The mentioned law is the consequence of the conversion of Provisional Measure n° 656, dated 7 October 2014 ("MP 656"), which also definitely provides the regulation of the credit note (título de crédito) named Guarantee Real Estate Bill.
Financial Institutions and the Boundary zone
Law No. 6,634, dated 2 May 1979, which is still effective, prevents the entering into "transactions related to rural real estates which involves the obtainment, by a foreign party, of the ownership, possession or any rights over real estates" in the boundary zone (defined as "the internal zone with a width of 150 kilometers, parallel to the land division line of the national territory").
With the enactment of Law 13,097, it was permitted: (i) the constitution of real estate guarantees, in favor of foreign financial institutions, over real estates located on the boundary zone; (ii) the receipt by foreign financial institutions, in the event of a liquidation of a loan with difficult or uncertain conclusion, of real estates located in the boundary zone, considering that this financial institution shall sell the real estate within 1 (one) year, extendable for two equal periods, according to the Brazilian Central Bank criteria, as counted from the receipt in the event of liquidation of such real estate.
Guaranteed Real Estate Bill
Law 13,097, which resulted from the conversion of MP 656, also confirmed the existence of the Guaranteed Real Estate Bill ("LIG"), created as an alternative of fund raising by the financial institutions and an alternative incentive for the expansion of the real estate credit.
LIG is a credit note (título de crédito) payable to the order (nominativo), transferable and free floated, secured by an Asset Portfolio (as defined below) and subject to a fiduciary regime, as provided in article 63 and subsequent articles of Law 13,097.
The "asset portfolio" may be constituted by the following assets: (i) real estate credits; (ii) national treasury bonds; (iii) derivative instruments entered into with a guarantor intervening third party; and (iv) other assets that may be authorized by the National Monetary Council to compose the asset portfolio ("Asset Portfolio").
Law 13,097 added to the characteristics of LIG set forth in MP 656, the requirement that 50% (fifty percent) of the total amount of the Asset Portfolio shall be composed by real estate credits.
According to article 68 of Law 13,097, the financial institution issuing the LIG shall establish a fiduciary regime over the Asset Portfolio, in a way that the assets composing the Asset Portfolio will be considered as separated assets intended to secure only the obligations of LIG's creditors. Also, article 80 provides that a trustee shall represent the totality of the LIG's creditors.
Unlike other funding instruments of the real estate area, LIG has a "double security", where the cash flow from the affected assets in the Asset Portfolio as well as all other assets from the issuing credit institution are jointly responsible for the obligations of the LIG. In this regard, in accordance with article 88 of Law 13,097, in case of insufficiency of the Asset Portfolio for full settlement of the rights of investors of LIG, the remaining credit can be enrolled in the others unpaid obligations with the same conditions of the unsecured creditors of the issuer.
It is also relevant to remark the tax impacts of LIG. Article 90 states that are exempted from income tax the income and capital gains due to LIG when the beneficiary is: (i) an individual resident in Brazil, or (ii) resident or domiciled abroad, except in countries considered that are considered tax heaven as per Law 9,340, dated as of 27 December 1996, whose investments in the country follow the rules and conditions established by the National Monetary Council.
Law 13,097 is effective in relation to item 1 (Foreign Financial Institution and Boundary Zone) and item 2 (Guarantee Real Estate Bill) on 20 January 2015.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.