RIO DE JANEIRO, BRAZIL – The National Monetary Council (CMN) has enacted an interim measure that enables already financed real property to be used as collateral for a new loan with the same bank as the original financing. This is another measure to help increase the release of loans by banks amid the crisis caused by the Covid-19 pandemic.
The option of offering the same asset to guarantee more than one loan operation, similar to a second mortgage, is now available using a common Brazilian security interest called “alienação fiduciária” where the borrower transfers title in trust to the lender. Formerly, this type of financing was limited to automobiles and other personal property. The Central Bank (BC) says that, while respecting the full value of the property, the same property can serve as collateral for more than one credit transaction with a lender, which should reduce interest for the borrower.
According to the BC regulations, the terms of the new loan must be better than or equal to the preceding one, i.e., the interest rate may not be higher than that of the first transaction. The new loan term must be equal to or shorter than the remainder of the original financing.
In this operation, there will be notarial costs. However, many of those costs may be included in the new loan: notary’s fees related to the registration and recording of the title or trust deed and the security interest created on the property; fees for electronic registration, if contracted by the borrower; tax on the transfer of real estate (ITBI); and the tax on credit, exchange, and insurance transactions (IOF).
Even with the notary office costs, the Central Bank’s head of financial system regulation, João André Calvino Pereira, said the registration will be simpler: “This new loan will fall under the same financing structure in force. It must be done through the notary office, but it is already within the defined structure. There will be a title transfer, but it is simpler,” he said.
In the event of default on the loan, the bank can foreclose on the collateral, and must auction off the property, just as it would in a traditional mortgage transaction.
The CMN’s regulations are now in force so it is up to the banks to decide whether or not to offer this type of financing.
Source: Agência Brasil