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What are the typical providers of real estate financing in your jurisdiction? Are there any restrictions on who may provide financing?
Commercial banks, financial institutions and borrowing companies are the typical providers of real estate financing in Chile. There are generally no restrictions on who can provide financing in Chile; however, there are restrictions regarding financing conditions, such as maximum funding percentages and applicable fees. An example of this is the maximum conventional rate, which corresponds to the maximum interest that can be charged for a financial operation.
What are the most common structures used to secure real estate financing and how are these security interests perfected?
The most common structure to secure real estate financing is mortgages. The structure of financial leasing is also used as a form of real estate financing. The latter is more commonly used in real estate investment and institutional purchases and is unusual in the sale of housing units to end users.
What covenants are typically made in financing agreements?
The most common covenants in real estate financing are the prohibitions to execute:
- acts or contracts that will affect the real estate of the financing, without the prior authorisation of the creditor or financier;
- the sale or disposal of the financed assets; and
- in some cases, change of ownership control.
Enforcement of security
How are security interests enforced in the event of default?
In case of breach of the main obligation, the law grants a series of rights to the creditor of the mortgage for the security of the credit.
First, the creditor has the right to sell the mortgaged property at public auction, so that the credit is paid when the auction is complete. This right of sale is materialised through a so-called ‘mortgage action’.
There are different types of procedure applicable to the mortgage action:
- If the mortgage is exercised against the debtor (owner of the property) or a third party who secured obligations of another person or entity, the rules of the executive or ordinary judgment will be applied, depending on whether the credit is in an executive title.
- If it is a mortgage of a credit granted with mortgage bills governed by the banking law, the special procedure contemplated will be applied.
- If the property belongs to a community, the mortgage action must be exercised against all community members.
What is the typical timeframe for the enforcement of security?
The processing time for a foreclosure procedure will depend on several factors:
- the type of judicial proceeding used;
- the ordinary court in which the trial takes place; and
- the procedural attitude of the counterparty.
Further, the courts have no deadlines to issue their rulings, which means that a final judgment or execution can take up to two years.
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