�
�
�
�
�
�
�
�
�
Add this page to your favorite Social Bookmarking websites
 |
Negotiating the Landmines
in Panama Contracts
By Bill Schroff
Panama Referral
As a buyer in Panama you will be confronted with a vast array of properties either planned or in construction, but they all have one thing in common--the contract process, which contains an assortment of challenges and pitfalls.
Once a buyer is ready to place a deposit, the seller will prepare a preliminary contract, usually called a Contrato de Reservacion Promesa de Compra-Venta, which basically means the buyer is agreeing to buy and the seller is agreeing to sell. (Note: for purposes of this article the real estate contracts mentioned are typically for the purchase of new property during or before construction, usually condominiums.)
These contracts are always in Spanish so unless you are fluent you will need a translated version. Never, never sign any contract that you don’t fully understand! I recommend taking the unsigned contract to an experienced and professional real estate attorney--usually they will do the translation for you.
|
"It is essential to point out where an unsuspecting or poorly represented buyer can incur major problems." |
Some months or more later you will be presented with the final contract, called a Contrato de Promesa de Compra-Venta--the contract of promise to buy and the seller to sell. This is supposed to be identical to the original contract to contract. Confused? Actually it is simple, but again you will need to have your attorney translate and review before signing.
Without getting into all the terms of these contracts, it is essential to point out where an unsuspecting or poorly represented buyer can incur major problems. For example, it’s critical for every buyer to be aware of the payment schedule required by the contract. Sometimes it calls for the initial payment to be within a set number of days from the inception of construction. Unfortunately if you are not physically able to see the property you will not know when this occurs and could be in default before you even get started.
Of course, another pitfall is what actually constitutes the start of construction. Is it the clearing of the property? The movement of equipment onto the land? Laying of the foundations? The simple solution is to have a clause requiring the seller to notify you of the date.
Buyers should also know that the actual purchase price is rarely the purchase price originally quoted. A clause in most contracts allows the builder to add a percentage to reflect increased costs of construction. These typically range from 5 percent to as high as 8 percent. You will be notified of the exact amount when you are told the amount needed for closing. You are bound to this new price. I know a few people who have asked for proof of the increased costs and were able to negotiate a slight reduction in this “add on”; but not many.
Another potential minefield clause is the requirement for the buyer to obtain what amounts to a loan commitment from a Panamanian bank, known as a Carta de Promisa. This must be irrevocable and for the amount not covered by the buyer’s periodic payments.
The catch here is when you have to produce this letter. Sometimes it is within a few months of signing the contract to contract, other times it might be a set number of days after signing the final contract. And sometimes it is set for yet another nebulous date, such as so many days before the building receives its Certificate of Occupancy--a date that no one can determine accurately.
Many unscrupulous developers have used this clause to void contracts. Why would they do that? Well, prior to this year real estate in Panama, as elsewhere, experienced a dramatic increases in price. So if the apartment you are buying for $175,000 could now be sold for $250,000 the developer has an incentive to prove you broke the contract, keep your payments and resell the apartment.
One final caveat: Carefully look for discrepancies between paragraphs. Under Panamanian law the courts will enforce the last time the disputed item was mentioned. So, if Paragraph 4 says one thing and Paragraph 9 says something else, Paragraph 9 will prevail. It is yet one more way for some unscrupulous developers to deceive buyers into defaulting on their contract.
Generally speaking these real estate contracts are written entirely to favor the seller and unfortunately most times that is the way to courts will interpret them.
Bill Schroff is a retired investment banker and Realtor currently residing in Panama and Denver. He currently operates Panama Referral, a company which assists people in investing in or relocating to Panama. Website www.panamareferral.com.
For more information on buying in Panama, check out the IPJ buying guide here.
( 3 Votes )
Add this page to your favorite Social Bookmarking websites
