Fiduciary alienation is a common type of security commonly employed in financial agreements, particularly in vehicle and real estate financing.
A legal document that guarantees the lender indirect control over an asset until the debt is settled, offering security to both parties involved.
In this article, you will learn about the functioning of fiduciary alienation, its key regulations, and legal dimensions. Join us!
How does the mechanism of pity of goods operate according to Article 835 of the Civil Procedure Code?
What does fiduciary alienation refer to?
Fiduciary alliation is a guarantee agreement established by Law No. 9,514/1997, in which the debtor transfers the resoluble property to the creditor to secure debt repayment.
The debtor retains direct ownership and can use the item as usual, while the creditor has indirect ownership and a claim to the property until the debt is paid off.
After the debt is fully paid, the creditor gives back the property to the debtor.
The creditor has the option to enforce the guarantee by transferring ownership of the item to themselves for selling or auctioning.
Adjudication: Overview and basic principles
How does the concept of fiduciary alienation operate?
Fiduciary alienation operates according to steps established by the law.
Fiduciary alienation agreement:
- It should be signed through a public document or a contract that is recorded in the property registry office, or at Detran for vehicles.
- It includes the terms of financing, the amount financed, charges, and the warranty clause.
Ownership and possessions
- Debt (fiducing) allows for the retention of ownership of an item and its use as specified in the agreement.
- The creditor, as a fiduciary, possesses the resoluble property and has the authority to merge it in case of default.
If the debtor fails to meet the obligation, the creditor can start the property consolidation process, which includes notifying the debtor beforehand, giving them 15 days to settle the debt.
Upon full payment, the property is returned to the debtor either automatically or through administrative procedures. If the property needs to be consolidated, the creditor must auction it off, with the proceeds going towards settling the debt and any excess amount being given back to the debtor.
What are the guidelines for transferring fiduciary duties?
Fiduciary alienation in Brazil is governed by Law No. 9,514/1997 for real estate transactions and by the Civil Code in Articles 1.361 to 1.368-B.
The primary guidelines consist of:
- Fiduciary alienation must be registered in the property registration for real estate or with the appropriate transit agency for vehicles.
- The creditor can demand the warranty to be enforced if there is a default, consolidating ownership of the asset.
- The debtor’s responsibility is to make timely payments and maintain the collateral as specified in the contract.
- Procedures for consolidating property ownership involve notifying the debtor and conducting a public auction in compliance with legal deadlines and regulations.
- Fiduciary alienation enables extrajudicial execution of the guarantee, making the procedure quicker and more cost-effective for the creditor.
Practical Illustration
A client finances a property valued at R $ 500 thousand through fiduciary alienation.
He still resides in and uses the property, but the bank legally owns it until the loan is fully paid off.
The bank can combine the property and auction it off if there is a default.
Benefits of fiduciary transfer and important factors
Benefits for the lender:
- Warranty receipt for a purchase.
- Alienation rights in the event of a default.
- Execution agility.
Benefits for the borrower:
- Ability to experience pleasure.
- Interest rates are typically lower than those of other types of security agreements.
Important factors to take into account:
- The borrower needs to carefully review the terms of the contract.
- Defaulting on payments can result in the forfeiture of possessions.
Common inquiries regarding fiduciary transfer
Does the fiduciary alienation contract become void upon the death of the debtor?
The contract of fiduciary alienation continues even after the debtor’s death, as the obligations from the contract are passed on to the heirs within the confines of inheritance laws.
In line with Article 1.821 of the Civil Code:
Creditors have the right to demand payment of acknowledged debts within the inheritance’s available assets as per Article 1.821 of the Civil Code.
The fiduciary creditor can demand fulfillment of the obligation or enforcement of the fiduciary guarantee on the transferred asset, following the relevant legal rules on succession.
Can the debtor transfer the debt holder to someone else?
The debtor can transfer the debt holder to another individual if the creditor agrees, according to Article 299 of the Civil Code.
