Real Estate

Due diligence consists of a thorough study of the property to be purchased and its seller, in order to determine if there are no potential risks or contingencies that could affect the buyer’s interest in the purchase.

Due diligence includes a review of the status of the property before the National Registry to rule out any liens, encumbrances, annotations, affectations or third-party rights. It is also important to conduct a thorough review of the property’s status at the Municipality, to verify if its declared value is updated and if it is current with the payment of taxes and municipal charges. If the property is in a condominium, it is also relevant to verify if it has pending condominium fees.

If, instead of acquiring the property directly, the buyer wants to purchase the capital stock of the company that owns the property, then the due diligence must include a detailed study of this company’s information before public databases and a thorough review of its corporate books.

It is a declaration of the updated value of a property. The declared value, once approved by the Municipality, will serve as the basis for the calculation of the real estate tax.

It must be submitted to the Municipality at least every five years.

The Municipality could ex officio and at any time make an appraisal of the property and charge the amount corresponding to the payment of the real estate tax.

An escrow agent is a third party who temporarily retains the any deposited amounts related to the transaction and only disburses them after the conditions agreed upon by the parties have been fulfilled. Escrow agents guarantee that buyers do not lose their investment (their earnest money deposits), because if the seller fails to deliver the property, then the money deposited in the escrow account is returned to the buyer.

Real estate transactions involve different phases: 

- After a brief initial negotiation, the parties sign a "letter of intent", which states their intention of engaging in an eventual sale and purchase agreement.

- Once the parties have resolved to commit to the transaction under certain conditions, they would sign a purchase and sale agreement. 

- Then, the promissory buyer would carry out a due diligence process on the property or the company to be acquired. 

- Finally, if the result of the due diligence is satisfactory, the parties would proceed to sign the closing deed of transfer.

The most common alternatives that sellers may request in order to guarantee payment of the sales price (when payment is not made in cash) are: mortgages and guaranty trusts.

A mortgage lien on a property gives the creditor the right to foreclose (to auction) the mortgaged estate, to collect the owed amount, provided that the debtor has not paid within the agreed term. Foreclosure involves the initiation of a procedure before the judicial authorities, who must approve the auction of the mortgaged property.

In a guaranty trust the buyer (who is the debtor of the sale price) transfers some of their assets or rights (the trust assets) to a third party (the fiduciary), who will oversee their management. At the same time, the buyer has to comply with the agreed payments of the sale price to the seller the creditor). However, if the debtor fails to make a payment within the agreed period, then the fiduciary will be authorized to notify the debtor of the execution (auction) of the trust assets. This type of execution is much faster than mortgage foreclosures, because it does not involve a judicial procedure as a requirement to auction the assets.