The abusive use of balloon installments in real estate financing

According to the usage and customs of the real estate market, a “balloon installment” (parcela balão) is an interim installment, inserted into a purchase and sale agreement, relating to the price paid by the purchaser of a future unit of a real estate development under the incorporação (development) regime — commonly known as buying property off-plan.

It is a negotiating practice designed to allow the purchaser to pay lower monthly installments, offsetting that reduction with separate (“interim”) installments, usually in higher amounts.

These interim installments may be quarterly, semi-annual, annual, or follow any other interval agreed by the parties as suitable for the transaction.

The tool is suited, for example, to purchasers who have both fixed and variable income, where the fixed income cannot support larger installments but the variable income can offset this through periodic payments, thereby matching the payment structure of the future unit to the purchaser's income flow.

Up to this point, there is nothing unusual or unlawful.

However, at a certain point, interim (“balloon”) installments began to be used by developers as a means of unlawfully evading the financial limitations that the law imposes on real estate financing.

Let us explain. Under the legal rules on monetary adjustment of obligations in general that are paid in installments (products, vehicles, electronics, etc.), art. 2, §1, of Law No. 10,192/2001 prohibits and declares null and void any stipulation of adjustment of financed installments (deferred payments) in contracts fully paid within a period of one year:

Art. 2 The stipulation of monetary adjustment or of indexation by general or sectoral price indices, or by indices reflecting the variation of production costs or inputs used, is allowed in contracts with a term equal to or greater than one year.

§ 1 Any stipulation of adjustment or monetary correction with a periodicity of less than one year is null and void.

For this reason, for example, car dealerships that offer direct installment plans, without the intermediation of financial institutions, are required to offer installment options of up to ten or eleven interest-free payments. This is not a promotion or an act of generosity, but mere compliance with the law.

As regards real estate financing contracts, there is special legislation. Law No. 10,931/2004, in addressing various legal issues with a direct impact on the national economy, authorizes in its art. 46 the monthly adjustment of installments only for financing arrangements with a term exceeding 36 (thirty-six) months, for the benefit of the borrower, with the aim of making credit more accessible and real estate acquisition less costly.

The same law, in article 47, declares null and void, as a matter of law, any device that, directly or indirectly, seeks to apply monetary adjustment over a period shorter than 36 (thirty-six) months:

Art. 46. In contracts for the sale of real estate, real estate financing in general and real estate leasing, as well as in the securities originated from them, with a minimum term of thirty-six months, the stipulation of an adjustment clause, with monthly periodicity, by sectoral or general price indices or by the basic remuneration index of savings deposits, is allowed.

Art. 47. Any devices that, directly or indirectly, result in effects equivalent to reducing the minimum term referred to in the caput of art. 46 are null and void.

In order to “circumvent” that prohibition, some developers, as well as other agents in the real estate production chain, began to simulate the existence of an interim installment (“balloon installment”) scheduled for the end of the transaction, notably after the thirty-sixth month of the contract, in a token amount, merely to make it appear that the contract has a term exceeding 36 (thirty-six) months, so as to enable the monthly monetary adjustment of all the agreed installments.

In such cases, even if the purchasers have the funds needed to pay off that remaining token interim installment, the developer and its agents or representatives resort to a wide range of arguments to justify that final installment — for example, that it is a standard clause, that it serves some tax purpose, or even that it will not be charged at all if all the preceding installments are duly paid.

Here, the mere existence of that installment, enabling the monthly adjustment of all the installments of the contract from the outset, serves the developer's interest in artificially increasing other installments of the contract, which is why there is, in fact, no interest in the economic value of that specific installment scheduled for the end of the contract.

By way of illustration, see an example of unlawful installment structuring, taken from an actual case:

The nominal value of the unit in this actual case, as provided in the contract, was R$ 500.664,97 (five hundred thousand, six hundred sixty-four reais and ninety-seven centavos).

Considering that the financing, comprising the purchaser's own funds and funds contributed by an external financing agent, was paid off in three installments (installments “A”, “B” and “C”) between January and March 2024, no adjustment whatsoever of the fixed nominal installments could have been applied, in accordance with articles 46 and 47 of Law No. 10,931/2004.

Instead, in this case, a symbolic, token installment was included with a due date of February 28, 2027, precisely in the thirty-seventh month of the contract, turning it into a real estate financing arrangement with a term exceeding 36 (thirty-six) months and thereby allowing the monthly adjustment of the installments.

As a result of this practice, the unit was paid off for the amount of R$ 504.001,62 (five hundred four thousand and one reais and sixty-two centavos), owing to the monthly adjustment of installments “B” and “C”, which, as a rule, could not have been adjusted.

If the intervals between interim installments “B” and “C” illustrated above had been longer, the increase in the amount would have been exponentially greater.

The insertion of such a clause for simulation purposes, with a view to circumventing the legal prohibition to the detriment of consumer rights, has been examined countless times by the Brazilian courts, which have found abusive the “(...) 36th installment in a negligible amount created with the clear purpose of artificially extending the installment plan and applying the monthly adjustment. Interpretation of arts. 45 and 46 of Law 10,931/04” In that case, the balloon installment used by the developer Gafisa was found abusive, and the company was ordered to refund the amounts unduly charged to the purchaser.

In another precedent, the São Paulo Court of Appeals held that the legal prohibition on monthly adjustment in such cases does not extend to annual adjustment.

Finally, once the unlawful practice and the absolute nullity are established, the consequence is the double refund of the amounts artificially added to the price of the unit, pursuant to art. 42, sole paragraph, of the Consumer Protection Code, in line with recent case law of the São Paulo Court of Appeals.

The original version was published on the Consultor Jurídico portal (CONJUR): https://www.conjur.com.br/2025-abr-22/o-uso-abusivo-da-parcela-balao-em-financiamentos-imobiliarios/