Provisional Presidential Decree Makes Secured Fiduciary Sale Sharing Feasible
Guilherme Zauli, specialist in Real Estate Law at Tortoro, Madureira & Ragazzi Advogados.
Through policies such as the creation of a new type of real estate loan that uses the IPCA [Broad Consumer Price] index to replace the TR [Reference Interest Rate], the federal government has shown its concern about the need to stimulate national economy by making new alternatives available to the population in order to obtain credit.
Along the same lines, Palácio do Planalto published the Provisional Presidential Decree No. 992 on July 16, 2020 which, among other matters, concerns the possibility of sharing a secured fiduciary sale.
Before delving further into this topic we should contextualize this type of credit.
Briefly, secured fiduciary sale is characterized as the type of credit in which the debtor transfers the property of a certain asset as a collateral to the person responsible for the loan.
The classic example of such a type of credit takes place in the acquisition of a specific property through a bank loan.
In this operation, a person seeking to purchase property without sufficient funds for the full release of the asset solicits a loan from a financial institution in order to purchase the property.
Most of the time this loan is made through a contract covered by a secured fiduciary sale as it has the lowest interest rate for such operation, given the low risk of nonpayment.
Therefore, after concluding the negotiation the debtor transfers the ownership of the property purchased to the financial agent as collateral for the obligation until the financed amounts are paid in full, which is when the debtor regains full ownership of the property.
As a logical consequence of the property transfer to the financial agent as collateral for the obligation undertaken, even in the event that the price of the property far exceeds the amount of the loan, the debtor is prevented from having that asset as a collateral for other operations.
Provisional Presidential Decree No. 992 is an innovative way to enable the use of this potential surplus related to the loan amount and the property appraisal value by providing the possibility to share the secured fiduciary sale.
This means that after the publication of the standard in question the legal system accepts the possibility of executing new loan contracts with the same property as previously offered as collateral.
Clearly, for the effectiveness of the new contract it is essential that the value of the collateral is sufficient to fully release all the amounts released by the financial agent.
However, despite indicating an important advance regarding the availability of a greater quantity of assets in the financial market, the Provisional Presidential Decree does have some restrictions.
Contracts subject to secured sharing are limited exclusively to those executed together with the institutions registered with the National Financial System, such as public and private banks.
Therefore, any business with secured a fiduciary sale executed between private individuals cannot use this type of credit.
There is also a restriction regarding the legitimate institution for secured sharing given that the Provisional Presidential Decree stipulates that any new business secured by the same asset can only be carried out with the institution responsible for the original credit.
In addition, the innovation concerned presents the secured fiduciary sale sharing as being a right made available to the parties. This means that even if the value of the collateral far exceeds the debt amount, the debtor cannot force the creditor to execute a new loan with guaranteed residual balance.
This step forward made possible by Provisional Presidential Decree No. 992 will provide the financial market with a significant boost as it allows for the use of those assets previously unavailable due to an operation lower than the value of the property.
What cannot be ignored is the fact that it allows for the reduction of the original collateral and an eventual new contract certainly will take this fact into account, which may be reflected in the increase in the interest rates.
In general, it is believed that the guarantee fiduciary sharing represents an important step forward for the real estate sector and the economic sector given the possibility of optimizing assets related to the value of collaterals while maintaining a low-level risk to financial institutions.
Finally, due to the nature of Provisional Presidential Decrees, it is important to emphasize that the possibility of sharing secured fiduciary sales is valid for 60 days following its publication and renewable only once for the same period.
This means that until its expiration date, the Brazilian Congress can approve the text of the Provisional Presidential Decree whereupon it will be converted into law with no further discussion regarding the expiration date.
However, in the event of a nonexamination within the legal deadline or rejection of the text, the Provisional Presidential Decree will be automatically revoked with Congress issuing a legislative decree in order to discipline the legal relationships arising from the revoked Provisional Presidential Decree.