A loan is an agreement whereby one party, called the lender (usually a bank), transfers a certain amount of money in favour of the other party, called the borrower, so that the latter may enjoy it for a fixed period of time in return for payment of a consideration in the form of interest to the former.

Having outlined the basic structure and function of the agreement, we must immediately point out that, in practice, a loan agreement is enriched by various clauses which are not always immediately comprehensible but which are necessary to regulate all relations between the parties for the envisaged duration: methods of disbursing the loan, fixing the terms of repayment of the principal and payment of interest, determining the costs of administering the contract, rules and costs of early termination, provision and maintenance of guarantees, consequences of relative noncompliance (delays) and absolute noncompliance (non-payment).

Each of these aspects, in turn, is characterised by a bewildering array of possibilities and nuances, the result both of modern practices and rules and of doctrinal meditation that can rightly be defined as thousands of years old (the loan is contemplated in classical Roman law and has been the subject of study by Byzantine jurists, medieval common law jurists and the jurists of the codifications of the modern age). At present, the subject is being enriched by suggestions and innovations from abroad and by EU legislation.

All this gives an idea of the real complexity of the concept: the loan agreement, a typical product of intellectual work, lends itself well to being conceived as a composition of legal engineering, in which the work of construction, sizing and coordination of the various clauses characterises the result as a whole and makes it possible to evaluate it in terms of better (or worse) quality and convenience.

Loan agreements are generally drawn up by banks; the Notary Public, if instructed in good time by the borrower, can check them in order to make them clearer and more comprehensible, to identify and propose solutions better suited to the contracting parties and to eliminate clauses that may create an unjustified contractual imbalance.

If the basic structure of the agreement is as described above, it is quite common for the loan agreement to be structured under the specific framework of a “secured credit agreement”.

Nowadays, this framework differs very little from that of a “standard” mortgage loan agreement, and there is even some debate among experts as to whether this is the case; however, there are significant differences, some of which will be highlighted in the following explanatory sheets.

On the other hand, the so-called unilateral loan agreement, which has become widespread in recent practice, is not a special case. The only difference lies in the fact that only the borrower goes to the Notary Public (which is indispensable for the granting of the mortgage guarantee): this method of completion can, de facto and depending on the case, reduce the scope of the Notary Public’s professional guidance and advice.

It is important to point out one essential aspect. The signing of the loan agreement does not always mean that the money is immediately available: sometimes the banks withhold the amount until the mortgage guarantee is actually obtained, which in practice (depending on the various models) can be as long as two weeks (or more) after the loan agreement has been executed. This is a very important point because the borrower often needs to have the money immediately to pay the seller for the property, which he/she is also giving as security to the bank! One possible remedy is to obtain a “bridging loan” (or “pre-financing”) from the bank to cover the period between the signing of the loan agreement and the time needed to consolidate the guarantee, but not all banks are willing to do this. With the help of your Notary Public, you can try to reconcile the conflicting requirements as far as possible, depending on the case.

There is another possible aspect to be considered: it may be that the borrower foresees that the purchased and mortgaged property will soon have to be resold for various reasons (transfer of residence, increase in the number of family members requiring a larger house, etc.); consequently, the borrower considers that he/she will be able to pass on the remaining part of the loan to the future new purchaser of the property by crediting the sum against the price. Now, apart from the fact that (1) the purchaser must also agree to the assumption and (2) the banks sometimes put obstacles in the way of this procedure, it must be borne in mind above all that (3) the assumption is generally not “liberating” but “cumulative”: that is to say, by taking over the residual loan, the bank does not change the debtor but acquires an additional one; therefore, if the new purchaser happens not to pay the bank, the latter can still claim against the original borrower. For these reasons, current practice shows less recourse to debt assumption: in essence, the seller pays off his/her loan, while the purchaser takes out a new one on his/her own if necessary. Also in this aspect, the Notary Public can be of help and can highlight the concrete alternatives and the related costs.

After the “Bersani-bis Decree”: what will change?

On 3 April 2007 Law no. 40 of 2 April 2007 converting with amendments Law Decree no. 7 of 31 January 2007 on “Urgent measures for the protection of consumers, the promotion of competition, the development of economic activities and the creation of new businesses”, the so-called Bersani-bis, entered into force.

The measures enacted include provisions that have a direct impact on citizens.

Property mortgage loans

Penalty clauses are abolished… No penalty shall be applied to the early repayment of mortgage loans stipulated with banks, financial and social security institutions (INAIL, INPS, etc.) for the purchase or renovation of property units for private use or for the exercise of commercial and professional activities by natural persons.

The new rules on penalty clauses apply to mortgage loan agreements stipulated after 2 February 2007 (date of entry into force of the Law Decree).

In addition to the ordinary cancellation of mortgages currently provided for by the Italian Civil Code, the new rules introduce a new procedure provided that the mortgage is registered to secure a loan granted by a bank, financial or social security institution in favour of any person/entity, whether a natural person or not.

