Fiduciary alienation is a commonly utilized form of security in financial agreements, particularly in loans and property transactions.
It is a legal document that guarantees the creditor temporary ownership of an asset until the debt is paid off, offering security for both parties involved.
You will learn about the concept of fiduciary alienation, its key principles, and legal considerations in this article. Join us!
How does the concept of goods pity function under Article 835 of the Civil Procedure Code?
What does fiduciary alienation refer to?
Fiduciary alliation is a type of guarantee established by Law No. 9,514/1997, in which the debtor transfers the resoluble property to the creditor as a way to secure debt repayment.
The debtor retains direct ownership and usage rights of the asset, while the creditor has indirect ownership and temporary property rights until the debt is settled.
After the debt is fully paid, the creditor gives back the property to the debtor.
The creditor can exercise the guarantee by transferring ownership of the asset to themselves for selling or auctioning.
Adjudication: Procedures and basic guidelines
How does the process of fiduciary alienation operate?
Fiduciary alienation operates according to legal steps.
Fiduciary alienation contract:
- It needs to be signed through a public document or a contract recorded at the property registration office or at the Detran for vehicles.
- It includes the terms of financing, the amount financed, charges, and the guarantee provision.
Possession and ownership.
- Debt (fiducing) allows for the retention of ownership of goods and their use as specified in the contract.
- Creditor (fiduciary): possesses the resoluble property and can merge it in case of non-payment.
If the debtor fails to meet the obligation, the creditor can start the property consolidation process, which includes notifying the debtor first, giving them 15 days to settle the debt.
Upon full payment, the debtor regains possession of the property either automatically or through administrative means. If the property is consolidated, the creditor is required to auction it off, with the proceeds going towards settling the debt and any excess being returned to the debtor.
What are the regulations regarding fiduciary transfer?
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 in the appropriate transit agency for vehicles.
- The creditor can demand the warranty to be enforced if there is a default, resulting in the consolidation of the good’s ownership.
- The debtor is required to make timely payments and maintain the collateral according to the contract terms.
- Procedures for consolidating property involve informing the debtor and conducting a public auction in compliance with legal deadlines and regulations.
- Fiduciary alienation enables extrajudicial execution of the collateral, leading to a quicker and more cost-effective process for the lender.
Practical Illustration
The scenario involves a customer financing a property valued at R $ 500,000 through fiduciary alienation.
He still resides in and utilizes the property, but the bank legally owns the property until the loan is fully paid off.
If the borrower fails to repay, the bank can combine the assets and auction them off.
Benefits of fiduciary transfer and important factors to consider
Advantages for the lender:
- Warranty receipt for credit.
- Alienation rights in the event of a breach.
- Execution agility.
Benefits for the borrower:
- Opportunity to savor something delightful.
- Interest rates are typically lower in comparison to other forms of guarantee agreements.
Important factors to take into account:
- The borrower needs to carefully review the terms of the contract.
- Failure to pay debts can result in the loss of reputation.
Frequently asked questions about fiduciary transfer.
Does the fiduciary alienation contract end upon the debtor’s death?
The contract of fiduciary alienation is not terminated by the death of the debtor; instead, the obligations of the contract pass on to the heirs within the limits of the inheritance.
In line with Article 1.821 of the Civil Code:
Creditors have the right to demand payment of acknowledged debts within the constraints of the inheritance assets under Article 1.821 of the Civil Code.
The fiduciary creditor can demand that the obligation be fulfilled or that the fiduciary guarantee on the transferred property be enforced, following the relevant legal rules on inheritance.
Can the debtor transfer the debt holder to someone else?
The debtor can transfer the debt holder to another person with the creditor’s explicit agreement, as stated in Article 299 of the Civil Code.
The third party can take on the debtor’s responsibility with the creditor’s permission, relieving the original debtor of their obligation, unless the original debtor was insolvent at the time of the transfer and the creditor was unaware of it.
Debt assumption happens when a third party takes on the role of the debtor, replacing the original debtor.
The creditor’s annuity is essential as it allows them to assess the new debtor’s ability and suitability, thus ensuring legal certainty and fulfillment of the obligation.
Can an alienated item be sold?
It is permissible to sell a pledged item, but caution is necessary. A pledged item, such as a financed or mortgaged vehicle, is tied to a creditor’s payment guarantee.
The seller must settle the unpaid debt or transfer the responsibility to the buyer with the creditor’s approval in order to complete the sale.
Negotiations should be made formal, with clear communication about the positive situation, to prevent legal issues and ensure the buyer understands the terms.
What sets fiduciary and mortgage alienation apart?
The primary distinction between fiduciary and mortgage alienation lies in the ownership of assets and the guarantee 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 debtor retains ownership and possession of the property in a mortgage, which acts as collateral without a transfer of ownership.
In fiduciary alienation, guarantee execution is quicker and less bureaucratic compared to mortgage, which necessitates a judicial procedure for selling the property in case of default.
Advice on practical fiduciary alienation agreements
Practical advice for attorneys dealing with fiduciary alienation, from drafting contracts to implementing procedures.
Preparation of the agreement
- Define the terms: Make sure all terms are thoroughly described, covering funding amount, charges, payment schedules, and consequences for non-payment.
- It is crucial to outline precise responsibilities for the borrower, such as upholding and ensuring the proper condition of the property.
