Law No. 189-11 for the Development of the Mortgage Market and Trusts in the Dominican Republic

NATIONAL CONGRESS
In the Name of the Republic
Law No. 189-11

FIRST CONSIDERATION: That it is the supreme interest of the nation to establish policies that facilitate the development of housing projects, primarily low-cost housing, which will reduce the significant housing deficit of the Dominican Republic.

SECOND CONSIDERATION: That to supply this deficit, resources are needed, as well as the optimization of their use, so that the low-income population, who in the general case are not creditworthy, can have access to housing offers with characteristics and conditions that are affordable to them.

THIRD CONSIDERATION: That for this and other purposes, it is important to promote the growth and diversification of the mortgage and securities markets in the Dominican Republic, for which it is required to create or perfect legal figures, financial instruments, and judicial procedures that allow for such development.

FOURTH CONSIDERATION: That the creation of figures such as the trust has been demanded for several decades in the Dominican Republic, whose absence in our law has placed us at a disadvantage compared to most foreign legislations.

FIFTH CONSIDERATION: That it is necessary to develop novel tools that allow for the financing of the mortgage market through the capital market, such as the securitization of mortgage portfolios, so that through them, savings resources from the capital market can be channeled toward housing financing.

SIXTH CONSIDERATION: That it is necessary to modify the legal framework applicable to the securitization of mortgage portfolios and mortgage notes to the extent that structural elements have been identified that have not allowed the development of these instruments in the country.

SEVENTH CONSIDERATION: That the evolution of other countries in the region has proven that economic growth is closely linked to the development of the securities market, since it contributes to increasing the flow of resources to the productive sectors of the economy and minimizing systemic risk, thereby generating greater wealth and jobs in the country; therefore, it is necessary to broaden the range of instruments and publicly traded securities that can be traded in this market as an investment alternative for pension funds and other institutional investors.

EIGHTH CONSIDERATION: That the recent international experience derived from the financial crisis that shook the world has left important lessons that invite all economies to strengthen their regulatory and supervisory frameworks in order to refine and redouble the monitoring and prevention of potential risks.

NINTH CONSIDERATION: That for the dynamization of the mortgage and securities markets, it is equally important to make administrative procedures more expeditious, necessary to obtain the corresponding authorizations for those new financial instruments that could be used for this purpose, while ensuring effective regulation and supervision of the actors that protects the rights of third parties, in an environment of prudence.

TENTH CONSIDERATION: That it is important to improve the existing judicial procedures for real estate execution, so that they are more expeditious and allow for a timely resolution of cases, avoiding delays and at the same time guaranteeing due process, which will contribute to the development of the mortgage market and incentivize the participation of actors that ensure the flow of resources.

ELEVENTH CONSIDERATION: That although our law has some legal or regulatory provisions that dispersedly provide for some figures, instruments, or processes related to the mortgage and securities markets, through this law, the aim is to complement the existing legal framework, updating it to international trends in pursuit of the dynamization and healthy growth of the mortgage and securities sector in the Dominican Republic, based on prudent and transparent schemes.

TWELFTH CONSIDERATION: That it is in the interest of the State to use this platform and said legal framework for the implementation of cost-efficient financing structures, both for the promotion of low-cost housing construction and for the development of real estate projects in general.

THIRTEENTH CONSIDERATION: That the Dominican State is committed to facilitating access to housing and obtaining financing for low-income sectors, to whom it is difficult to acquire them in the market.

FOURTEENTH CONSIDERATION: That the State must promote the creation of new legal and financial figures that allow for the promotion of housing solutions, which would impact the growth of the construction industry and the generation of job and housing supply.

FIFTEENTH CONSIDERATION: That the accumulated and exponential savings derived from pension funds represent an ideal source of resources for investment in the housing sector due to the nature of mortgage portfolios.

SIXTEENTH CONSIDERATION: That in order to promote low-cost housing projects, the State is willing to participate jointly with the private sector in their development.

SEVENTEENTH CONSIDERATION: That as another contribution of the State, through this law, fiscal incentives and exemptions are established to facilitate the acquisition of decent housing by low-income families, while adequate supervision and control mechanisms are inserted that guarantee the most efficient use of resources and the obtaining of low-cost housing with the best possible characteristics, at the lowest prices.

