“Collateral Act” came into force
“Collateral Act” came into force
On October 30, 2023, Law No. 14.711/2023 was sanctioned with vetoes and came into force, which, among other points, became known as the “Collateral Act” (“Marco Legal das Garantias”), as it promotes significant changes in the legal framework of collaterals, especially related to the fiduciary assignment and mortgage. Among the innovations, the figure of the “collateral agent”, the extension of the mortgage and fiduciary assignment to more than one obligation and the extrajudicial seizure of the mortgage stand out.
See below the main changes!
Collateral agent
Article 3 of the Law establishes a new chapter in the Brazilian Civil Code entitled “The Guarantee Fiduciary Administration Agreement”. With this new provision, any guarantee may be constituted, registered, managed, and have its execution requested by a guaranteed agent.
Such agent (i) will be appointed by the creditors of the guaranteed obligation, (ii) will act in its own name and for the benefit of the creditors, including in litigations, (iii) may extrajudicially execute the guarantee, when possible, and (iv) will have a fiduciary duty in relation to creditors for all his acts. Any clause that departs from this rule to the detriment of the debtor or the third party who issues the guarantee, as the case may be, is also prohibited.
It is also possible to replace the agent, provided that such replacement is made (i) by decision of the sole creditor or of the holders representing most of the secured credits, and (ii) publicly, by the same form or means through which the agent has publicized the guarantee.
As for the proceeds from the liquidation of the collateral, (i) as long as it is not transferred to the creditors, it will constitute assets separate from the agent’s assets, so that the collateral administered by him can not be used to satisfy obligations owed by the collateral agent himself, (ii) the agent will not be able to respond to its obligations for up to 180 days from the date of its receipt, and (iii) after receiving the amount for such product, the agent must make payment to creditors within 10 business days.
Finally, the collateral agent may also maintain, in parallel, agreements with the debtor, as long as he acts in good faith, to (i) search for more advantageous credit offers; (ii) assist in the procedures necessary to formalize credit operation agreements and secured guarantees; (iii) mediate the resolution of issues relating to credit operation agreements or secured guarantees; and (iv) provide any other services that are not prohibited by law.
The figure of the collateral agent, well known in financial transactions governed by Anglo-Saxon Law, will greatly facilitate the issuance of collateral and the credit concession, especially for foreign creditors, without presence in Brazil.
Real Property Fiduciary Assignment
Law No. 14,711 brought important innovations in the legal regime of real property fiduciary assignment as collateral under Law No. 9514/97, bringing more legal safety to the use of this institute and flexibility in negotiations between private agents.
Real property successive fiduciary assignment
Among these innovations, we highlight the express permission for the constitution of supervening fiduciary assignment of the property, which consists of the constitution of more than one conditional fiduciary assignment on the same property in different degrees, with each supervening fiduciary assignment being effective upon cancellation of the fiduciary assignment previously constituted. The supervening fiduciary assignment is conditional, as the fiduciary debtor will only hold full ownership of the new property after the termination of the current fiduciary alienation. It is interesting to note that in this case, the Law No. 9.514/97, as amended, provides for cross-default between obligations secured by fiduciary assignment under the same property, which means that the creditor who has more than one debt secured by the same property fiduciarily assigned will have the right to declare the early maturity of all secured obligations in the event of default of any obligations secured by the same real property. To this end, this possibility must be expressly provided for in the instrument constituting the fiduciary assignment and, if the creditor intends to exercise this option, he must inform the debtor by means of a notice made by the competent Real Estate Registry officer. This right for the creditor to take advantage of the cross default also applies to the alienation of the supervening fiduciary property.
Non release of debt in case of bid lower than the debt amount
In addition, Law No. 14,711 improved the wording of some important provisions in Law No. 9,514/97, bringing more legal certainty and flexibility to the use of the institute of the fiduciary assignment. Among these, the main one was the improvement of the wording of article 27 of Law No. 9,514/97. Previously, paragraph 5 of this article provided that if in the second auction the highest bid offered is lower than the value of the debts, the debt would be considered extinguished.
