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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?
Local commercial banks and other financial institutions authorised by the Central Bank – such as government savings banks, real estate credit companies, savings and loans associations and mortgage companies – are the main providers of real estate financing, which for the most part relies on financial institutions’ access to incentivised or subsidised funding from the Brazilian System of Saving and Loans and the Guarantee Fund for the Length of Service. Certain transactions are financed through securitisation in domestic capital markets, with the issue of real estate receivables certificates. Generally, any person can finance a real estate transaction, but there are limitations on interest rates and other terms and conditions that can apply to transactions with parties not recognised as Central Bank-authorised financial institutions. Only Central Bank-authorised financial institutions can provide finance on a regular, ongoing basis and impose rates and other conditions prevailing in the banking market.
What are the most common structures used to secure real estate financing and how are these security interests perfected?
The most common structures used to secure real estate financing are:
- personal guarantees – perfection involves registration of the agreement in which the guarantee is provided (which can be either the financing agreement or a separate instrument) with the registry of titles and deeds;
- mortgages – a mortgage agreement must be executed in the form of a public deed before a notary public by the property owner and the creditor and subsequently registered with the real estate registry service;
- fiduciary assignments of real estate – a form of temporary transfer of ownership for security purposes while the secured obligations are outstanding. The security agreement can be executed as a private instrument or public deed and must then be registered with the real estate registry office;
- fiduciary assignments of receivables – perfection involves registration of the security agreement, which must be registered with the registry of titles and deeds;
- pledges or fiduciary assignments of shares – perfection involves registration of the security agreement with the registry of titles and deeds and annotation of the security in the company’s share registry book (if the company is organised as a corporation) or with the board of trade (if the company is organised as a limited liability company).
What covenants are typically made in financing agreements?
Covenants vary from project to project, depending on the type of real estate project being developed, the parties involved and the risk profile. Financing agreements commonly include covenants on:
- the use of loan proceeds;
- the perfection of security interests;
- negative covenants on the creation of liens or encumbrances over the real estate;
- government licences and authorisations;
- conformity with tax, labour and environmental laws; and
- anti-money laundering, anti-corruption and other legal compliance matters.
Enforcement of security
How are security interests enforced in the event of default?
Enforcement proceedings regarding security vary according to the type of security and applicable legislation.
Mortgages and pledges are often enforced by means of a judicial proceeding that results in the forced sale of the good offered as collateral. Conversely, fiduciary assignments of real estate have a faster proceeding: in the event of default, the security taker becomes the sole owner of the real estate by means of an extrajudicial proceeding and must then carry out an auction of the real estate. Fiduciary assignments of receivables are also enforced through an extrajudicial proceeding, which results in the use of the receivables in the payment of the debt.
The proceedings resulting from the foreclosure of the security that remains after the payment of the debts must be returned to the borrower.
What is the typical timeframe for the enforcement of security?
The timeframe for the enforcement of security interests varies according to the applicable enforcement proceeding. Extrajudicial proceedings tend to have a shorter timeframe for enforcement of the security and payment of the debt than judicial proceedings, the timeframe for which often reaches several months or even years.
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