New legislation has made borrowing on the security of a mortgage (Ipoteca) cheaper and easier in Italy, by eliminating much of the red tape (and related expenses) that used to be tightly knotted around the discharge / repayment of Italian mortgages.

It is certainly good news for borrowers / consumers and probably for anyone involved with the Italian real estate, as this legislation will probably make the Italian property market more competitive.

Cheaper mortgage discharge / repayment - Because of archaic legislation and lack of competition among Italian banks, most Italian mortgages provide that a penalty will be payable to the bank if the mortgage is repaid earlier than agreed. This penalty is frequently substantial and discourages early repayment or even switching of mortgages between Italian banks.

Provisional legislation issued in January 2007 and confirmed last April, now changes all this. Where a loan secured by a mortgage was taken out to finance the acquisition or even the restoration of a private individual's residence or even the acquisition of an individual business premises, any penalty clause for early mortgage repayment or discharge is now void and unenforceable in Italy.

This new legislation however, only applies to mortgages taken out after the 2nd February 2007, leaving out almost 3,500,000 existing mortgages in Italy for a value in excess of Euro 255 billion.

Rather unusually for Italian legislation, the new provisions left it to the representatives of Italian banks and of Italian consumers to negotiate and agree a reduction of the penalty clauses in existing mortgages.

The representatives of both parties met over a number of weeks in Italy, and in May 2007 agreed maximum penalty amounts/ bands (depending on the date when the relevant mortgage was originally granted) applicable to all mortgages in case of early repayment . The negotiated reductions will be retrospectively applicable to all existing mortgages, a substantial saving for all clients / borrowers and added competition for Italian banks.

Automatic cancellation of mortgage entries at the Italian Register of Land Charges - Under Italian law when a banks lends on the security of a mortgage it must register the mortgage against the property in question at the local Register of Land Charges, to protect its rights against third parties. Thus out of a secured loan two relationship are created, the first for the loan between the bank and the borrower, the second for the entry relating to the mortgage, between the creditor / debtor and the local Register of Land Charges.

When the borrower repaid loan the relationship between the bank and the borrower came to an end, however the entry protecting the charge was still in existence on the local register of Land Charges. Thus in Italy, once the borrower had repaid the loan, he had to appoint an Italian notary, get a formal written consent from the bank and then apply for the cancellation of the entry on the local register relating to his property, at his own expenses. This was a time consuming and expensive procedure, notarial fees and other charges were involved, just to clear the title to the property.

As part of a new simplification policy, legislation has now come into force in Italy on the 2nd June 2007, and provides that, within 30 days from the repayment of a mortgage, the Italian lending bank must now apply for the cancellation of the entry relating to the charge and thus clear the title of the borrower. This is both a duty for the lending Italian bank and a right for the borrower, and refreshingly it is totally free of charges, expenses and taxes.

Special provisions apply to mortgages discharged before the 2nd June 2007 where the entry relating to the mortgage has not been cancelled yet.

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As recent legislation introduced a few months ago has made the procedures to buy Italian properties more cumbersome and expensive, it is to be hoped that the above simplification of procedures on mortgage repayment will go some way towards redressing the balance in favour of the buyer / borrower in Italy.

Avv. Claudio Del Giudice
Copyrights reserved, June 2007