BUYING REAL ESTATE IN ECUADOR (June 2016)
BUYING IN A NEW REAL ESTATE PROJECT IN ECUADOR
At EcuaAssist we recommend that the person interested in purchasing a property in a project that is still under construction follow these general rules:
1.- If the Construction Company is complying with all its obligations with the “Superintentencia de Compañías” (Ecuadorian organization that is in charge of the Companies’ regulations);
2.- Visit other already finished projects executed by the Company and get testimonials from previous clients;
3.- Visit the piece of land where the building will be located;
4.- Visit the construction project periodically to verify the advancements;
There is an organization where you can go, if you feel your consumer rights are being violated.
The process of purchasing a new real estate project has three well defined phases:
First, Payment of the real state property reservation;
Second, signing of the promissory deed contract;
Third, signing of the Closing contract deed. This is done once the property is ready to be delivered to the buyer.
PAYMENT OF THE REAL ESTATE PROPERTY RESERVATION
This is the first step. When you have decided in which project and property you will invest your money, the project’s promoter (Construction Company) will ask you to make a reservation payment. This reservation will correspond to a percentage of the total value of the property, even though this is not established by law, the amount is usually less than 10% of the price of the property. Once this payment is made, the unit will be put out of the market and it will be registered under your name in the record books of the project’s promoter.
The promssory buyer must demand the Project’s promoter or the trust Company handling it, to deliver a receipt that shows:
1.- Date and place of the payment;
2.- Amount delivered;
3.- The exact location of the reserved property;
4.- Total price of the property:
5.- The balance remaining;
6.- The agreed form of payment; and
7.- Name and signature of the person receiving the money.
If by any reason you decide you don’t want to buy the property anymore you can get back the partial or total amount of the money, depending on the date you notify of the withdrawal. If it happens in the same week you made the payment, is probable you can recover your money back, but if more time has passed and the seller incurred in administrative or legal expenses, these may be deducted and you get back the rest.
In case you still want to buy the property, the next step would be to sign the property’s promise of purchase contract deed.
PROMISSORY DEED CONTRACT
Legally, there is not a fixed amount of time between the reservation payment and the signing of the promissory deed contract; what is advisable is to sign it in the next seven days after the delivering all the documentation.
The prominent buyer and prominent Seller must be there for the signing. If both are natural persons they should bring copies of their ID cards and voting certificates; if any of them is a legal person, they should add copies of the appointment of the legal representative, the Company’s RUC and a copy of the shareholders list authorizing the subscription of the promise of purchase.
Additionally, the prominent Seller must present:
1.- The deed of the lot where the project is being built.
2.- Title search held by the Register of Property.
3.- The municipal document that states that in that lot is possible to build the property promised to sell.
4.- Copy of the annual property tax payment.
Without exclusion, any additional document that is considered necessary must be attached to the promise of purchase sale.
It is imperative that once the promissory deed has been subscribed by the parties, it must be elevated to a public deed, signed before an Ecuadorian notary, not at the consulate not at an US notary, not before a clerk, it must be signed before a notary in Ecuador; if, it is not, then it will not have any legal value at the time of a dispute.
The promissory deed text must include the full names of the people involved in it, the property’s domain antecedents, the exact determination of the property promised for sale (location, boundaries, measurements and correspondent aliquot in the case that the property is subject to the horizontal property regime), Price and form of payment, balance financing mechanism, delivery deadline, monetary penalties in case of failure to pay when it is due or waiver of purchase, schedule of the building site, fines for lack of timely delivery of the finished property, construction rules and regulations.
It is really important that in the text is established the monetary penalty that will be applied in the case of waiver of purchase on the part of the prominent buyer. Even though there is not a percentage established by law, is common practice that the fine does not exceed the 30% of the total of the delivered values at the time of the waiver’s notification.
Regarding the form of payment, the common method is that as the project is being built the prominent buyer adds money periodically, usually in a monthly basis, to cover the percentage that will not be financed by the mortgage credit. This percentage is about 30% or 40% of the property’s value, and to make it legal, you will have to sign a promissory note with successive expiration dates, detailing the dates and amounts paid individually. These monthly payments are not subject to the IVA tax.
If the prominent buyer does not makes the payment at the date agreed, the maximum interest rate established by law that can by charged is 4% calculated over the specific value of that quota. However, if the delays are recurrent and continuous, the promise of purchase could be compromised. In this case, the process must be done just like it was written in the text of the contract, and the prominent seller must return the balance of the received money, once the penalty had been extracted plus administrative or legal expenses that may have incurred.
Furthermore, if there are extreme delays in the advance of the construction according to the established chronogram, it could also be a cause of termination of the contract. This time is not easy to determine, especially at the finishing stage, because its execution depends on the several suppliers involved and it could be out of the control of the prominent seller. This is why is really important that all possible contingencies are detailed in the promise’s text, so there are no misunderstandings between the parties, it is really important to be clear that the delivery of the property must be done provided that the house is habitable and has access to all basic services: potable water, sewage system and electricity, the internet connection is not considered as a basic service, but it would be ideal to get stipulated as a part of the promise of purchase contract that the internet access will be guaranteed.
It is important to highlight that if presales are made in a master plan or digital renderings, and the work has not started in the stipulated time, this delay could be taken as a fault from the prominent seller, and, the prominent buyer can reclaim the money already paid. As a matter of fact, many real estate trust funds consider that if the Summit of commercial balance has not been reached in a certain amount of time, they will return the money to all the prominent buyers.
While the promissory deed contract must be signed by the final beneficiary of the purchase, with some frequency it occurs that the prominent buyer has the desire or need to make a transfer of rights to another person. This is possible, however it will cause a new beneficiary analysis involving various aspects, including determining the legality of the funds that will be paid for the value of the property.
It is important to recommend a deep reflection of all that is deemed important to leave in writing to avoid future mishaps. Assuming that the entire process has worked as well as it is usually carried out, the final step would be the signing of the closing contract deed, through which the transfer of ownership of the property will be executed.
CLOSING CONTRACT DEED
To the signing of the purchase contract deed must appear the same individuals that appeared at the signing of the promissory contract deed, or the legitimate assignees of the rights stipulated in the promise. They must carry the documents that were needed at the time of the first signing and also, the seller shall submit the copy of the horizontal property declaration in the case is needed, proof of payment of property taxes, the certificate of municipal valuation of the property, an updated certificate from the Registry of Property and the applicable taxes and fees certificates of payment.
In this act, the prominent buyer should pay the rest of the balance remaining, either by them or mortgage funds, so the property can be finally delivered.
To finish the process and being the legitimate ownership of the property, the last step would be to elevate the document to a public deed, register it before the Registry of Property and obtain A TITLE SEARCH at the respective municipality.
It is important to keep in mind that the project’s promoter should deliver the property as long as the TRUST Is well formed, in order to be able to control the guarantees the promoter needs to deliver to the owners. I have witnessed the use of poor quality materials, it is advisable that the project’s promoter offers at least a one year warranty on the exclusive and communal property.
For us at EcuaAssist is essential to keep our clients updated on their Real Estate closing process, with us you will receive a weekly update on the status your new purchase in Ecuador.
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The EcuaAssist Team