EIGHTEENTH CONSIDERATION: That the tax scheme proposed in this law is compatible with a sound fiscal policy, in turn consistent with the current Agreement with the International Monetary Fund (IMF), in view of the fact that the proposed fiscal incentives constitute new exemptions that do not affect existing flows and the taxed items will contribute to increasing current levels of fiscal revenue over time.

NINETEENTH CONSIDERATION: That it is the duty of the State to promote national savings and incentivize the acquisition by families of their own roof; in this spirit, this law enshrines provisions aimed at facilitating and promoting savings, through programmed savings accounts.

TWENTIETH CONSIDERATION: That it is a priority to foster the granting of facilities for the acquisition of low-cost housing, which is why it is necessary to eliminate restrictions that would prevent granting them as collateral, thereby it is necessary to exempt the low-cost housing referred to in this law from the scope of the character of family home or any other restriction that might exist on account of the source of resources for low-cost housing projects in cases where there is state participation.

TWENTY-FIRST CONSIDERATION: That this law is the result of consensus between the different actors of the financial and tax market, both from the public and private sectors.

VIEWED: The Constitution of the Dominican Republic, proclaimed on January 26, 2010.

VIEWED: The Civil Code of the Dominican Republic.

VIEWED: The Civil Procedure Code of the Dominican Republic.

VIEWED: The Tax Code of the Dominican Republic.

VIEWED: The Labor Code of the Dominican Republic.

VIEWED: The Penal Code of the Dominican Republic.

VIEWED: Law No. 5892, dated May 10, 1962, which creates the National Housing Institute, and its modifications.

VIEWED: Law No. 6186, dated February 12, 1963, on Agricultural Promotion, and its modifications.

VIEWED: Law No. 339, dated August 22, 1968, on Family Home.

VIEWED: Law No. 687, dated July 27, 1982, which creates a System for the Elaboration of Technical Regulations for the Preparation and Execution of Projects and Works Related to Engineering, Architecture, and Related Fields.

VIEWED: Law No. 50-87, dated June 4, 1987, which repeals and substitutes Law No. 42, of July 17, 1942, on Official Chambers of Commerce, Agriculture, and Industry.

VIEWED: Law No. 18-88, dated February 5, 1988, which establishes an annual tax called Tax on Luxury Homes and Unbuilt Urban Lots, and its modifications.

VIEWED: Law No. 19-00, dated May 8, 2000, which regulates the Securities Market of the Dominican Republic.

VIEWED: Law No. 87-01, dated May 9, 2001, which creates the Dominican Social Security System.

VIEWED: Law No. 183-02, dated November 21, 2002, Monetary and Financial.

VIEWED: Law No. 72-02, dated June 7, 2002, on Money Laundering from Illicit Traffic in Drugs and Controlled Substances and Other Serious Infractions.

VIEWED: The Ninth Resolution adopted by the Monetary Board on April 20, 2006, which approved the Regulation on Mortgage Insurance (FHA).

VIEWED: The First Resolution issued by the Monetary Board on February 25, 2009, which approved the first version of the Draft Law for the Development of the Mortgage Market in the Dominican Republic, for submission to the Executive Power for the corresponding purposes.

VIEWED: The First Resolution issued by the Monetary Board on March 4, 2010, which reviewed the progress report presented by the Technical Commission of the Central Bank, designated to review the proposals for modification of the Draft Law for the Development of the Mortgage Market in the Dominican Republic.

VIEWED: The First Resolution issued by the Monetary Board on March 18, 2010, which approved the modification proposal presented by the Technical Commission of the Central Bank, in charge of reviewing the Draft Law for the Development of the Mortgage Market in the Dominican Republic.

VIEWED: The Seventh Resolution issued by the Monetary Board on April 8, 2010, which approved the second version of the Draft Law for the Development of the Mortgage Market and Trusts in the Dominican Republic and instructed the Governor of the Central Bank to submit it to the Executive Power, for the corresponding purposes.

HAS ENACTED THE FOLLOWING LAW:

TITLE I
SCOPE AND OBJECT OF THE LAW

Article 1.- Scope of the law. Through this law, a unified legal framework is created to promote the development of the mortgage and securities markets of the Dominican Republic; the figure of the trust is also incorporated, in order to complement Dominican financial legislation.

