Mortgage loan: fundability limit is a non-essential element of the contract

Mortgage loan: fundability limit is a non-essential element of the contract

Marco Leonardi, Daniela Runggaldier

The Italian Supreme Court, in judgment no. 14000/2023, ruled on the subject of mortgage loans and, more precisely, on the limit of financeability pursuant to Article 38(2) of Legislative Decree No. 385/1993 (so-called “TUB”, the consolidated law on banking), a provision that leaves to the Bank of Italy the determination of the maximum amount that can be financed by a credit institution in relation to the value of the mortgaged property or the cost of the works to be performed on the same (currently set at 80%).

In the case at issue, the receiver of a bankruptcy petitioned the Court of Cassation, arguing that a previously executed mortgage loan agreement was null and void because it exceeded the financing limits set forth in Article 38 TUB.

In this regard, the Supreme Court confirmed the principle of law, already established in 2022, according to which the aforesaid limit of financeability is not an essential element of the contract, but rather a merely specific element of the contract itself, set by the Bank of Italy in accordance with the principle of the so-called “prudential supervision” to safeguard the financial stability of banks.

The Supreme Court’s judgement is relevant insofar as it resolves with certainty an aspect that has often been debated in recent years: Article 38 TUB is not a mandatory rule and, therefore, its violation does not determine the invalidity of the loan agreement.