This content is from: Local Insights

A new law for the creation of trusts

Luis R Pellerano

With the purpose of creating a structure to help the housing market grow in the Dominican Republic, a new law is being enacted called the Law for the Development of the Mortgage Market and Trusts. The most important aspect of this bill is that it introduces the concept of the trust so it can be used, among other purposes, for creating financial structures to secure the flow of funds towards the construction of affordable housing and real estate development in the country.

Until now, local laws did not support the creation of trusts in the Dominican Republic and a legal provision on the matter was necessary. A new law was needed to address matters such as the possibility of transferring credits without the need to notify debtors; the simplification of the foreclosure procedures; and the recognition of a trustee as holder of securities in financial structures on behalf of investors. This bill of law contains provisions to solve all these issues and greatly decrease the costs and procedural steps involved in creating financial structures involving trusts. It will eliminate most of the costs involved in transferring credits, which was the greatest obstacle against securitisation of mortgages in the country.

The bill enables the creation of several types of trusts, including estate planning trusts, cultural, philanthropic and educational trusts, investment trusts, real estate trusts and real estate development and construction trusts. They become enforceable against third parties, when registered in the Mercantile Registry of the trustee's domicile. The financial entities that can act as trustees, pursuant to this bill of law, are: (a) investment fund managers; (b) securities intermediaries; (c) multi-purpose banks; (d) savings and loan associations; and (e) other financial intermediaries authorised to act as such by the Monetary Board. Entities incorporated for the sole purpose of acting as trustees have to obtain an authorisation from the Internal Revenue Department which is the governmental agency in charge of supervising trusts incorporated under local law.

In general terms, when enacted, the Law will provide the legal basis for mortgage securitisation which will help direct funds to promote growth in the housing market locally. It will also enable financial institutions to offer new services and products for investment and estate planning that will greatly benefit economic growth in the country.

Luis R Pellerano

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