Volume 5, Number 9, Page 2

The Brazilian Antichresis: Guaranteeing Bank Loans

by Levy & Salomao

To guarantee bank loans, financial institutions set up real guarantees on debtors’ property. If these guarantees have to be collected, the proceeds from the sale of the guaranteeing property, through the courts, are used to pay off the credit. Creditors are usually unable to seize the property presented as guarantee, and must face prolonged difficulties of legal proceedings.

Civil law, however, provides for a modality of real guarantee that can lessen the problem by avoiding judicial procedures. This modality is a real guarantee right called antichresis.

Antichresis is created on real property owned by the debtor. Unlike other types of real backing for guaranteed credits, guaranteeing real property in antichresis is not subject to judicial sale. Instead, possession of the real property is transferred to the creditor, and the creditor may then directly or indirectly seize the property and its respective income to receive the credit due, for example, through rentals.

The agreement may also stipulate that the proceeds be used to pay off the entire debt or only the interest. Besides the antichresis, a mortgage may also be placed on the same real property in the creditor’s favor. In this case, the creditor may opt for judicial sale of the real property and then invest the corresponding proceeds of the sale to pay off the credit.

Antichresis fell into disuse because of existing practical difficulties involved in turning over the properties. This problem can be overcome, however, by returning possession to the debtor through another legal operation, such as a free loan of non-fungible property. In this case, a loan for use can be stipulated to expire only when the debt itself guaranteed by the antichresis expires. If the property is not returned to the creditor when the debt expires, the creditor can quickly and efficiently recover possession. The credit guaranteed by antichresis is not affected by a debtor’s agreement with creditors (Art. 147 of Decree-Law No. 7.661 of June 21, 1945).

If bankruptcy occurs, property guaranteed through antichresis is included in the bankrupt estate and put up for auction. The creditor of the antichresis has the right to receive the current value of the earnings (calculated at a discount rate of 6% a year) which it could earn in compensation for the debt at a maximum of 15 years (Art. 125 and Par. 1 of Decree-Law No. 7.661/45: Art. 760 of the Civil Code). This amount is paid to the creditor
immediately following payment of the privileged creditors.

Even though antichresis contains specific requirements and procedures that have to be put into operation, it could become an important way for financial institutions to grant credit and be able to receive their guarantees in return when necessary.

The law firm of Levy & Salomão Advogados is located in São Paulo, Brazil. Its practice areas include international banking, contracts, taxes, litigation and corporations.