When a developer declares bankruptcy with construction ongoing, what happens to the money already paid by buyers?
The answer depends on a single thing: whether the property has Fiduciary Fund Protection (Patrimônio de Afetação) registered.
With protection: buyers get priority. Work has a chance to continue, or money is refunded with preference. Without protection: the money enters the general bankruptcy estate, and the line is long.
This guide explains what Fiduciary Fund Protection is, how it works in practice, and—most important—how you verify it before signing.
The problem that Fiduciary Fund Protection solves
Before 2004, there was no legal mechanism to separate a development’s assets from a developer’s general assets. Money that buyers paid during construction went into the company’s cash—and could be used to pay debts on other projects, administrative costs, or any other obligation of the developer.
If the company went bankrupt, construction stopped. Buyers entered the line of general creditors—behind workers, behind suppliers with security interest, behind banks. Many never recovered what they paid.
Law 10.931/2004 was created to solve this problem. It created the Fiduciary Fund Protection mechanism: a way whereby a specific development’s assets are segregated from the developer’s general assets. Those protected assets cannot be used to pay debts on other projects or general company obligations.
What Fiduciary Fund Protection is in practice
Fiduciary Fund Protection is the formal legal separation between a development’s assets and a developer’s general assets.
When a developer applies for protection on a development, they are declaring at the property registry:
“The land, the construction in progress, the financial resources received from buyers, and all revenue from this development belong exclusively to this development. They cannot be used to pay any other company debt.”
This commitment is recorded in the property registration—it’s registered publicly, anyone can verify it.
What goes inside the protected assets:
– The land where construction will take place
– Improvements and construction performed
– Buyers’ credit rights (what will still be paid)
– Financial resources received to date
What stays outside:
– Any other property of the developer
– Any other debt of the developer
The two asset pools don’t interact. Bankruptcy of one doesn’t contaminate the other.
What happens if the developer goes bankrupt—with and without protection
With Fiduciary Fund Protection
If the developer goes bankrupt with a protected development under construction, a specific process opens for that project. Buyers get three options:
- Continue construction themselves: buyers organize as a committee of representatives, take over project management, and finish construction with available resources.
- Hire a new contractor: use resources from the protected assets to hire another company to complete the work.
- Liquidate the protected assets: sell the development’s assets and distribute resources among buyers, proportional to what each paid.
In any scenario, buyers get priority over the development’s resources. General creditors of the bankrupt developer cannot access the protected assets.
Without Fiduciary Fund Protection
The development enters the bankruptcy estate together with all other assets of the developer. Buyers are unsecured creditors—no security interest, no preference. They line up behind workers, suppliers with security, banks with mortgage or security assignment. In practice, in developer bankruptcies, unsecured creditors often receive pennies on the dollar or nothing at all.
How Fiduciary Fund Protection relates to SPEs
This point causes frequent confusion in the market.
SPE (Special Purpose Entity) and Fiduciary Fund Protection are different instruments and are not equivalent.
SPE is a legal entity created for one specific purpose. In theory, because it’s a separate company, its assets don’t mix with the administrator’s. In practice, the separation depends on how the SPE was structured and how resources were managed.
Fiduciary Fund Protection is a specific legal protection, recorded at the property registry, that clearly establishes who are the privileged creditors and what the procedure is in case of bankruptcy.
A conventional development can have Fiduciary Fund Protection—and it’s the most robust protection available. An SPE doesn’t have Fiduciary Fund Protection in the sense of Law 10.931/2004, because the law was built for developments, not corporate structures. Moreover, in an SPE the buyer is a partner, not a creditor—and the logic of privileged creditor protection doesn’t apply.
When someone says “the SPE already protects because assets are separated,” they’re confusing the two instruments. An SPE’s legal asset separation doesn’t equal Fiduciary Fund Protection.
How to verify if a development has Fiduciary Fund Protection
There are three ways to verify:
1. Ask for the Development Registration number
Development Registration (RI) is the document recorded at the Property Registry that formalizes the development. If the development has Fiduciary Fund Protection, it will be recorded in the property registration, linked to the RI.
Ask the agent or developer:
– The RI number
– The property registry office where it’s recorded
– The date the Fiduciary Fund Protection was registered
2. Consult the property registration at the registry office
With the RI number in hand, you can request the property registration certificate at the corresponding registry office. In the registration, look for the entry with the phrase “Fiduciary Fund Protection” or reference to Law 10.931/2004.
This query can be done in person or, in many SC registry offices, via online portal.
3. Check the contract
The purchase contract for a development with Fiduciary Fund Protection should mention the Special Taxation Regime (RET)—developments with protection can opt for RET, with a unified tax rate of 4% on revenue. Mention of RET is an indicator of protection, but doesn’t replace verification in the property registration.
What to verify beyond protection
Fiduciary Fund Protection is the most important protection—but it’s not the only thing to check before buying off-plan. Complete checklist:
- [ ] Development Registration recorded at property registry (number and date)
- [ ] Fiduciary Fund Protection entry recorded in property registration (Law 10.931/2004)
- [ ] Developer’s history: completed projects, deadlines met
- [ ] Construction permit issued
- [ ] Developer’s CNPJ active, no restrictions
- [ ] Product is conventional development (not SPE)
- [ ] Descriptive memorial recorded and detailed
Why few people verify this before buying
Most buyers have never heard of Fiduciary Fund Protection until something goes wrong. The topic rarely appears in sales presentations—it’s not a convenient selling point for those who don’t have it.
When it appears, it’s often mentioned quickly: “we have Fiduciary Fund Protection”—without explaining what that means in practice, what it guarantees, and how to verify.
Regente makes verification of the RI and Fiduciary Fund Protection entry a required step in vetting every launch presented to clients. In 27 years of mediation, we’ve never worked with a developer that didn’t have a development regularly recorded at the property registry.
Frequently Asked Questions
Do all off-plan properties have Fiduciary Fund Protection?
No. Fiduciary Fund Protection is optional—the developer chooses to apply for it or not. Many developments are registered without protection. The obligation to inform the buyer exists, but in practice the topic is not very visible during the sales phase.
Can I demand Fiduciary Fund Protection before buying?
You can and should ask. If the development doesn’t have protection, you can request that the developer apply for it before you sign—especially if you’re buying in an early phase of construction, when the risk is greater.
Does Fiduciary Fund Protection guarantee delivery of the property?
It doesn’t guarantee delivery—it guarantees that, in case of developer bankruptcy, available resources for that work stay protected and are used primarily by buyers. Whether construction continues depends on how much money is in the protected assets and how buyers organize themselves.
Does an SPE have protection equivalent to Fiduciary Fund Protection?
No. An SPE’s asset separation doesn’t legally equal Fiduciary Fund Protection under Law 10.931/2004. In an SPE, the buyer is a partner, not a creditor—and the protections of the Fiduciary Fund Protection law were built for development creditors, not corporate partners.
Before signing, verify the RI
Fiduciary Fund Protection starts with Development Registration. If you’re evaluating a launch in Florianópolis and want to know whether the development has RI recorded and Fiduciary Fund Protection registered—or if you’re facing an SPE structure—speak with an agent from Regente.
In 27 years, every development we’ve mediated had conventional development status with RI recorded. That’s the first filter.
Guide produced by the Regente Imóveis team. Legal information based on Law 10.931/2004 (Fiduciary Fund Protection), Law 4.591/1964 (developments), and Law 11.101/2005 (bankruptcy). This guide is educational in nature—each transaction has specific characteristics that should be evaluated with specialized assistance.
