Real estate fiduciary alienation is a widely used form of collateral in real estate financing operations in Brazil. Established under Law n. 9.514/97, this legal arrangement allows the creditor (usually a financial institution) to secure the loan while the debtor retains direct possession of the property and the opportunity to regularize their debt to reclaim full ownership.
This article explores the rights and duties of both parties in a fiduciary alienation contract, covering everything from payment installments to property repossession in cases of default, and the means available for the debtor to remedy their situation.
The Fiduciary Alienation Contract: Structure and Functionality
In real estate fiduciary alienation, the debtor transfers resolvable ownership of the property to the creditor, retaining direct possession and usage rights. Resolvable ownership implies that the creditor holds property ownership solely as collateral and that this ownership will be "resolved"—or returned to the debtor—when the debt is fully repaid.
The contract formalized between the parties defines:
The financed amount and installment payment terms;
Transfer of fiduciary ownership of the property to the creditor;
he guarantee that, in the event of default, the creditor may consolidate ownership and sell the property to recover the loan amount.
Rights and Duties of the Debtor
For the debtor, a fiduciary alienation contract entails several key rights and duties:
Right to Possession and Use: While the contract is in effect and payments are up-to-date, the debtor retains the right to direct possession and use of the property.
Obligation to Pay Installments: The debtor must make timely payments as agreed. Any partial or total default may lead to the execution of collateral and loss of the property.
Right to Cure Default: In case of default, the debtor has the right to "cure the default," meaning they can pay overdue amounts plus interest and any penalties to avoid losing the property. This right remains until ownership is consolidated in the creditor's name.
Right to Remaining Proceeds in Case of Sale: If the creditor consolidates ownership and sells the property, the debtor is entitled to any surplus amount once the debt is settled—meaning any excess from the sale must be returned to the debtor if the sale value surpasses the outstanding debt.
Rights and Duties of the Creditor
Fiduciary alienation also imposes rights and obligations on the creditor:
Right to Consolidate Ownership in Case of Default: If the debtor defaults, the creditor may consolidate ownership after formal notification and legal requirements are met, giving the creditor full ownership of the property.
Duty to Respect the Right to Cure Default: Even in cases of default, the creditor must honor the debtor’s right to settle overdue amounts. Only after proper notification and non-compliance by the debtor may the creditor consolidate ownership.
Right to Sell the Property: After ownership consolidation, the creditor may sell the property to recover the loan amount. The property is generally sold at a public auction, ensuring transparency and participation opportunities for interested third parties.
Procedures for Ownership Consolidation and Sale in Case of Default
When a debtor defaults, the creditor must follow a specific procedure to consolidate ownership of the property. The process includes:
Formal Notification of the Debtor: The debtor must be formally notified and given a 15-day period to cure the default by settling overdue amounts. This step ensures the debtor has the chance to regularize their debt before any final action.
Ownership Consolidation if the Debtor Remains Inactive: If the debtor does not cure the default within the stipulated period, the creditor may consolidate ownership. This action is recorded in a public notary and makes the creditor the legal owner.
Public Auction to Sell the Property: After consolidation, the creditor must sell the property via a public auction, typically held in two rounds. The purpose of the auction is to ensure transparency and maximize the sale price, allowing for an adequate return to the creditor and potentially a residual amount for the debtor.
Debtor’s Rights After Consolidation: Receipt of Residual Proceeds
If the property is auctioned and the sale amount exceeds the debt balance, the debtor has the right to receive the remaining proceeds. This right, stipulated in Law n. 9.514/97, is intended to prevent the debtor from experiencing disproportionate financial loss due to default.
This measure is vital to protect the debtor from potential abuses and to ensure they receive the fair value of the property they owned.
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Practical Aspects and Guidance for Debtors and Creditors
Fiduciary alienation is an effective tool for securing real estate financing, but both parties should proceed with caution and responsibility:
Guidance for the Debtor: To avoid property loss, the debtor should seek alternatives to keep payments current. If they face financial challenges, it is advisable to renegotiate terms with the creditor before default occurs.
Guidance for the Creditor: The creditor must strictly follow legal deadlines and procedures to ensure the validity of consolidation and auction. Communication with the debtor and process transparency are also crucial to avoid disputes.
Conclusion
The fiduciary alienation contract is a reliable and secure alternative for both creditor and debtor, offering legal guarantees and specific procedures for repossession in case of default.
While the creditor has the right to consolidate ownership and sell the property if the debtor defaults, the law protects the debtor by ensuring their right to cure the default and receive any surplus from the sale.
This balance of rights and duties underscores the importance of rigorous and transparent procedures, which are essential for fiduciary alienation to function effectively in the context of real estate contracts.