Mortgage default and foreclosure in Brazil

Step 1: notice and the right to cure

Under article 26, once the debt is overdue (in whole or in part) and the debtor is in default, the debtor, and the third-party guarantor if there is one, are notified, at the lender’s request, by the officer of the competent registro de imóveis (property registry) to pay within 15 days the overdue instalment and those that fall due until payment, contractual interest, penalties, other contractual charges, legal charges including taxes, condominium contributions attributable to the property, and the costs of collection and notice (paragraph 1).

Before the notice, the contract may set a grace period; if it sets none, it is 15 days (paragraphs 2 and 2-A). Notification is personal, and may be made through the registry, a registry of deeds officer or by registered mail (paragraph 3). If the debtor cannot be found, notice by public notice (edital) is possible, published at least three days, with prior electronic notice at least 15 days earlier where the contract gives an electronic address (paragraphs 4 and 4-B).

Step 2: consolidation

If you do not pay within the period, the officer registers the consolidation of ownership in the lender’s name, on proof of payment of the ITBI transfer tax and, if applicable, the laudêmio (paragraph 7). For the financing of your own residential home (article 26-A), the registration is made 30 days after the end of the cure period (paragraph 1).

Even then, until the consolidation is registered, you can pay the overdue instalments and expenses, and the contract is revived (“convalescerá”) (article 26-A, paragraph 2). The legal cure window therefore runs longer than the 15 days in the notice, but only for the borrower’s own home and only before registration. Whether the contract allows other cures is a matter for the contract.

Step 3: the auctions

Article 27, as rewritten by Lei 14.711: the lender holds a public auction within 60 days from the consolidation registration. If the highest bid at the first auction is lower than the property value fixed in the contract (which cannot be below the ITBI base), a second auction takes place in the following 15 days.

At the second auction, the highest bid is accepted if it equals at least the full debt plus expenses, insurance premiums, legal charges including taxes, and condominium contributions. If no bid reaches that, the lender may, at its sole discretion, accept a bid of at least half of the appraised value. Dates and places of the auctions are communicated to the debtor, including by e-mail. Auctions may be electronic.

Right of first refusal. After consolidation and until the second auction, the borrower has a right of preference to buy the property back for the debt plus the costs listed in paragraph 2-B, including the ITBI and laudêmio paid for consolidation.

Step 4: what happens to the money and the debt

• If the sale exceeds the debt, the surplus goes to the borrower; the law gives 5 days for delivery.
• If the sale does not cover the debt, the borrower remains liable for the balance (paragraph 5-A), which can be collected through enforcement, except where article 26-A applies.
• Borrower’s own financed home (article 26-A, paragraphs 3 and 4): the second auction accepts the highest bid equal to or above the debt guaranteed by the oldest fiduciary transfer on the property, plus expenses and charges. If no bid reaches that minimum, “a dívida será considerada extinta, com recíproca quitação” and the lender becomes free to dispose of the property. Consórcio operations are excluded from this protection.

Mortgages outside the fiduciary route

Article 9 of Lei 14.711 allows credits secured by a hipoteca (mortgage) to be enforced out of court. The registry officer notifies the debtor for 15 days, an auction follows within 60 days and a second within 15 days; at the second auction the debt must be covered, or at least half of the appraised value if the creditor accepts. For the debtor’s own home, the debtor is released from the remaining balance (paragraph 10). The mortgage deed must expressly provide this procedure, or it is invalid (paragraph 15). Agricultural financing is excluded.

Practical points for owners abroad

The notice is served at the address in the contract and, where the contract provides one, by electronic address. An owner living abroad who changes address without telling the lender, or who relies on a relative to receive mail, risks missing a 15-day period. Payotte found no special rule for non-residents in these articles. Keep the lender’s contact up to date, and consider a power of attorney for someone in Brazil to act (power of attorney from abroad).

If you cannot pay, consider early contact with the lender, a renegotiation, or selling before consolidation; a sale needs the lender’s discharge (selling a home in Brazil). Moving the loan is another route if you can still qualify (mortgage portability). The guarantee itself is explained in alienação fiduciária.

Which professional to consult

A lawyer registered with the OAB should be consulted as soon as a notice arrives (property lawyer). The property registry gives the notice and the status of the procedure.