A recent ruling from Brazil’s Superior Court of Justice (STJ) signaled an important alert for the credit market: a stable union or the birth of a child formed after a mortgage has been signed can still protect the property as a family home, as long as the property is effectively used as the family’s residence.
The case involved a mortgage granted when the borrower was still single, but the property later became the home to his partner and child.
The STJ overturned the initial decisions and highlighted issues that creditors should monitor closely:
1. A family formed after the mortgage may still protect the property: The STJ emphasized that Brazil’s homestead law aims to protect the home, regardless of when the family is formed. If the property becomes the family residence, it may gain homestead protection even if the union or the child’s birth occurred after the mortgage was granted. In practice, this means that changes in the borrower’s personal life can affect the enforceability of real estate collateral.
2. Supervening family circumstances can be relevant, even after the lien has been established: The Court reinforced the fact that the law protects real residential use and not just the situation that existed at the time the loan was taken out. As family structures evolve, this protection may apply even if the family forms after the debt is incurred or the lien is registered. This calls for caution in the market when using residential properties owned by individuals as collateral, especially when the borrower is single at the time of contracting.
3. The case will return to the lower court to examine whether the loan benefited the family: Even while recognizing the property as a family home, the STJ identified an open question concerning whether the loan proceeds were used, in any way, to benefit the family itself. If so, the property may still be subject to foreclosure. As this issue requires a factual review, the STJ sent the case back to the state court for this analysis to be completed.
This decision emphasizes the significant role that homestead protection plays in credit enforcement involving residential properties. For creditors, the ruling highlights the importance of monitoring the borrower’s family situation over time and documenting how the loan proceeds are used wherever possible.
