinancing of existing mortgages at closing, with simultaneous registration of the new lender’s mortgage. Escrow arrangements and notarial undertakings are used to control the sequence.

4. Costs and practicalities of registration

Registration of a mortgage in the land book triggers:

  • Notarial fees: calculated by reference to the secured amount and often negotiated within statutory ranges;
  • Land book fees: typically a percentage of the secured amount, subject to minimum thresholds;
  • Legal and technical costs: fees for local counsel, translators (if needed), cadastral surveys and rectification of any title defects discovered during due diligence.

For cross-border transactions, lenders usually require:

  • clean land book extracts showing the borrower’s title and the absence of conflicting encumbrances (other than those to be released at closing);
  • evidence that cadastral data are up to date and that there are no overlaps, boundary disputes or pending cadastral procedures that could impact enforcement; and
  • confirmation that any special pre-emption rights (for example, under agricultural land or heritage legislation) have been complied with or are not applicable.

Enforcement of Mortgages in Case of Default

The ultimate test of any security package is what happens on default. Romanian law offers a relatively creditor-friendly enforcement framework shaped by the Civil Procedure Code and specialised enforcement legislation, but foreign lenders need realistic expectations around timing, debtor protections and practical hurdles.

1. Enforceable title and commencement of enforcement

To enforce a mortgage, the lender must hold an enforceable title. In practice, this typically means:

  • a final court judgment ordering the borrower to pay the outstanding amounts; or
  • a notarially authenticated loan or mortgage agreement that, under Romanian law, is recognised as an enforceable title (if it meets specific statutory requirements and contains an express enforceability clause).

The creditor initiates enforcement by instructing a licensed bailiff (judicial enforcement officer) and filing an enforcement request accompanied by the enforceable title and evidence of the debtor’s identity and address. The bailiff then seeks approval from the competent enforcement court. Once authorised, the bailiff may proceed with enforcement measures, including seizure and sale of the mortgaged property.

2. Steps in enforcing a Romanian real estate mortgage

Although each case has its own particularities, mortgage enforcement against immovable property broadly follows these stages:

  1. Commencement and attachment: After obtaining enforcement approval, the bailiff registers a notice of enforcement in the land book, marking the property as subject to enforcement. This public notation is important for opposability to third parties and prevents further disposals that could prejudice creditors.
  2. Valuation: The property is valued, often by a court-appointed or bailiff-appointed expert, taking into account market comparables and specific characteristics of the asset. The valuation will serve as a reference for setting the minimum auction price.
  3. Sale method: The standard method is public auction. In some circumstances, if creditors and debtor agree, the property may be sold by private sale or taken over by the mortgagee at an agreed value, subject to court oversight.
  4. Auction publicity: The bailiff publishes auction notices, usually via official publications and online platforms, and notifies interested parties (debtor, co-owners, other secured creditors). The notice contains key details of the auction date, property description and starting price.
  5. Holding the auction: One or more auctions are held. If the property is not sold at the first auction, subsequent auctions may be organised, often at reduced starting prices as permitted by the Civil Procedure Code, until the property is sold or enforcement is closed.
  6. Adjudication and transfer: Once a bidder offers at least the minimum price and no higher bids are made, the bailiff issues an adjudication deed (proces-verbal de adjudecare). This document, after payment of the price and fees, serves as a title for registration of the buyer’s ownership in the land book.
  7. Distribution of proceeds: The sale proceeds are used to cover enforcement costs and then distributed among secured and unsecured creditors according to the ranking of their rights and any privileged claims recognised by law.

Foreign lenders should be aware that, although the formal steps appear straightforward, debtor challenges and procedural complexities can extend the timeline significantly. It is not unusual for fully contested enforcement proceedings to last several years from first default to final distribution of proceeds, particularly where the debtor uses all available procedural remedies.

3. Debtor protections and challenges to enforcement

Romanian law provides debtors with multiple mechanisms to contest enforcement actions and protect certain basic assets. Key protections include:

  • Challenge to enforcement (contestație la executare): Debtors (and sometimes third parties) may challenge enforcement on various grounds, such as lack of a valid enforceable title, improper service of documents, expiry of limitation periods, irregularities in valuation or auction procedure, or abuse of rights. Courts may suspend enforcement pending resolution of the challenge, usually against a security deposit.
  • Protection of minimum living conditions: Certain assets are absolutely non-seizable (for example, basic household items, some income thresholds), although immovable property offered as collateral in a professional loan is generally not protected against enforcement.
  • Insolvency procedures: Opening insolvency proceedings can stay individual enforcement actions and subject them to the collective framework of insolvency law. Secured creditors still benefit from priority and can enforce against collateral within or alongside insolvency, but under more stringent court supervision and specific timelines.
  • Appeals on specific steps: In some situations, individual enforcement steps (such as valuations or auction minutes) can be challenged separately. Recent practice and legal changes have, however, limited challenges to the adjudication deed itself, in order to bring more certainty to buyers at auction.