This provision gave rise to a jurisprudential debate and brought legal uncertainty in cases where the value of the property given as collateral is lower than the value of the debt, since if the collateral were to be enforced, the creditor could lose the right to collect its credits that exceeded the highest bid offered. This situation was resolved with the introduction of § 5-A, which determines that in these cases the debtor will continue to be obliged to pay the remaining amount, except in the case of financing for the acquisition or construction of residential property, in which the previous regime will be maintained.
Extension of fiduciary assignment over real property:
Law No. 14.711 included in Law No. 13.476 the provision of the possibility of establishing the so-called “extension of fiduciary alienation”, which consists of the use of the fiduciary assignment collateral on property already constituted in relation to a previous debt to secure a new debt, through simple registry of the extension instrument, and without the need to constitute a new collateral instrument.
To this end, it is necessary that the new debt to be contracted is with the same fiduciary creditor as the previous debt and that the property given as collateral does not secure other debts from other creditors. Therefore, the existence of a possible supervening fiduciary assignment over a property prevents the extension of the fiduciary alienation over it. Furthermore, the extension of fiduciary assignment can only be concluded within the scope of the National Financial System and in operations with Simple Credit Companies. This extension will be constituted by means of a private or public instrument, which must be registered at the competent property registry office, and: (i) will be limited to the amount of the previous debt effectively amortized by the debtor, and (ii) the term of the extended fiduciary assignment may not exceed the term of the original fiduciary assignment.
Improvement of the auction regime
Another important innovation was the change of the second auction regime for the sale of the fiduciarily assigned real proprerty. While previously Law No. 9,514/97 provided that if a bid higher than the appraised value of the property was not obtained in the first auction, in the second auction bids higher than the value of the debt would be accepted. With the changes promoted by Law No. 14,711, it is now possible in the second auction to bid at least half of the appraised value of the asset, which may or may not be accepted at the discretion of the creditor.
It should also be noted that the wording of the requirements of the instrument for the constitution of the fiduciary assignment was improved to allow the mention not only of the amount of the debt, but also of its estimation or its maximum value.
Another provisions
Law No. 14,711 also brought important provisions to provide security to the creditor in cases where it is difficult to locate the debtor, which is relevant considering the need for a notice by the competent Real Estate Registry officer for the consolidation and extrajudicial seizure of the property in the fiduciary assignment as collateral. In this regard, it was established that it is the debtor’s responsibility to inform the creditor if his place of residence has changed, in addition to providing for the procedure to be adopted if the debtor is not found or is in an inaccessible place.
Furthermore, Law No. 14,711 included in Law No. 9,514/97 a provision so that the existence of other security rights over the assets, as well as other constraints and seizures, do not prevent the consolidation of ownership and forced seizure of the collateral, which brings even more legal certainty to the institute and protects the interests of fiduciary creditors if the debtor has constituted more than one security on the same real property. The aforementioned Law also provided for the possibility of simultaneous or successive foreclosure of several real properties given as collateral for the same debt, when the fiduciary assignment instrument did not determine which property secures which proportion of the debt.
And finally, Law No. 14.711/23 amended Law No. 9.514/97, allowing the fiduciary creditor to choose a Property Registration Officer from a district only to summon the fiduciary debtor to clear the default, in the cases of several properties sold fiduciary to secure the same debt with the same fiduciary creditor. This legal provision will certainly bring greater speed in the foreclosure of properties sold fiduciary as collateral, and greater efficiency in credit recovery.
Mortgage
Regarding mortgage, main amendments and innovations were made, among which the following is highlighted:
Obligations terminations
With the inclusion of §2º to Article 1.477 of the Brazilian Civil Code, the creditor now has the option to declare the other obligations he holds terminated, when the debtor defaults on the obligations guaranteed by the mortgage, as long as secured by the same property. Previously, such practice was not possible.
