Technical Standards to Regulate Registry Effects on Mortgaged Properties in Favor of Financial Entities

FINANCIAL ENTITIES (1)
Approval: 05/06/2024
Effective Date: 20/06/2024

THE COMMITTEE OF STANDARDS OF THE CENTRAL BANK OF RESERVE OF EL SALVADOR,

CONSIDERING:

I. That Article 231, first paragraph, of the Banking Law, establishes that banks may issue extract certifications of the mortgage credits they grant so that they may be preventively annotated. Such certification shall contain the date of the minutes recording the approval of the granting of the credit, the first and last name of the debtor, the amount of the loan agreed upon and the term for its amortization, and also the mention of the registrations in the Property and Mortgages Registry and the Social Registry of Real Estate, regarding ownership and existing encumbrances, relative to the property or properties offered and accepted as collateral, without it being necessary to describe said properties.

II. That Article 142, first paragraph, of the Law on Cooperative Banks and Savings and Credit Societies, establishes that cooperatives may issue extract certifications of the mortgage credits they grant, so that they may be preventively annotated. Such certification shall contain the date of the minutes recording the approval of the granting of the credit, the first and last name of the debtor, the amount of the loan agreed upon and the term for its amortization, and also the mention of the registrations in the Property and Mortgages Registry and the Social Registry of Real Estate regarding ownership and existing encumbrances, relative to the property or properties offered and accepted as collateral, without it being necessary to describe said properties. (1)

III. That Article 1554-A, first paragraph, of the Commercial Code, establishes that when there are mortgages registered in favor of credit institutions, banking or commercial companies, no instrument containing rights that in any way affect, encumber, transfer or alienate, totally or partially, the assets subject to the guarantee or that constitute any right in favor of third parties over them, shall be registered in the respective registries, unless there is a written agreement between the mortgagor and the creditor.

IV. That Article 155 of the Law on Cooperative Banks and Savings and Credit Societies, establishes that savings and credit societies shall be subject to the provisions of the Banking Law, except as provided in Book IV of said Law. (1)

V. That Article 71 of the Investment Banks Law, establishes that the provisions of Article 231 of the Banking Law shall be applicable to investment banks. (2)

FINANCIAL ENTITIES (1)
Approval: 05/06/2024
Effective Date: 20/06/2024

VI. That Article 2, first paragraph, of the Law on Supervision and Regulation of the Financial System, establishes that the Financial Supervision and Regulation System has the object of preserving the stability of the financial system and ensuring its efficiency and transparency, as well as ensuring the security and solidity of the members of the financial system in accordance with what is established by said Law, other applicable laws, regulations and technical standards issued for this purpose, all in concordance with international best practices on the matter. (2)

VII. That Article 3, letter k), of the Law on Supervision and Regulation of the Financial System, establishes that it is the responsibility of the Superintendence of the Financial System to exercise the other functions that correspond to it in accordance with the laws. (2)

VIII. That Article 7 of the Law on Supervision and Regulation of the Financial System, establishes the entities that are subject to the supervision of the Superintendence of the Financial System. (1) (2)

IX. That Article 99, third paragraph, letter a), of the Law on Supervision and Regulation of the Financial System, establishes that it is the responsibility of the Committee of Standards of the Central Bank of Reserve of El Salvador to approve technical standards, instructions and provisions that the laws regulating the supervised entities establish must be issued to facilitate their application, especially those relative to solvency requirements, liquidity, provisions, reserves, classification of risk assets, criteria to establish the need for consolidation, good corporate governance practices, transparency of information and on any other aspect inherent to risk management by the supervised entities. (2)

THEREFORE, by virtue of the regulatory powers conferred by Article 99 of the Law on Supervision and Regulation of the Financial System, AGREES to issue the following:

TECHNICAL STANDARDS TO REGULATE THE REGISTRY EFFECTS ON MORTGAGED PROPERTIES IN FAVOR OF FINANCIAL ENTITIES (1)

FINANCIAL ENTITIES (1)
Approval: 05/06/2024
Effective Date: 20/06/2024

CHAPTER I
OBJECT, SUBJECTS AND TERMS

Object
Art. 1.- These Standards have the object of regulating the registry effects applicable to mortgages constituted in favor of financial entities and regarding the protection of the rights of the mortgagor and the creditor, in accordance with the applicable laws. (1)

Subjects
Art. 2.- The subjects obliged to comply with the provisions established in these Standards are the following:
a) Banks constituted in El Salvador; b) Branches of foreign banks established in El Salvador, insofar as pertinent; c) Hipotecario Bank, S.A.; d) The Agricultural Development Bank, insofar as it does not contradict its creation law, nor what is provided by the Court of Accounts; e) The Development Bank of the Republic of El Salvador, insofar as it does not contradict its creation law, nor what is provided by the Court of Accounts; f) Cooperative banks; (1) g) Savings and credit societies; (1) (2) h) Federations formed by cooperative banks and also by savings and credit societies; and (1) (2) i) Investment banks. (2)

Terms
Art. 3.- For the purposes of these Standards, the terms indicated below have the following meaning:
a) Central Bank: Central Bank of Reserve of El Salvador; b) Entity: Subjects obliged to comply with these Standards; c) Registry: Real Estate and Mortgages Registry or Commerce Registry; and d) Superintendence: Superintendence of the Financial System.

