DOMINICAN REPUBLIC Law and Practice Contributed by: Fabio Guzmán Ariza, Julio Brea Guzmán, Alfredo Guzmán Saladín and César Calderón, Guzmán Ariza
3.5 Legal Requirements Before an Entity Can Give Valid Security There are no mandatory legal rules or requirements that must be complied with before an entity can give valid security over its real estate assets, except for those imposed on financial entities by the Financial and Monetary Code. 3.6 Formalities When a Borrower Is in Default The formalities that need to be complied with before enforcing security over real estate depend on the approach to be taken. In the case of the execution of a credit through a fore - closure based on an automatically enforceable docu - ment such as a promissory note, the process takes approximately 18 months if there are no delays. However, in the case of an execution based on the breach of a contract, the process can take much long - er. This is because, under the Dominican legal system, a judgment rendered by a court of first instance may be appealed to a Court of Appeals and the decision of the Court of Appeals may be further appealed to the Supreme Court. A suit going to the three jurisdictions may take five years or longer to be resolved, depend - ing on the complexity of the matter. The remedies against a debtor in default are enforced through a specific judicial procedure at the first- instance court. It is a three-step procedure, usually based on monetary default: • the creditor notifies a specific notice of payment to the debtor; • if the notice expires without payment being fulfilled by the debtor, the creditor files an embargo at the Registry of Title to completely block any further registrations on the property; and • the creditor initiates the court procedure for the foreclosure, which ends in a public auction sale of the foreclosed property. All the rules regarding the foreclosure are of public order. Foreclosure can only be judicial; non-judicial foreclosure is prohibited by law. Defaults other than monetary defaults are possible (unauthorised dis - tribution of dividends, unauthorised changes in the
corporate structure, etc) if properly established in the loan documents or mortgage act and proved by the creditor. The usual time taken for an ordinary foreclosure is around six to 12 months. Financial institutions benefit from an expedited procedure that takes around three to six months. In any case, dilatory procedures can be initiated by the debtor or by any other party with a registered right on the property. Law 189-11 introduced trusts and collateral agent structures for mortgage securities as an alternative to standard mortgage-foreclosure processes, providing better protection of collateral and including an expe - dited foreclosure procedure, now available to all types of creditors after a 2017 court ruling. Aside from the judicial foreclosure process mentioned, there are no other legal avenues available to enforce a loan against a defaulting debtor. 3.7 Subordinating Existing Debt to Newly Created Debt Banks usually require a first-rank mortgage and will not accept subordination to an existing collateralised debt. Most credit agreements forbid the debtor from entering into additional agreements without express authorisation from the lender; if they do, the new debt will be registered as a second-rank mortgage with second priority after the initial registered lender. 3.8 Lenders’ Liability Under Environmental Laws There is no lender’s liability in the Dominican Republic with respect to environmental laws. 3.9 Effects of a Borrower Becoming Insolvent Under Law 141-15, foreclosure or sequestration pro - cesses pursued by creditors affecting more than 50% of a commercial debtor’s assets, among other con - ditions, can trigger a bankruptcy and restructuring process. Aside from exceptions for certain regulated industries, such as banks and stock exchange-related entities, as well as government-owned entities, the law is applica - ble to any Dominican or foreign entity or commercial
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