Article 2.- Object of the law. This law aims to create the necessary legal figures and strengthen existing ones, to be able to develop the Dominican mortgage market, channeling voluntary or mandatory savings resources, for long-term financing of housing and construction in general, deepening the capital market with the expansion of alternatives for institutional investors and promoting the use of debt instruments that facilitate such channeling, which, combined with the creation of special incentives, state contributions, and process economies, will serve to promote housing projects, especially low-cost ones, as well as fostering savings for the acquisition of housing by the population, in order to mitigate the significant housing deficit in the Dominican Republic.

TITLE II
ON LEGAL FIGURES AND FINANCIAL INSTRUMENTS

CHAPTER I
ON TRUSTS

SECTION I
GENERALITIES

Article 3.- Definition of trust. The trust is the act by which one or more persons, called settlors, transfer ownership rights or other real or personal rights, to one or more legal persons, called trustees, for the constitution of a separate estate, called trust estate, whose administration or exercise of the trust will be carried out by the trustee(s) according to the instructions of the settlor(s), in favor of one or more persons, called beneficiaries or trust beneficiaries, with the obligation to return them upon the extinction of said act, to the person designated therein or in accordance with the law. The trust is based on a relationship of mutual will and confidence between the settlor and the trustee, through which the latter faithfully administers the trust assets, in strict adherence to the instructions and requirements formulated by the settlor.
Paragraph.- The trust may be pure and simple or subject to a condition or term. Likewise, it may be established over all or part of the settlor's estate.

Article 4.- Object of the trust. The trust may be constituted to serve any legal purpose or objective, including the promotion of the development of the real estate market, provided that it is not contrary to morality, public order, and good customs.

Article 5.- Irrevocability of the trust. Exceptions. The trust is presumed irrevocable and may not be subject to modifications, unless the contrary is expressly established in the constitutive act.

Paragraph I.- Irrevocable trusts may be exceptionally revoked by the settlor, provided that they have not been accepted by the trustee(s) in accordance with what is established in Article 13 of this law. After its acceptance, the constitutive act of trust that does not expressly establish its revocability, shall be considered irrevocable, and may not be modified or revoked, unless there is the unanimous consent of the trustee(s) and the beneficiaries.

Paragraph II.- In cases where it has been expressly established in the constitutive act that the trust is revocable, the settlor may revoke it without the need to obtain approval from the beneficiary(s) or the trustee(s), who may not demand compensation, except for the right of the trustee(s) to be reimbursed for expenses and advances incurred in the execution of their functions or for sums owed to them by way of remuneration.

Article 6.- Assets and rights subject to trust. The trust may be constituted over assets and rights of any nature, whether movable or immovable, tangible or intangible, determined or determinable as to their species, except those rights that, according to law, are strictly personal to their holder. Assets may be added to the trust after its creation, either by the settlor or, subject to the conditions established by this law, by a third party, provided that it has the acceptance of the trustee.

Article 7.- Nature of the trust estate. The assets and rights that make up the trust constitute an autonomous and independent estate, separate from the personal assets of the settlor(s), the trustee(s), and the beneficiary(ies), as well as from other trusts maintained by the trustee.

Article 8.- Affection of the assets that make up the trust estate. The assets given in trust shall be affected to the purpose to which they are destined and, consequently, to the payment of obligations and responsibilities that the trustee incurs in the exercise of their functions for the acts carried out in compliance with the purpose for which the trust was constituted and, in general, in accordance with what is established in the constitutive act. Only rights and actions referring to said purpose may be exercised with respect to the trust assets, except those expressly reserved to the settlor or those legally acquired with respect to such assets prior to the constitution of the trust, by the beneficiary or by a third party.

Article 9.- Impossibility of pursuit of trust assets by creditors of the settlor, beneficiary, and trustee. Exceptions. The assets transferred to the trust and those that substitute them, do not belong to the common pledge of the creditors of the trustee(s), the settlor(s), or the beneficiary(ies), except as expressly provided in this law. Therefore, the assets that make up the trust escape the right of pursuit of the creditors of the trustee(s), the settlor(s), the beneficiary(ies), and the successors of any of them. The creditors of the beneficiary(ies) may not pursue the trust assets while they are integrated into the trust, but it is admitted that they may pursue, for the satisfaction of their credits, the fruits that the trust generates and are to be delivered by the trustee(s) to the beneficiary in question. Likewise, assets constituted in trust may not be pursued by the creditors of the settlor, unless their claims were prior to the incorporation of said assets into the trust estate and are guaranteed by any type of legal affection on them, which must be declared in the manner provided in letter b) of Article 13 of this law.

