CMN regulates the use of real estate as collateral in more than one real estate credit transaction

On December 19, 2024, the National Monetary Council (“CMN”) approved CMN Resolution No. 5,197, which amends Resolution No. 4,676 of July 31, 2018. The new resolution aims to update the rules governing the Brazilian Savings and Loan System (“SBPE”), the Housing Finance System (“SFH”) and the Real Estate Financing System (“SFI”), establishing general conditions and criteria for contracting real estate credit transactions by financial institutions and other institutions authorized to operate by the Central Bank of Brazil (“BC”).

CMN Resolution 5,197 introduces definitions and general conditions for real estate credit transactions, including real estate and housing financing, and establishes limits for the credit quota, guiding the activities of institutions in this context. In this regard, it is consistent with Law No. 14,711 of October 2023 (Legal Framework for Guarantees), which, among various innovations, introduced into our system the possibility of constituting a supervening fiduciary sale of real estate and extrajudicial procedures for the foreclosure of mortgage guarantees and fiduciary sales of properties.

Key points of the resolution:

1. Definitions

The regulation establishes definitions for a number of institutes:

• Real estate credit:
  • real estate financing transactions; and
  • loan transactions contracted by individuals with real estate as the sole collateral or as the highest value collateral, except for transactions referenced in foreign currency, rural credit transactions and other transactions subject to specific legislation or regulations.
• Real estate financing:
  • credit transactions aimed at the acquisition, construction, production, renovation and expansion of residential and non-residential real estate; and
  • credit transactions aimed at acquiring materials for the construction, extension and renovation of residential and non-residential real estate.
• Housing financing: credit transactions aimed at the acquisition, construction, production, renovation and expansion of residential real estate.
• Financing for the acquisition of real estate: a credit transaction contracted by an individual or legal entity for the acquisition of new real estate, used real estate or real estate in the production phase.
• Financing for real estate construction: credit transaction contracted by an individual or legal entity for the construction of residential or non-residential real estate.
• Financing for real estate production: a credit transaction contracted by an individual or legal entity for the production of a set of residential or non-residential units.
• Financing for real estate renovation or expansion: a credit transaction contracted by an individual or legal entity for the renovation or expansion of residential or non-residential real estate.
• Financing for real estate construction, expansion and renovation: credit transaction contracted by an individual or legal entity for the acquisition of materials for the construction, expansion or renovation of residential or non-residential real estate.
• Residential property: a unit built in an urban or rural area for residential purposes, in accordance with the building regulations of the area in which it is located.
• New residential property:

the residential property that:

• is under construction or production; or
• has had its “Habite-se” certificate, or equivalent document issued by the competent public body, for at least 180 days or, in the case of longer periods, has not been inhabited or sold.
• Credit quota: the percentage resulting from the ratio between the nominal value of the real estate credit transaction, including principal and ancillary expenses, and the appraised value of the property given as collateral, established on the date of the agreement.

2. Credit quota limit

In the event that the same property serves as collateral for more than one credit transaction, the ratio between the sum of the nominal value of the new transaction and the outstanding balances of the transactions already guaranteed, including principal and ancillary expenses, and the appraised value of the property given as collateral on the date the new transaction is contracted, may not exceed the credit quota limit applicable to the predominant credit transaction.

3. Predominant credit transaction

It is the transaction with the highest value between the nominal value of the new transaction and the outstanding balance of the transactions already guaranteed on the date the new transaction is contracted. In the event of equal values, the transaction with the oldest contracting date is considered.

4. Credit quota criteria

The credit quota cannot exceed 90% when using the Constant Amortization System (“SAC”) or the Increasing Amortization System (“SACRE”). In addition, if a property is used as collateral for more than one credit transaction, the sum of the nominal value of the new transaction and the outstanding balances of the transactions already guaranteed may not exceed the credit quota limit applicable to the predominant credit transaction.

5. New transactions with the possibility of different conditions

New credit transactions secured by the fiduciary sale of supervening property are allowed to agree on terms and conditions for remuneration, monetary restatement and amortization other than those agreed in the original credit transaction.

6. Loans to individuals secured by residential real estate

Financial institutions may require the contracting of insurance that provides coverage for the risks of death and permanent disability of the borrower and physical damage to the property in loan transactions to individuals secured by residential real estate.

7. Clause updating the outstanding balance by a price index

Real estate loan agreements may include a clause updating the outstanding balance by a price index, which is public knowledge and regularly calculated, or by the basic remuneration applicable to savings deposits, provided they have a minimum adjustment period and frequency of one year.

8. Collateral for real estate credit transactions

Real estate credit transactions must be secured by:

• in the case of real estate financing transactions aimed at the acquisition, construction and production of real estate:
  • fiduciary sale of the property which is the purpose of the transaction;
  • fiduciary sale of another property owned by the borrower or by a third party;
  • mortgage, in the first degree, of the property which is the purpose of the transaction;
  • mortgage, in the first degree, of another property owned by the borrower or by a third party;
  • fiduciary assignment of credit rights arising from real estate sale agreements;
  • pledge of credit or acquisition rights arising from real estate sale or promissory sale agreements; or
  • fiduciary assignment of credit or acquisition rights arising from real estate sale or promissory sale agreements.
• in the case of loans to individuals secured by residential or non-residential real estate:
  • fiduciary sale of real estate owned by the borrower or third parties; or
  • mortgage of real estate owned by the borrower or third parties.

CMN Resolution No. 5,197 will enter into force on July 01, 2025. Although the resolution has yet to enter into force, it will not change the loan transactions that have already been implemented and whose structures are based on the aforementioned Legal Framework for Guarantees. Therefore, the new resolution represents another step towards ensuring that these new rules are used even more widely and effectively.

Demarest’s Financial Market and Real Estate teams are monitoring developments in this area and remain available to clarify any questions that may be necessary.