- Predict other options in the event of non-payment: clearly outline the steps for using the security and transferring ownership of the property, as outlined in Law No. 9,514/1997.
Registration and making things formal
- Ensure that the contract is properly registered in the property register or transit agency, along with the required guarantee.
- Ensure that the good is clear of any burdens or restrictions that could impede the warranty before finalizing the contract.
Out-of-court enforcement
- Extrajudicial executions must adhere to legal procedures, particularly in real estate cases, which involve notifying the debtor to vacate the property, allowing a 15-day period for compliance, and conducting a public auction after property consolidation.
- The debtor has been notified to clean the house.
- I adhere to the 15-day timeframe for compliance.
- Property consolidation is finalized before the public auction.
- Maintain thorough documentation by recording all notifications, publications, and actions performed during the execution process.
- Debtor has been notified to clean the house.
- I adhere to 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 discussions with the debtor to potentially come to an agreement that could help avoid further expenses for both parties.
- Ensure the debtor understands the contract terms and risks to prevent future disagreements.
Risk mitigation
- Advise your client who is a creditor to assess the collateral before the auction to prevent delays or issues.
- Fraud prevention measures focus on detecting any unauthorized transfers or alienations of vehicles or mobile goods by the debtor.
Proceedings
- Make sure to schedule the auction in compliance with the law and at an optimal time to increase the selling price of the item.
- If you are representing the debtor, carefully examine the legality of the actions taken by the creditor in the extrajudicial process.
Post-consolidation surveillance
- After selling the item at auction, it is important to ensure that any excess funds are given back to the borrower in accordance with legal regulations.
- After consolidation, the creditor should be directed to formalize the ownership of the asset either at the office or the appropriate authority.
Update and research
- Keep track of legislative updates regarding fiduciary transfers, particularly concerning auction procedures and debtor safeguards.
- Invest in training by attending courses and lectures on warranty contracts to enhance your expertise and provide a more comprehensive service to your clients.
Agile creation of contracts for transferring trust ownership.
Fiduciary alienation is a strong legal mechanism that offers protection for both lenders and borrowers.
Lawyers specializing in financial contracts and guarantees must have a thorough understanding of the regulations and operations involved.
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What does fiduciary alienation refer to?
Fiduciary alliation is a legal assurance arrangement outlined in Law No. 9,514/1997, in which the borrower (fiduciante) conveys the resoluble property of an asset to the lender (fiduciary) as a means to secure debt repayment.
Does the fiduciary alienation contract become void upon the debtor’s death?
The contract of fiduciary alienation remains valid even after the debtor’s death, as the obligations from the contract pass on to the heirs within the confines of inheritance laws.
Can the debtor transfer the responsibility of the debt to someone else?
The debtor can transfer the debt holder to another person with the creditor’s explicit agreement, as stated in Article 299 of the Civil Code.
Can you legally sell property that has been transferred to someone else’s ownership?
Selling an alienated item is permitted, but it requires special attention. An alienated item, such as a financed or mortgaged vehicle, is associated with a creditor’s payment assurance.
The seller needs to settle the debt or transfer it to the buyer with the creditor’s approval in order to complete the sale.
How does each phase of trust loss function?
Fiduciary alienation starts with the establishment of a contract between a debtor and a creditor, where the asset is used as collateral. The debtor retains direct possession of the asset, but the creditor has the right to ownership.
If the borrower fails to make payments on time, the lender informs them to settle the outstanding balance within the specified legal timeframe, typically 15 days for properties.
If the debt continues unpaid, the property is transferred to the creditor, who auctions it off. Any proceeds from the sale are first used to settle the debt, with any remaining amount returned to the debtor.
If all attempts have been unsuccessful, the debt may be considered settled through a new auction, giving the creditor access to the goods.
What are the consequences of not paying for fiduciary alienation?
If the borrower does not make payments on certain parts of the loan secured by fiduciary alienation, they may face extrajudicial enforcement of the agreement.
To regulate the debt is important, as failure to do so may result in the creditor taking back the property through search and seizure (for movable goods) or foreclosure (for real estate) and then selling it to pay off the debt. The debtor forfeits the property and may still be liable for any remaining amounts owed.
Types of fiduciary alienation – what are they?
Three primary categories include transferring movable assets (e.g., vehicles), immovable property (e.g., houses or apartments), and entitlements (e.g., shares or copyright) to the creditor on a temporary basis until the debtor fully settles the obligation.
How long is the statute of limitations for a search and seizure procedure?
Debts related to contracts involving fiduciary transfer are typically subject to a five-year statute of limitations for legal action.
The search and recovery of assets can be pursued for a period of up to ten years, as stated in article 205 of the Civil Code, which emphasizes the retrieval of assets rather than solely the collection of their monetary value.
What is the time limit for search and seizure in fiduciary alienation?
After a court order, the debtor has five days to pay the debt in full and reclaim the seized property. If the debt remains unpaid, ownership transfers to the creditor.
What does extrajudicial auction of fiduciary alienation involve?
The extrajudicial auction is a public process carried out by the creditor after acquiring ownership of the property due to the debtor’s default.
The typical process consists of two stages for auctions: the initial stage involves a minimum bid based on the contract value, while the second stage’s minimum bid is determined by the debt value. If the debtor withdraws, any remaining amount is returned to them.
If no legal action is taken, the debt may be deemed canceled, and the creditor retains ownership of the asset.