Article 10.- Possibility of pursuit of trust assets by obligations generated by the trust and in cases of fraud against third parties. The assets that make up the trust may be pursued, seized, or attached, for damages, debts, or obligations generated against the trust itself, or in those cases where the trust had been constituted in fraud against third parties and to the detriment of their rights.
Paragraph.- In all cases, in order to impose any type of conservatory measure, prior authorization from a competent judge is required.

Article 11.- Defense of the trust estate. The trustee(s) are obligated to exercise judicial and extrajudicial actions in defense of the trust estate; in their absence, any of the settlors or beneficiaries may do so. In the event that any of the trustees has opposed the defense, both the settlor(s) and the beneficiary(ies) are authorized to assist them in the defense. The trustee(s) may delegate in any of the beneficiaries or settlors the necessary powers to exercise protection measures for the trust estate, without thereby being released from liability.
Paragraph.- In cases where it has been declared that the trust was constituted in fraud against third parties and to the detriment of their rights, the trustee shall be exempt from any liability and shall have an indemnity action to redress the damages received as a consequence of the action of the settlor(s), except in the case where it is proven that he had knowledge of the actions and the objective pursued by the settlor(s) and knowingly accepted the trust.

Article 12.- Instrument that creates the trust. The trust may be constituted by authentic act instrumented before a public notary or by private signature act, requiring in the latter case that the signatures be legalized by a public notary. Verbal trusts or those established without the formalities described in this law shall be null and void and shall have no effect.

Article 13.- Content of the act that creates the trust. The act that creates the trust must contain, under penalty of nullity, the following elements:
a) Express declaration of the will of the settlor(s) to constitute a trust. b) A sworn declaration by the settlor(s) that the transferred assets have legitimate origin and indication of the legal status of said assets, with express mention of the liens and encumbrances that may be affecting them; that the act that creates the trust does not suffer from an illicit cause or object and that it is not constituted with the intention to defraud the rights of creditors of the settlor(s) or third parties. c) The names, profession, occupation, nationality, marital status, name of the spouse or partner in free union and their general details as they appear in the identity card or passport of the latter, and the marital regime if applicable; domicile and residence and other data related to the identity card or passport of the settlor(s), equally the general details of their legal representatives or tutors, in cases where the settlor is a natural person; and in those cases where the settlor is a legal person, trade name or corporate name, as appears in the Commercial Registry, National Taxpayer Registry Number (RNC), if applicable, domicile, names and surnames and other general details of its legal representative and reference to the act by virtue of which they exercise said power, as provided by the bylaws. d) The designation of the trustee(s), including their trade name or corporate name, as appears in the Commercial Registry, National Taxpayer Registry Number (RNC), if applicable, domicile, names and surnames and other general details of their legal representative and reference to the act by virtue of which they exercise said power, as provided by the bylaws. e) The designation of the beneficiary(ies). In case the beneficiary(ies) are not designated at the time of the constitution of the trust, the rules that allow their designation. f) Individualization of the assets subject to the trust. In case such individualization is not possible at the date of constitution of the trust, the act must express the form and the necessary requirements that said assets must meet, for their future individualization. g) Term or condition to which the trust is subject. h) Inclusion of the requirement to notify the creditors of the assets in question for their transfer to the trust, in the case where the same assets are affected by attachment, liens, or encumbrances. i) Indication of the irrevocability of the trust, when applicable or the possibility of revocation by the settlor(s), a right that must be expressly stated. Paragraph I.- The act may contain, without this list being considered limiting, the following additional elements:
a) Procedure and conditions for the modification of the terms of the trust in cases where the right to its modification has been reserved to the settlor(s). b) Conditions for adhering settlors, if applicable. c) The acceptance of the beneficiaries or trust beneficiaries, to the rights or credits recorded in the constitutive act. d) The designation of the substitutes of the trustee(s), if any, or of the mechanisms and criteria to be employed for dic