The third party can take on the debtor’s responsibility with the creditor’s approval, relieving the original debtor of the obligation, unless the original debtor was insolvent at the time of the assumption and the creditor was unaware of it, as stated in Article 299 of the Civil Code.
Debt assumption happens when a third party takes on the role of debtor, replacing the original debtor.
The creditor’s annuity is crucial as it allows them to assess the new debtor’s ability and appropriateness, guaranteeing legal certainty and fulfillment of the obligation.
Can an alienated item be sold?
Selling an alienated good, such as a financed or mortgaged vehicle, is permitted but must be done with special attention due to the creditor’s payment guarantee.
The seller must settle any remaining debt or transfer the obligation to the buyer with the creditor’s approval to complete the sale.
Negotiations need to be formalized and transparent to prevent legal issues and ensure that the buyer understands the conditions.
What sets fiduciary and mortgage alienation apart?
The primary distinction between fiduciary and mortgage alienation lies in the ownership of assets and the assurance procedure.
In fiduciary alienation, the debtor gives the creditor ownership of the asset as security, while retaining possession and the ability to repay the debt.
The borrower retains ownership and possession of the property in a mortgage, using it as collateral without transferring ownership.
The execution of the guarantee in fiduciary alienation is quicker and involves less bureaucracy compared to a mortgage, which necessitates a judicial procedure for selling the property in the event of default.
Tips for managing fiduciary alienation agreements
Practical advice for legal professionals dealing with fiduciary alienation, covering contract drafting to implementing procedures.
Contract preparation
- Define the terms thoroughly, covering funding amount, charges, payment schedules, and consequences for non-payment.
- Includes effective preservation provisions: It is crucial to outline clear responsibilities for the borrower, like ensuring proper upkeep and preservation.
- Predict other options in the event of non-payment: clearly outline the steps for enforcing the security and transferring ownership of the property as per Law No. 9,514/1997.
Registration and making formal.
- Ensure that the contract has been properly registered in the property registry or transit agency, along with the necessary guarantee.
- Make sure the goods are free of any burdens or restrictions that could affect the warranty before finalizing the contract.
Out-of-court enforcement
- Extrajudicial executions in real estate cases must adhere to legal procedures, such as notifying the debtor to vacate the property, allowing a 15-day period for compliance, and conducting a public auction after property consolidation.
- Debtor is informed to clean the house.
- I adhere to the 15-day deadline for regularization.
- A public auction is finalized following the consolidation of the property.
- Maintain thorough records of all notifications, publications, and actions conducted during the execution process.
- The debtor has been notified to clean the house.
- I honor the 15-day timeframe for regularization.
- Completion of the public auction following the property consolidation.
Assistance provided to the borrower
- Before commencing the execution, it is advisable to engage in prior negotiation with the debtor. This can often lead to reaching an agreement that avoids incurring additional costs for both parties.
- Ensure the debtor understands the terms of the contract and the risks of default to protect their rights and minimize potential disagreements.
Risk management involves identifying, assessing, and addressing potential risks to minimize negative impacts on an organization.
- Advise your creditor client to assess the asset before using it as collateral to prevent issues during the auction.
- Preventing fraud involves monitoring for any unauthorized transfers or illegal sales of vehicles or mobile goods by the debtor.
Proceedings
- Ensure that the auction is conducted in compliance with the law and at an opportune moment to maximize the sale value of the item.
- If you are representing the debtor, carefully examine the legality of the actions carried out by the creditor during the out-of-court enforcement process.
Monitoring after consolidation
- After selling the item at auction, ensure that any extra money is given back to the debtor according to the law.
- After consolidation, the creditor should be instructed to formalize the ownership of the asset at the office or appropriate authority.
Update and research
- Keep track of legislative updates concerning fiduciary alienation, particularly regarding auctions and debtor protection.
- Participate in training opportunities such as courses and workshops on warranty contracts to enhance your expertise and provide a more comprehensive service to clients.
Agile creation of fiduciary alienation agreements
Fiduciary alienation is a strong legal mechanism that offers protection for both lenders and borrowers.
Lawyers specializing in financing contracts and guarantees must understand their regulations and operations.
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