For purposes of clarity, here is Wikipedia’s definition of the term.
“Due diligence” is a term used for a number of concepts involving either an investigation of a business or person prior to signing a contract, or an act with a certain standard of care. It can be a legal obligation, but the term will more commonly apply to voluntary investigations. A common example of due diligence in various industries is the process through which a potential acquirer evaluates a target company or its assets for acquisition.
This post is about Due diligence in the context of real estate, Philippine-setting, from a buyer’s perspective.
I have come across some people who bought a property eons ago and yet, they still have not gotten hold of their title to the property even if it was already fully paid for.
Honestly, I felt bad when I hear stories like these. People gets duped by agents for a number of reasons:
1. The property they bought already belongs to another owner. So in this case, it’s a double sale.
2. The property bought is involved in a legal case, hence, no title can be produced.
3. The property they bought from a certain developer turns out to be fictitious, meaning, the property does not exists at all.
4. The property that was sold to them turns out to have a fake title on it. In other words, the sale was illegal.
These are but a few of instances that I can cite but I’m sure there are a lot more ways how a buyer can be fooled by unscrupulous individuals.
Here are some suggestions how to avoid being scammed when buying a property:
If you are buying from a Developer, check the Seller’s background and track record.
Find out the developer’s portfolio of projects. What is the company’s reputation? Sometimes, just by reading the papers would give you a glimpse or idea if that company can be trusted. Is the company listed publicly? That is one gauge that the company is big enough to be listed in the stock exchange. Is the company known for integrity and after-sales service commitment? It helps when you know that the owners living their make up the who’s who of the society.
There are less problems when a buyer buys from a seller company because it is expected that the papers are in order. This is not to say that buying from a developer is safe. Hence, the practice of due diligence still apply because if you fall prey to an unscrupulous developer, things could be much worse.
Now this part will focus on the buyer buying a previously owned property from an individual seller. How do you exercise due diligence if you are responding to an ad and you’ve never met this seller before?
1. Check ownership of the property.
Ask for a copy of the title. If photocopy, you may proceed to the Registry of Deeds where a duplicate copy of the title of the property is kept. Request for a certified true copy of the Title. Check out for discrepancies in the title. Check out the signatures, the title no., and if there are provisions in the title that says that the title has a pending case or has been mortgaged with the bank. If there is a case, usually called a “lis pendens”, then find out why the provision is still there and has not been cleared yet. If it’s mortgaged with the bank, go to the bank where the property was mortgaged and request for documents to establish ownership. Check how many names are there in the title and if all are presently living. The one that is not available should be represented by an attorney-in-fact, by way of a Special Power of Attorney. Review the SPA if the authority vested on the attorney-in-fact covers all phases in the transaction ie., signing documents, receiving payment, etc. There are problems if one of the sellers is deceased already. Ask for a copy of the death certificate for evidence. This burden is on the seller. They should fix the title first before selling it. The seller should hire a lawyer to work on this.
Request for identification cards of the Seller (preferably govt issued IDs), with signature on it for verification purposes. Probe why the seller is selling the property. It wouldn’t hurt to ask. Get the contact information of the seller. You might want to do a credit investigation subtly. But it’s up to you how you will go about it.
2. Request for the basic legal documents on the property.
Request a location plan from the Assessor’s office. Based on the title, plot the technical description to see if the outcome would match what is in the location plan. Ask for the vicinity map also if any to establish location of the property.
Request for a copy of the Tax Declaration. Better yet, ask for a certified true copy from the Assessor’s office to validate the copy that was given to you. The name on the title should match with the name on the Tax Declaration. Otherwise, please have the seller do something about the Tax Declaration first. One reason why it has not been transferred to the seller’s name is negligence.
3. Conduct site visit to the property.
Make an ocular inspection of the property. Verify if the property description matches with the actual site. Observe the neighborhood. If it’s a vacant lot, check if there’s no informal settler squatting on the property. If there’s an improvement, check if it’s vacant, has a caretaker or if there’s an illegal occupant. If necessary, you can ask a surveyor to plot the property and compare it with the technical description of the property. This is usually found in the title.
4. Evaluate the price.
If your reason for buying does not have an emotional attachment to it, then you be objective and go around and ask for comparable prices of done deals similar to the property you are buying. Check for the prices of the sold properties within the vicinity. This will more or less give you a gauge if the property is reasonably priced. Find out from agents, brokers. Look at the real estate classified ads for asking prices. Compare the asking price also in the online ads. Do not jump to conclusions right away by agreeing to buy without even applying due diligence. If the price is a bit high, negotiate. The closest and best way to estimate the best price for the property is to contract a real estate appraiser to conduct his own findings and recommend the right pricing for the property.
Given the above suggestions, I believe that the buyer would have peace of mind in buying the said property if he practiced the art of due diligence.