Real Estate Due Diligence: How to Protect Your Investment & Avoid Legal Risks When Buying Property in Brazil

Real Estate Due Diligence: Ensuring a Safe and Compliant Transaction

Real estate due diligence is a fundamental process for ensuring the security and compliance of a real estate transaction, mitigating risks and protecting the buyer from potential future issues. n Brazil, where real estate regulations are complex, it is essential that this process be carried out properly to avoid unnecessary risks. Read on to discover how this procedure can be crucial for securing a successful investment.

One of the largest investments in anyone’s life is acquiring real property, irrespective of timing or price. For this reason, it is essential that the buyer ensures the transaction complies with the law and is free from encumbrances. Real estate due diligence is the process that guarantees this security, preventing future problems.

What is Real Estate Due Diligence? 

“Real estate due diligence” consists of a thorough investigation of both the property and the seller, with the objective of verifying whether the transaction involves risks for the buyer. In this light, all documentation relating to the asset is examined to verify the regularity of the property’s legal status, as well as to identify possible financial liabilities, legal disputes or other irregularities that might compromise the acquisition. We like to say to our clients that our service ensures the property is not encumbered — that is, that it will not bring any unpleasant surprises in the future.

What Types of Problems Might Arise in the Purchase of a Property? 

For many, buying real property may seem a straightforward process — until problems surface that were not uncovered during negotiation. A purchase without proper prior verification may result in a range of complications, such as:

• Financial encumbrances and debts: the property may be subject to tax liabilities, condominium fees or other charges that will fall on the new owner, since in Brazil, the liability attaches to the property.
• Possession disputes: the property may be involved in legal disputes over title, inheritance or unresolved leases.
• Seller’s debts: there are situations in which the sale should not have occurred because the seller is acting unlawfully to the detriment of third parties — and the problem may fall on the purchaser who did not verify the regularity of the sale.
• Problems with property regularisation: the property may not be properly registered with public authorities such as the municipal government or land registry, which may hamper financing or the transfer of title.

These are the principal issues that may be addressed through the due diligence procedure. Furthermore, there are more specific situations that may also apply depending on the case:

• Structural and construction issues: the property may have been built without the required permits or fail to comply with technical standards.
• Environmental or zoning restrictions: the property may be located in areas subject to environmental constraints, which may impede building works or changes of use.

Practical Example of Real Estate Due Diligence 

This scenario, although troubling, could have been avoided by carrying out a thorough prior investigation into the legal status of the property. Real estate due diligence would have identified the risk of attachment (seizure) and other pending court actions, providing the client with the opportunity to make a more informed and secure decision before completing the purchase.

Imagine the following situation: you purchase your dream vacation property, relying on the seller’s good faith and without carrying out real estate due diligence. Some time after the acquisition, a bailiff appears at your door notifying you that the property is being attached due to a labour debt incurred before your purchase. You then face the possibility of losing your property and suffering significant financial losses.

What Professional Should You Seek for Real Estate Due Diligence? 

To conduct adequate real estate due diligence, it is essential to rely on an attorney specialised in real estate law. This professional will play a crucial role in verifying the legal regularity of the property, ensuring that all legal aspects are in compliance with applicable legislation. The specialised attorney is responsible for reviewing the property’s documentation — such as the deed, land registry entries and negative debt certificates — as well as checking for judicial encumbrances, such as attachments or enforcement proceedings against the seller. They also ensure that the seller has full capacity to transfer ownership, thereby avoiding possible future litigation. Having a trusted attorney is invaluable.

Checklist of Key Aspects to Pay Attention To: 

• Property Documentation: review the deed and registration of the property in the land registry.
• Legal Encumbrances: obtain negative debt certificates (municipal tax, fees, taxes) and verify lawsuits involving the property.
• Seller’s Status: confirm the seller’s identity and ensure they have the right to dispose of the property.
• Possession Disputes: verify the existence of any dispute over the property’s possession.

This checklist summarises only some of the essential steps to ensure a safe purchase, free of juridical or financial surprises — and it is certain that the specialised professional will be able to analyse them in detail.

Conclusion

Real estate due diligence is a fundamental step to ensure that your property purchase is safe and risk-free. Furthermore, it is an accessible procedure in terms of cost when compared to the value of the transaction. By conducting a detailed investigation, you avoid legal and financial problems, protecting your investment. The process may seem complex, but having a specialised real estate attorney makes everything more manageable. Make sure you are well informed and that you carry out all the necessary steps to buy safely. Remember: a well-made investment today can mitigate future issues.

In a market as complex as Brazil’s, professional legal guidance can make all the difference between a secure investment and an unexpected setback. This article was written by Attorney Marta Mendes, a real estate and corporate law specialist and co-founder of Botti | Mendes Advogados, a boutique law firm dedicated to strategic asset protection and real estate transactions in Brazil.

To learn more about how proper real estate due diligence can safeguard your property investments, visit www.bottimendes.com.br.