By Obiter07
It is a big step people get to make, buying that land to build on, that house and lot as a family home, or that condominium unit. And it requires a lot of cash, perhaps something that an individual has saved over a long period of time, or even begged for and borrowed. Considering what is at stake, it pays to be prudent before signing on that dotted line to insure that you get what you will be paying for.
Title Check
First things first, check out the title to the property. Try not to rely on the copy shown to you by the seller. One can readily get a certified copy from the Register of Deeds for the place where the property is located. Then read up.
See the technical description of the property. This includes the area and location of the property which should give you an idea if what is purportedly being sold to you is the same property described in the title. If need be, you may get a surveyor to see if the description tallies to what is being sold to you.
Are there annotations? Annotations refer to liens or encumbrances on the property that are reflected on the title itself, usually at the back. If the land is mortgaged, the fact of such mortgage will be written down on the title. If there is some sort of adverse claim, this will also be written down. Please remember that one buys the property subject to all registered encumbrances. If you buy a piece of land which is covered by a mortgage, the lender can still foreclose on your property since you had valid notice of the security interest and bought it anyway. Registration operates as a “notice to the whole world” even if you never really heard or knew about it.
As provided in Section 44 of P.D. 1529, the Property Registration Decree, a “subsequent purchaser of registered land taking a certificate of title for value and in good faith, shall hold the same free from all encumbrances except those noted on said certificate” and certain specified encumbrances which need not be annotated (such as those not required to be so registered, unpaid real estate taxes, a public or private way or irrigation canal, disposition or limitations on use pursuant to agrarian reform.
Under our system, we need not look beyond what is in the title. If there are liens which are not registered, you can buy the property and the holders of these liens would not be able to claim against you.
Ignorance is bliss
You should always be an “innocent purchaser for value” and this does not mean that you are gullible or somehow inexperienced. Being an “innocent purchaser for value” means you have no knowledge of any defects to the seller’s title. You are not innocent if you “neglect to make the necessary inquiries” or “close your eyes to facts which should put a reasonable man on guard” as to any defects in title (Noblejas, Registration of Land Titles and Deeds (1992), p. 209).
Why is this important? Because if you are such an innocent purchaser then your title cannot be invalidated by a third party. Even if the land was acquired and registered through fraud from the owner by a third party, the owner cannot go against you to get his title back, provided that you are an “innocent purchaser for value.” If you relied on your vendor’s title, having no knowledge or any indication of any wrongdoing, then you can get clean title to the property.
For example, Party A is able to register his title to Party B’s land, using a fraudulent transfer document. You purchase the property from Party A based on his clean title, having no knowledge of the fraud. Party B cannot go against you and get his title back. He can file suit against Party A for damages but he can’t touch your title anymore.
Seeing is Believing
If the title seems fine, then you should inspect the land and see it for yourself, to verify if the hype measures up to reality. Ask around, if you go in the summer, try and find out what happens during the rainy season, whether it gets flooded or not. Do they have strong water or will a pump have to be built? What is the neighborhood like? Can you take a walk or sleep without fearing for your life or your possessions? Do you need a car just to get out of the village? Are there schools nearby? Is there a church? You have to know what you need and see if its here.
What are the club facilities, if any? Is the community guarded or not? Is there a deed of restrictions on the property? Can you build what you want or can afford? Some restrictions require that only certain structures costing a certain amount can be built on a lot, specifying even the materials to be used. Are there utilities readily available? How much and who will attend to the connection of the same? Is your possible neighbor sporting tattoos, a famous ballplayer or bold star (or is that a plus factor)? Are karaoke nights the rule and not the exception? If you don’t like the answer to any of these questions, then you have to think twice before going through with the purchase.
Contract Worries
You should then look to the contract and read both the big and fine print, leaving nothing to chance. Are the proper parties represented in the deed of sale? If dealing with a corporation, make sure that the signatory is fully authorized by a supporting board resolution. If dealing with agents, take a look at the special power of attorney to see if it is broad enough to include disposition. Some only allow the agent to administer the property, and not to sell it. Ask for identification. When dealing with couples, please note that both spouses should give their consent to the sale. If the property is still part of an estate that has not yet been settled, it may be better to wait.
When is the full price to be paid? If the vendor will agree, you can try to make a partial payment with full turnover of the title as well as possession of the property to you. Even with an executed deed of sale, the seller can still sell the property again and once an innocent purchaser gets to step in, all is lost for you except for your claim against the seller. Someone who sells something twice won’t be staying around to wait for you to sue him. He’ll be long gone. Get hold of the title once you pay or have it held in escrow by a trustworthy third party.
Who is responsible for the association dues, real property taxes and utilities on the property? When is the responsibility for these things transferred from the seller to the buyer? Take note that delayed payments give rise to penalties and interest. Are all these fully paid and up to date?
What warranties will the vendor give? A warranty on full ownership and that there are no liens, defects or encumbrances on the title is a must. You can even add an express warranty to the effect that there should be no squatters or illegal structures on the property and that the vendor will undertake, at his sole cost, any eviction or demolition if this warranty proves false. Or you may wish to have the ability to rescind the contract and get back what you paid, plus liquidated damages.
Make a sufficient number of original copies for the notary public and for submission to the authorities.
Taxes and Registration
What about the taxes? Will the documentary stamp tax (DST) and capital gains tax be shared or borne by only one party? DST is due within 5 days from the transaction month while the CGT is due 30 days from signing. Note the deadlines as this is is subject to penalties and interest if not paid on time. Who will file the returns?
You may be left holding the bag if the taxes are not paid and no returns are filed in which case you will not be able to make a formal transfer of the property in your name. Among others, the Register of Deeds requires a tax clearance from the Bureau of Internal Revenue (“BIR”) before it will recognize a transfer.
An alternative is to deduct the taxes due from the sale proceeds and pay it yourself since you are the one most interested in completing the transaction. Typically, you can even add a provision in the deed of sale appointing you to act as the duly authorized agent for the vendor with respect to the tax and other filings.
While this is contestable, there have been instances where the BIR required that the tax clearances over the previous sale of a property should be presented by the present buyer/seller. This goes against the principles of land registration but is a real danger nowadays when one should only look to the title to see if it is clean. What if the previous transaction is fraudulent? Will the BIR hold your registration after you have already made full payment? Even the official receipt of the notary public to the deed of sale is being required to be shown by some offices. Some samples of the frustrating oddities of Philippine bureaucracy.
In the end, remember to part with your cash only when you are sure that you are getting the real deal on the property you’re buying, but not before.
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