Interministerial ordinance creates procedures for including seized real estate in agrarian reform policy

On November 13, 2024, Interministerial Ordinance AGU/MDA/MF No. 4, of November 08, 2024, was published, which seeks to use seizure as an instrument of expropriation for agrarian reform purposes in disputes in which the Federal Government is the creditor.

In short, the ordinance allows for a change in the Federal Government’s approach towards the seizure of rural real estate, enabling the possibility of adjudicating and allocating such real estate to agrarian reform projects instead of auctioning them off to settle the credit in the traditional course of tax executions.

From one perspective, the interministerial ordinance provides for data interconnection among the Office of the Attorney General, the Office of the General Counsel for the Federal Treasury, the Brazilian Office of the Attorney General, and the Office of the Attorney General for the Central Bank of Brazil. From another perspective, the Brazilian Institute for Colonization and Agrarian Reform (“INCRA”) provides for the identification of buildings with a vocation for the agrarian reform.

The ordinance reveals two lines of action, as follows:

• As for the first one, regarding ongoing seizure-related processes, INCRA will receive half-yearly data about the real estate affected by a constriction for further assessment.
• Concerning the second line of action, the Office of the Attorney General, the Office of the General Counsel for the Federal Treasury, the Brazilian Office of the Attorney General, and the Office of the Attorney General for the Central Bank of Brazil will inform INCRA and the Ministry of Agrarian Development and Family Farming on the debtors currently listed in the active debt register so that they receive information about any rural real estate integrating these debtors’ assets through data cross-referencing.

The initiative seeks to introduce a simplified form of expropriation for agrarian reform purposes, ensuring an effective use of resources derived from forced sale for settling debts. Although the reasons underpinning the measure are beneficial, a few concerns do exist.

One of them, of a political character, draws special attention: The Federal Government is already the largest owner of rural real estate in Brazil – the vast majority of which in no or low use. This demonstrates the counterproductive paradox of this ordinance in comparison with the actual situation, as there are real estate properties whose ownership status has been resolved by the Federal Government itself and which could be used for the intended purpose. Even if the real estate is destined for rural settlings, Law No. 8,629/1993 (“Agrarian Reform Law”) does not necessarily require that the real estate be transferred to settlers. This means that the current legal mechanisms already allow land to be destined for agrarian reform without requiring the Federal Government’s assets to be made available.

Within this context, the actual risk is that rural real estate properties can be increasingly held under the Federal Government’s ownership, whose productive use – if any – tends to be slow and inefficient.

The second consideration – within legal parameters – seems more rigid. Although the analysis of the appropriate use of the real estate in question is to be carried out within the scope of an administrative proceeding, Interministerial Ordinance AGU/MDA/MF No. 4 did not provide for the need for the real estate entailed to comply with the land underutilization criteria that are intrinsic to expropriation for agrarian reform purposes. Given that adjudication is a property interest available to any claimant, in principle, its exercise would be free and need not be subject to any legal criteria.

In this respect, we are concerned about the safety of this measure. It is worth considering that if the usual course of a tax execution leads to selling the debtor’s assets in order to obtain the amount owed to the Federal Government, in constitutional terms, such a deviation could be questioned. In addition, even in the course of the execution, public auctions would lead to disputes over the asset as well as the most valuable financial result for the Federal Government itself and notably for the defendant, whose surplus value from any forced sale must be preserved. If the ordinance prevents the enforcement of these mechanisms, depending on the event, this can be another element for questioning its enforcement. 

Article 876 of the Code of Civil Procedure establishes that adjudications must be made for no less than the appraised value of the seized asset. However, if seizure applies to productive rural real estate, the crop value can exceed that of the bare land or, even if it doesn’t, represent an asset of substantial value. In cases in which the land has been adjudicated, in principle, the debtor would still have the right to the harvest. But how will access to real estate be secured? How will activity demobilization – following exploration – take place? Evidently, this problem is not specific to the Federal Government, and it would occur in any case of forced sale of productive real estate. However, difficulties tend to be intensified whenever the interlocutor is a legal entity under public law.

This risk has always existed, as adjudication has always been a prerogative for the Federal Government and any judgment creditor. However, it tends to be used sparingly considering creditors’ typical preference for credit settlement in cash. With such a change of direction, this matter can become persecutory and  casuistic, which can interfere with the measure’s rationale.

Finally, considering the example of the seized productive real estate property, it is necessary to take into account that farms can have their own complexities and, as a consequence, demand technology that is not always accessible to settlers. This situation can lead to a significant loss, with an impact that goes beyond the scope of the real estate sector, encompassing environmental and social issues that can defuse the intended benefit.

Demarest’s Real Estate team is monitoring both the developments in practical terms and the limits that the Judiciary Branch can impose on different occasions. We remain available to provide any further clarifications.