From a risk perspective, foreign lenders should factor in the likelihood of at least one challenge to enforcement and budget for legal costs and time spent defending the process. Working with experienced local counsel and bailiffs is essential to keep enforcement procedurally robust and to minimise reversible errors.

4. Mortgagee takeover and alternative enforcement routes

Although public auction is the standard, Romanian law and practice also contemplate alternative enforcement outcomes that can be attractive for bank balance-sheet management or loan-to-own strategies:

  • Mortgagee acquisition at auction: The secured lender (or an affiliate) may participate as a bidder in the auction. If permitted by internal policies and regulation, the lender can effectively “credit bid” up to the value of its secured claim, subject to court practice and bailiff instructions, in order to take ownership of the asset instead of cash repayment.
  • Direct agreement and voluntary sale: In some cases, the debtor, lender and a third-party buyer negotiate a voluntary sale of the property during enforcement. The lender consents to release the mortgage in exchange for the sale proceeds being paid directly to it, often coupled with a settlement or restructuring of any remaining debt.
  • Restructuring or standstill: Before or during enforcement, lenders commonly explore restructuring options: extending maturities, partial write-offs, DPOs (discounted pay-offs) or converting part of the debt into equity, particularly where enforcement would destroy value or where the asset has development potential that can be unlocked with cooperation from the debtor.

These alternatives require careful structuring and documentation but can materially improve recovery and reduce reputational and operational risks compared to a purely adversarial enforcement strategy.

5. Enforcement against foreign borrowers and foreign judgments

Where the borrower is a foreign entity owning Romanian real estate (through a branch or directly) or where the facility agreement provides for foreign dispute resolution (for example, English courts or international arbitration), the enforcement path may involve recognition (exequatur) of foreign judgments or arbitral awards in Romania.

In brief:

  • EU judgments generally benefit from streamlined recognition and enforcement mechanisms under EU regulations.
  • Non-EU judgments are recognised based on Romanian private international law and any applicable bilateral or multilateral conventions, subject to public policy and due process checks.
  • Foreign arbitral awards can be recognised and enforced in Romania under the New York Convention and Romanian arbitration law, typically without a full re-examination of the merits.

Once recognised, the foreign judgment or award becomes an enforceable title in Romania and can be used by the lender to commence enforcement against the mortgaged property under the Civil Procedure Code. This enables foreign lenders to keep the main dispute before their preferred forum, while still relying on Romanian security for ultimate recovery.

6. Practical risk management for foreign lenders

Beyond the black letter of the law, experienced lenders adopt a series of practical measures to make their Romanian mortgages more effective in enforcement:

  • Due diligence depth: Conduct thorough title checks, cadastral verification, zoning and permitting due diligence, and confirm the absence of pre-emption rights or unresolved third-party claims that could block or delay enforcement.
  • Realistic valuations: Do not rely solely on borrower-provided valuations. Commission independent valuations using recognised methodologies and refresh them periodically, particularly for long-term and development financings.
  • Robust financial covenants and early warning triggers: Include DSCR, LTV and other financial covenants to trigger early negotiations or incremental security before the loan becomes seriously distressed.
  • Careful choice of enforcement court and bailiff: While jurisdiction is generally tied to the location of the property, lenders can still choose among competent bailiffs and should prioritise those with strong local experience in commercial real estate enforcement.
  • Coordination with other creditors: In complex financings with multiple creditors, intercreditor agreements should clearly regulate enforcement scenarios, standstill periods, voting thresholds and distribution of proceeds.
  • Monitoring of legal and regulatory changes: Romanian enforcement and insolvency law has been adjusted repeatedly over the last 15 years. Foreign lenders should obtain periodic updates on legislative and case-law trends affecting mortgage creation, registration and foreclosure.

Conclusion

Romania offers foreign banks and lenders a robust and increasingly sophisticated environment for taking and enforcing security over immovable property. The combination of a modern Civil Code, a constitutive land book system and a relatively creditor-friendly enforcement framework makes real estate collateral an effective risk mitigant for cross-border lending into the country.

However, the system is also formalistic and procedurally demanding. To maximise the value of Romanian mortgages, foreign lenders should:

  • structure security strictly in accordance with Romanian law and practice;
  • ensure notarial form and meticulous land book registration, with clear maximum secured amounts and up-to-date cadastral data;
  • understand priority rules and potential statutory liens that may compete with their security;
  • take a realistic view of enforcement timelines, debtor protections and potential litigation around foreclosure; and
  • integrate the Romanian security into a coherent cross-border strategy for judgment or award enforcement.

Done correctly, Romanian real estate mortgages can support sizeable and complex financing structures, giving foreign banks & credit funds confidence that they have a clear, enforceable path to recovery in case of borrower default.

Indicative sources and further reading