The innovations introduced are as follows:

– once the mortgage loan payments have been made in full, the debtor will receive a receipt from the creditor (bank, financial or social security institution) stating the date on which the mortgage loan was paid off;

– the creditor will send a copy to the Agenzia del Territorio (Property Registry Office) in accordance with the procedures established by an order to be issued by the Property Registry Office within 60 days from the entry into force of the conversion law (2 June 2007);

– the Property Registry Office will proceed ex officio to the final cancellation of the mortgage 30 days after receiving the receipt from the financial institution (unless the bank, financial or social security institution has sent a declaration of the so-called “permanence of the credit” within 30 days).

Mortgage loan portability to another bank

A borrower who decides to pay off the old mortgage loan with the proceeds of a new mortgage loan taken out with another financial institution, which takes over the original collateral, will not incur any costs.

• Clarity of contractual terms
  Mortgage loan agreements are often difficult to understand. This is partly due to the need to use irreplaceable technical terms, but the issue could also be solved by simplification, which would ensure a clearer relationship between banks and users. It is advisable to ask in advance for a copy of the contract and, in particular, the “general conditions” proposed by the bank. If you have difficulty understanding them and you are not satisfied with the answers given by the officials, you can contact either consumer associations or the Notary Public, who will explain them to you before you sign the loan agreement
• The interest rate
  In general, the interest rate is the primary or only factor when assessing a mortgage loan. In fact, it is important to consider the other factors listed below before making a choice, as it is worth assessing the overall weight that the mortgage loan instalments will have on the family budget. It is therefore necessary to find out the difference between the entry rate, which is lower during the first six months, and the operating rate, and to assess the difference between fixed and indexed interest rates, since, for example, a low entry rate may be attractive but reserve the unpleasant surprise of very high full rates, while a fixed rate that is convenient today may become burdensome in the short term. In addition, the monthly instalments do not only consist of the interest to be paid, but also of other costs, which should be known in advance.
• Ancillary costs
  You may be unpleasantly surprised by the financial costs; it is therefore advisable to carefully assess and compare the taxes applicable to the loan, the costs of valuation and preliminary studies, and the insurance policies – sometimes compulsory – with which the bank guarantees itself against the risk of fire/explosion of the property or the death of the borrower.
• Pre-approval time
  If you are committed to buying a home within a certain time frame, and if you have to pay a penalty to the seller for any delay, a long pre-approval time for a mortgage loan can be costly. As a rule, 60 days are more than enough to obtain a mortgage loan.
• Late payment interest
  Even if, when taking out a loan, you are sure that you will be able to pay each instalment to the lender on time, it is necessary to carefully consider the opposite possibility, so that adverse and unforeseen circumstances do not have dangerous repercussions.
• Modalities for loan disbursement
  Since the mortgage is not created until it has been registered by the Notary Public at the relevant office, and this can only be done after the loan agreement has been stipulated, the bank will often withhold the amount borrowed until this procedure has been completed, which means that you might have to wait two or three weeks before you can have the money you have borrowed. In the case of a property sale and purchase, the seller will therefore have to wait a few days before being paid.

It is advisable to find out exactly when the money will be available by asking the bank and the Notary Public.

• Tax deductibility
  The law provides for the tax deductibility of part of the passive interest and related ancillary costs paid by the borrower for mortgage loans taken out for the purchase of real estate assets and/or their building restructuring or restoration. This possibility of reducing the tax burden should therefore be carefully examined, also relying on the expertise of the Notary Public, in order to assess its impact on the total cost of the mortgage loan.
• The amount of the mortgage
  The mortgage is the guarantee that allows the bank to recover its credit if the borrower fails to pay. In addition to repaying the main debt (principal), the borrower must also pay the applicable interest, interest for late payment and the costs for the process of selling the property at auction. For this reason, the mortgage is usually registered for a much higher value than the agreed loan. This means that the value of the property is reserved for the bank up to this amount, and that a possible further mortgage – which banks do not always grant – could only be requested for the residual property value.
• Additional guarantees required by the lending bank

  When granting a loan, the bank must assess not only the value of the property offered as collateral, but also the borrower’s ability to pay the loan instalments. For this reason, a guarantee from a third party is sometimes required (e.g. from a parent for a son/daughter). This banking practice is correct as long as the amount and duration of the guarantee are fixed.

  Applying for and obtaining a home loan is now within everyone’s reach. It is usually enough to go to a bank and provide the few documents required. The consumer associations and the Notary Public, an impartial professional chosen by the borrower and whose involvement is necessary to set up the mortgage, are always available to those applying for a mortgage and in need of clarification. The related costs can be best exploited to obtain all the necessary advice.

  For further information, please consult the guide “Mutuo informato”, available at www.notariato.it, published by the National Council of Notaries and Consumer Associations Adiconsum, Adoc, Altroconsumo, Assoutenti, Cittadinanzattiva, Confconsumatori, Federconsumatori, Lega Consumatori, Movimento Consumatori, Movimento Difesa del Cittadino, Unione Nazionale Consumatori, in order to inform and protect citizens who are the ‘weaker party’ in banking contracts