CHAPTER II
REGISTRY EFFECTS

Registry effects
Art. 4.- When a mortgage is constituted and registered in favor of an entity, the following registry effects shall apply:
a) The property on which the mortgage was constituted cannot be subject to encumbrances, liens, seizures, transfers, alienations or any other right that is intended to be constituted over it, except for a prior written agreement between the creditor entity and the mortgagor; and b) In the event that the mortgage has been constituted on a company, it cannot be subject to any encumbrance, lien, seizure, transfer, alienation or any other right that is intended to be constituted in favor of a third party, except for a prior written agreement between the creditor entity and the mortgagor.

Start of registry effects and exceptions
Art. 5.- The registry effects established in Article 4 of these Standards shall be in force and fully enforceable before the Registry and before third parties from the date of presentation of the preventive annotation.

Without prejudice to what is established in the previous article, the real estate properties and companies on which a mortgage has been constituted in favor of an entity may be subject to encumbrance, lien, seizure, transfer, alienation or any other right that is intended to be registered over them, solely and exclusively when there is a prior written agreement between the creditor entity and the mortgagor. This authorization must bear the signature of the legally empowered signatories, duly legalized before a notary.

Preventive annotations
Art. 6.- Entities may issue extract certifications of the mortgage credits they grant so that they may be preventively annotated. Such certification shall contain the date of the minutes recording the approval of the granting of the credit, the first and last name of the debtor, the amount of the loan agreed upon and the term for its amortization, and also the mention of the registrations in the Registry, regarding ownership and existing encumbrances relative to the properties offered and accepted as collateral, without it being necessary to describe said properties.

Such certification, signed by the general manager or attorney with special powers for this purpose and with the seal of the entity, shall be preventively annotated in the corresponding Registry, marginalizing the corresponding entries.

The effects of the mortgage, upon registering the respective contract, retroact to the date of presentation of the respective certification, when it concerns the same properties referred to in said registration.

The effects of the annotation shall cease for the following reasons:
a) By the presentation of the mortgage contract; b) By the written notice that the entity gives to the Registry to cancel said annotation; and c) When ninety days have passed since the presentation of the preventive annotation without the respective mortgage contract being presented for registration.

FINANCIAL ENTITIES (1)
Approval: 05/06/2024
Effective Date: 20/06/2024

Scope of registry effects
Art. 7.- The rights conferred by the Banking Law, the Law on Cooperative Banks and Savings and Credit Societies and the Investment Banks Law, shall be considered as an integral part of the mortgage right in favor of the creditor entity, so that once the constituted mortgage is registered and from the date of presentation of the preventive annotation, these rights shall take effect against third parties, even if they do not specifically appear in the contract or in the Registry. (1)(2)

Auction or adjudication of mortgaged properties Art. 8.- The certification of the auction minutes or the adjudication order on the mortgaged properties puts an end to the effects of registrations of leases, usufructs, anticresis or any other real or personal right constituted subsequent to the registration of the mortgage on the same properties; as a consequence of the foregoing, the registration of presentations referring to the constitution of real or personal rights effected subsequent to the registration of the mortgage on the same properties shall not proceed, without prejudice to refaccionary credits granted with the consent of the entity.

Control of mortgages and information to the Superintendence Art. 9.- Entities must maintain the necessary controls that allow them to keep updated information on mortgages constituted and registered in their favor.
The Superintendence may request information on any of the preventive annotations or mortgages registered in favor of the entities, who must provide it within a period not exceeding thirty calendar days.

CHAPTER III
OTHER PROVISIONS AND EFFECTIVE DATE

Sanctions
Art. 10.- Non-compliance with the provisions contained in these Standards shall be sanctioned in accordance with what is established in the Law on Supervision and Regulation of the Financial System.

Repeal
Art. 11.- These Standards repeal the "Standards to Regulate the Registry Effects on Mortgaged Properties in favor of Banks" (NPB4-37), approved by the Board of Directors of the Superintendence of the Financial System in Session No. CD-42/2005, of October 5, 2005, whose Organic Law was repealed by Legislative Decree No. 592, which contains the Law on Supervision and Regulation of the Financial System, published in the Official Journal No. 23, Volume 390, dated February 2, 2011.

FINANCIAL ENTITIES (1)
Approval: 05/06/2024
Effective Date: 20/06/2024

Unforeseen aspects
Art. 12.- Aspects not provided for in the regulatory matter in these Standards shall be resolved by the Central Bank through its Committee of Standards.

Effective Date
Art. 13.- These Standards shall enter into force from the twentieth day of June two thousand twenty-four.

MODIFICATIONS:
(1) Modifications in the denomination of the Technical Standards and in articles 1, 2, and 7 and incorporation of Considerations II, IV and VII, approved by the Central Bank through its Committee of Standards, in Session No. CN-05/2025, of June 30 two thousand twenty-five, with effect from July 15 two thousand twenty-five.
(2) Modifications in considerations V, VI, VII, and VIII, and incorporation of consideration IX, and modifications in articles 2 and 7, approved by the Committee of Standards of the Central Bank of Reserve of El Salvador, in Session No. CN09/2025 dated November 10 two thousand twenty-five, with effect from November 25 two thousand twenty-five.