The funds will be able to recover NPL's more quickly following a decision by the Directorate-General of Registries and the Notarial Profession
Restructuring & Insolvency Commentary 3-2018
Garrigues detected that there was no clear guideline that allowed notaries to issue another enforceable copy of the mortgage deed to funds that had acquired NPLs.
The Directorate-General of Registries and Notaries (Dirección General de los Registros y del Notariado or DGRN) has issued an important ruling, which will enable international investors acquiring NPLs (non-performing loans) from Spanish financial institutions to speed up their recovery significantly, especially if the debts are secured with a mortgage guarantee.
Until now, investors who acquired NPLs, thus becoming the new holders, were faced with major obstacles hindering their strategic recovery, sometimes even delaying it for years. The reason was that investors were quite habitually unable to locate, or obtain from the financial institution that transferred the debts, a enforceable copy (copia con efectos ejecutivos) of the mortgage deed, i.e., the type of document required by law in Spain in order to foreclose a mortgage using the most expeditious and privileged procedure. This problem made the Spanish NPLs market less competitive than that of other neighboring countries and, above all, lowered the price paid by investors for NPLs, where the financial institution transmitting the debts was unable to locate in its files and give the investor a enforceable copy of the mortgage deed (not uncommon, due to the restructuring of the Spanish financial system and the transfer of NPLs among various financial institutions). The final result was that, from the price they paid to financial institutions for NPLs, investors discounted the time and the costs of undertaking other slower legal channels, where results were much less certain and which were equally unable to ensure access to the mortgaged asset.
Following a round of meetings with the most important servicing institutions on the Spanish market (who process the recovery of €176 billion of NPLs), Garrigues detected the absence of a clear guideline enabling notaries to issue another enforceable copy of the mortgage deed to funds acquiring NPLs. In the opinion of Garrigues, it was essential to find a way for the investor (acquirer of the NPLs and new creditor) to obtain this type of copy that would permit it swift access to the foreclosure, auction and, as the case may be, award of the asset.
In its decision of June 28, 2018, the DGRN responded affirmatively to the request for a ruling submitted by Garrigues on behalf of its clients (ten of the most important servicing institutions on the Spanish market) and confirmed that notaries are perfectly able to issue a new enforceable copy to an investor acquiring NPLs secured with a mortgage guarantee, where the investor has previously been unable to obtain another copy. According to the DGRN, this new copy entitles the new creditor to access the expedited and privileged mortgage foreclosure procedure.
The DGRN not only upheld, in full, the request for a ruling submitted by Garrigues, but also concluded by saying that this new guideline will serve to reduce the time required for the foreclosure of mortgage loans by investors, which favors the bad debt market and promotes the mortgage as the best security for accessing the value of the mortgaged asset.