Law 9514 of 1997 brought significant innovations that contributed to the legal security of the Brazilian real estate financing market, among which (i) the creation of Certificates of Real Estate Receivables (CRI) backed by real estate market credits, from sale agreements to lease agreements; (ii) the foundations for securitization companies and their securitization processes; and (iii) the regulation of the establishment and foreclosure of the fiduciary property on real estate with the intention of collateralizing credits, including the ones stemming from real estate related transactions.
With regard to the fiduciary transfer, however, the 1997 law gave rise to questions about its use in financial transactions where, as they are conducted outside the Real Estate Financing System (SFI), the property offered as collateral is not the object of the loan or financing transaction.
Even though there is no doubt that the fiduciary transfer, as a type of security interest in real property, enjoys full autonomy in relation to the SFI, and it is not reasonable to admit that its employment should be limited to housing loans, in certain situations the lender will not be able to exercise its legal freedom to conduct, with the certainty of full effectiveness, an extrajudicial auction to sell the property offered as collateral.
This is so because a certain line of thought has adopted the position that the provisions in paragraphs 5 and 6 of article 27 of the aforementioned law prevent the lender from pursuing its intention to recover the credit if, after the second auction on the property, the highest bid does neither reach nor exceed the total amount due and additional charges.
This position is based on the incorrect assumption that the fiduciary transfer of real estate safeguards the economic capacity of the borrower that has in the collateralizing asset the basis for the borrowing. According to the aforementioned paragraphs, the debt secured by the fiduciary transfer will be extinguished, and the creditor should release the debtor from any obligation within five days as of the second auction. In this case, the balance due would no longer be enforceable, and that would represent, on the one hand, an undue benefit to the debtor that would be unjustly enriched, and, on the other, a frustration of the creditor's expectations towards the repayment of the credit.
Aiming precisely at avoiding this uncertainty where the fiduciary transfer of a real estate secures financial operations outside the SFI, the Brazilian Congress is currently discussing Bill no. 6525, which already has been amended by the lawmakers, within the legislative process, which, further to amending the aforementioned paragraphs 5 and 6, adds two others.
Should it be enacted into law, the bill will segregate the effects of the foreclosure of the fiduciary transfer in relation to housing loans, on the one hand, and to non-housing loans in general, including self-financing in consórcio groups, on the other.
This distinction will allow debtors in credit operations in general - carried out outside of the SFI - to remain bound by the balance due, in case the highest bid obtained at the auction is not enough to pay the full amount of the secured debt. In housing loans, the bill innovates by allowing the debt to be extinguished and the balance due to be settled regardless of the highest bid placed at the second auction only in operations whose minimum bid at the first auction does not exceed 500 minimum wages.
The original version of the bill adds a 9th paragraph which, should it be maintained, will solidify the distinction between the treatment given to fiduciary transfer of real estate inside and outside of the SFI. Its provisions clearly indicate that, if at the second auction the highest bid does not even reach the balance due, the extinction of the debt will apply to housing loans only, and will not, under any circumstance, be extended to any other types of loans in which the fiduciary transfer is represented by a real property.
The Brazilian money and capital markets should certainly watch closely the evolvement of the legislative process of such bill in Congress within the months ahead.