23.10.2025

The standard of good faith for protecting real estate buyers

One of Romania's major objectives is to establish an integrated cadastre and land registry system for all real estate properties in the country. Such an integrated system ensures greater security for real estate transactions and mortgage-based lending operations, in the sense that people who intend to buy a property or who offer a mortgage-backed loan will have greater confidence that they are dealing with the real owner and that, in the unfortunate event that the title of the person claiming to be the owner is legally flawed, they will be protected, under certain conditions, from the consequences of these legal flaws and will not lose their ownership or mortgage rights. For the sake of clarity, we will define a third party as a person who has purchased a property or a person who has granted a mortgage-backed loan.

The protection that such third parties can benefit from is conditional, among other things, on their good faith. It is true that good faith is presumed, but this presumption is relative, and third parties should take measures to reduce the risk of this presumption being overturned. The Civil Code provides in Article 901 the conditions that must be met in order to be in good faith. However, this provision of law cannot be interpreted in isolation. Even paragraph (1) of Article 901 begins with the phrase "subject to contrary legal provisions (...)", which means that there may be situations in which the law excludes the protection of third parties acting in good faith for certain reasons, and we will present below two situations that third parties may encounter.

The first situation is where the property in question is part of the public domain. Article 136(4) of the Romanian Constitution enshrines the inalienable nature of public property, with the consequence that public property cannot end up in the hands of a third party. We highlight this situation because, after the fall of the totalitarian regime, a large part of the country's land was initially under public ownership and subsequently, through various restitution laws, the difficult process of restoring property rights took place. During the totalitarian communist regime, there was a quasi-total collectivization of arable land in Romania, with only mountain areas escaping these abusive measures. Thus, third parties have a duty to ensure either that the property in question is not part of the public domain or that it has been duly transferred from the public domain to the private domain, with the effect that its disposal has become permissible.

A second situation that may become more common in the future is that relating to properties included in the National Program for the Consolidation of Buildings with High Seismic Risk established by Law No. 212/2022 on certain measures to reduce the seismic risk of buildings. Buildings included in this program and which have been reinforced are subject to a transfer ban for a period of 5 or 10 years, depending on the purpose of the building, calculated from the date of acceptance upon completion of the works. According to Article 18 of Law No. 212/2022, legal acts concluded in violation of the prohibition on alienation are null and void, and no person may invoke good faith in such a situation.

Returning to the protection of third parties acting in good faith, Article 901(2) provides that the date in relation to which the conditions of good faith are analyzed is the date of registration of the application for entry in the land register of the right of ownership or mortgage in favor of the third party. Thus, it is not the date of authentication of the contract of sale or mortgage that is relevant, but the date of registration of the application for entry. Thus, it is not the date of authentication of the sale or mortgage contract that is relevant, but the date of registration of the application for registration. Article 35(1) of Law No. 7/1996 on cadastre and publicity requires the notary public who drew up the contract to submit the application for registration of the right either on the day of authentication or, at the latest, on the next working day, which means that the time lag between the date of authentication and the date of submission of the application for registration should be minimal. 

Paragraph (2) of Article 901 sets out the three cumulative conditions that must be analyzed in relation to the date of the application for registration in order for the third party to be considered to be acting in good faith.

The first condition is that no action challenging the content of the land register has been registered. This first condition raises the fewest problems because, indeed, if the land register shows that there is a case pending before the courts concerning an entry in the land register, then there is uncertainty about the contested right, and the third party can no longer be considered to be acting in good faith. We would add that the case may concern both active entries in the land register extract and any other previous entries that have been deleted.

The second condition is that the land register must not contain any grounds for rectification in favor of another person. This condition requires the third party to examine the contents of the land register to verify whether or not there are any grounds for rectification of the land register.  This analysis should not be limited to the active entries resulting from the land registry extract, but should cover all entries that were made previously and have since been deleted, so that both the land registry and the other documents that complement it are subject to verification. Such a verification can be carried out and is recommended to be carried out in this way, namely through a due diligence analysis prepared by a lawyer whose services have been contracted by the third party. 

The third condition is that the third party must not have known, by other means, of the inaccuracy of the land registry. As it turns out, this condition seems to require the third party to carry out checks outside the land registry and not to limit themselves to the land registry and the documents that complement it. The imposition of these extrinsic checks must be carried out to a reasonable extent. Thus, if the third party could have known, through minimal diligence, the inaccuracy of the land register, then they can no longer be considered to be acting in good faith. Problems in practice will arise when the inaccuracy could have been known beyond what we could define as minimal diligence.

In conclusion, good faith requires buyers not to be passive, but to diligently check the title of the person with whom they are dealing. Only if the standard of good faith is met will buyers enjoy the protection provided by law. We will discuss the protection offered and how it works in a subsequent article.

An article by Daniel-Alexandru Aragea, Partner - daragea@stoica-asociatii.ro - STOICA & ASOCIAȚII