Article 1.478 of the Brazilian Civil Code also had its wording amended, now the mortgage creditor who pays the debts secured by the previous mortgages will have to subrogate his rights, without prejudice to those that he has against the common debtor. Previously, the wording of such article limited such payment to the second mortgage lender.
Mortgage extension
Similar to what happened to fiduciary assignment, Article 1.487-A was included in the Brazilian Civil Code, which now expressly provides for the “mortgage extension”, that is, at the request of the owner, the mortgage may be extended to secure new obligations, provided that (i ) in favor of the same creditor, (ii) the original register and publicity are maintained, (iii) the priority of contradictory rights entered in the property record is respected.
Also, regarding the mortgage extension, it is worth highlighting that: (i) it cannot exceed the term and maximum amount originally secured, (ii) it must be registered in the property record, ensuring credit preference in favor of: a) the initial obligation, in relation to the obligations achieved by the extension of the mortgage; and b) the oldest obligation, in the case of more than one extension. Furthermore, if there are multiple creditors secured by the same extended mortgage, only the creditor holding the most priority credit may promote the judicial or extrajudicial execution of the guarantee, unless otherwise agreed by the creditors.
Extrajudicial execution
Chapter III of Law No. 14.711/2023 specifically dealt with the extrajudicial execution of credits secured by mortgages, among the new points, the following stands out:
a) A deadline of 15 days for the debtor and the third-party mortgager, if applicable, to clear the default, even if it is partial, from the personal notice, which must be made at the request of the creditor or his assignee, by the real property registry officer of the status of the mortgaged real property;
b) If the default is not remedied within this deadline, the start of the extrajudicial mortgage procedure is authorized, which will be done by public auction and must be previously registered in the property record;
c) After register, the creditor will have 60 days to promote the public auction, which may be carried out electronically, and the debtor and the third-party mortgager, if applicable, must be informed about the date, time, and place of the auction;
d) If the bid is lower than the value of the real property (established in the agreement or the appraised value), a second auction must occur within 15 days;
e) In the second auction, the highest bid offered will be accepted, as long as it is equal to or greater than the full amount of the secured debt, expenses, including notary fees, insurance premiums, legal charges, including taxes, and condominium contributions;
f) If the highest bid does not reach this amount, the mortgagee may accept it, as long as the bid amount corresponds to at least half of the appraised value of the property;
g) The debtor or, if applicable, the provider of the morgage, has the right to redeem the seizure, provided that it is before the property is sold at auction and upon full payment of the debt, plus auction expenses;
h) If the auction bid is higher than the full amount of the debt, plus auction expenses, the excess will be delivered to the mortgagor;
i) If the bid in the second auction is lower than the reference set out in item (e) above, the creditor will have the right to (i) appropriate the property in exchange for payment of the debt, at any time; (ii) carry out, within 180 days from the last auction, the direct sale of the real property to a third party, for an amount not lower than the reference in item (e). In the case of item (ii), the creditor will be vested with an irrevocable mandate to represent the guarantor, with the authority to transfer the useful title, right, possession, and action, manifest the alienor’s responsibility for the eviction, and imitate the acquirer in possession.
j) If the amount obtained from the foreclosure of the mortgage security are not sufficient to pay the debt, in full, and the other expenses provided for in item (e), in the case of credit facility agreements for the acquisition or construction of the debtor’s residential real property, the debtor will be exempt from liability for the remaining balance;
k) Related to the vacancy of the property, the provisions set out for extrajudicial execution of fiduciary sale apply.
Another important observation is that extrajudicial mortgage foreclosure does not apply to agricultural credit facility agreements. Furthermore, for extrajudicial execution to occur, the constitutive title must contain, as a validity requirement, an express provision for such a procedure.
The Law is fully available clicking here.