LEGAL ISSUES

P Purchasing real estate in the Dominican Republic can be a mundane task or stressful event. A buyer must be alert and closely follow all required procedures. Rule number one is never to assume that someone has your best interest at heart. Take that point of view and question everything you do not understand. You can make safe and legal purchases here without fear of losing your property but should be aware of a few basics.

• Shop Around - The first thing to do is really shop around; impulse buying as for any product or service can become a major problem.
• Property Appraisal - Before you enter into a pre-purchase contract, have the property appraised by an approved appraiser. If not an official appraiser, then the accuracy and acceptance come into question and there are very few official appraisers authorized by the government. If you are unsure about whom to hire contact a bank and ask who they use. Lenders only use government-authorized appraisers. You can then obtain a fair and unbiased appraisal on the property. It may cost you a couple of hundred dollars but could save you thousands. Alternatively, the seller may be willing to pay for the appraisal, a point on which you can attempt to negotiate. With an appraisal, you can however, make an informed decision.
• Property Title Ownership - Inquire about the property title owner. You must determine if the title in an individual’s name or is it owned by a company. If it is in an individual name then it should be ok. If however, it is in a company name you must ensure the person closing your sale presents a document stating the company shareholders agree to the sale. This document must be registered with the Chamber of Commerce. If this document is not executed and the sale goes through the new owner technically does not own the property. The former owner could conceivably turn around and say sorry but we did not really mean to sell and money has already changed hands. See the below case study. The lawyer who executes the document will usually make at least two originals, one for the Chamber of Commerce and one for his records. Make sure you get a copy as well and file that with your real estate papers. The seller must present the original title at closing.
• Title Availability - Inquire about the availability of a title. Many developers start out with only a Master Title to their property. That title must in turn, be divided into individual titles for the units for sale. This is an extremely slow and costly process. The result may be that you pay for a property but will not get your title for months or longer depending on when the division is executed. For a buyer in this situation the purchase contract provides the protection because it is the legal document showing you have paid for your property. Lenders will not make loans unless the title is available. Another caution is that the buyer must make sure the title is transferred to his/her name. Some Notaries have told buyers that they can save the cost of the title transfer taxes, approximately 3% of the property value. Do not attempt to save money at that point, pay the taxes and get the title in your name so that you are the legal owner.
• Deslinde (Survey) - Recent changes to real estate law require that all property sold must have a survey. Nevertheless, there is an exception. It can be sold once without a Deslinde. The catch is that once it is sold the buyer cannot resell it without the Deslinde. When the title is transferred to the buyer, it will show an encumbrance stating the property is “non-transferable” for any future sales until the Deslinde is completed. It also means the buyer must pay for the Deslinde, which can be costly. We do not recommend anyone purchase property without proof of a Deslinde presented at closing.
• Certificate of Liens & Encumbrances - Inquire about a Certificate of Liens & Encumbrances. This document is obtained from the Government’s Central Registry. It means that a search of the records associated with the property has been conducted and there are no liens and encumbrances attached to the property, in other words, it will show if property is free and clear of any legal or monetary encumbrances. The seller or seller’s representative must present this document at closing.
• Certificate of Taxes Paid - A Certificate of Taxes paid must be presented at closing. This document simply states that the property taxes are paid and current. The seller or seller’s representative must present this document at closing. In case a company holds the property, there are two tax documents, one for the company and one for the property. Both are required at closing.
• Finance Purchase Clause – If the buyer intends to finance the purchase then a finance purchase clause is recommended for the Pre-Purchase Contract. The “conditional on obtaining finance” clause is necessary; otherwise, the deposit is forfeited if financing falls through.
• Pre-Purchase Contact - is similar to an Offer Agreement in North America where the buyer indicates the willingness to purchase by depositing “earnest” money into an escrow account. This document normally should list the parties involved such as the seller, buyer, real estate agency, lawyer, etc. It should also show a description of the property and address, deposit amount, where deposited and with whom. It must also list the crucial dates where the seller/buyer must agree or disagree and any other conditions as may be written as part of the offer/acceptance to include the “conditional on obtaining finance” clause mentioned above. You should clearly understand all the stipulations before you sign. If the document is in Spanish (and for it to be legal it must be) ask for a translation or have it translated if you are not fluent.
• Property Within A Company – Property within a company is no longer recommended. The original idea on a company was that buyers were limited in the size of property they could purchase and it would save on taxes. That law has since changed and it no longer is necessary to go to such lengths. Buyers are free to purchase without restriction. We do not recommend placing property in a company.
• Lenders - When dealing with a local lender (bank) do not expect the same service you would receive in North America. Our experience is that the knowledge, skill, attitude and impetus to provide assistance is based on a bureaucratic system infused with quaint cultural practices that do not exist in the modern business world. There are also major restrictions as to qualification for, type and amount of mortgage loans. To succeed with a local lender takes language skills, persistence, attention to detail and repetitive insistence to ensure you get what you need. We have proven we can do it but it is not easy. We no longer rely on a local lender as a source of mortgage financing. We have an agreement with a stateside lender to provide mortgage finance. If we cannot assist you, we will at least try to place you with someone who can.

Case in Point 1 - The local lender approved the client for a mortgage loan. However, construction is not complete. The developer also had not divided the master title into the individual units of the urbanization. The lender will not close until the lender’s appraiser verifies construction is completed and an individual title on the property is available. The seller has agreed to the lender’s offer of “certificate of payment”. When construction is complete and the title is available, closing is scheduled and the seller is paid. The lender holds the title until the loan is paid. The conditions here are also affected by the stipulations in the Pre-Purchase Contract. For example, when can the client take possession of the property? At the time the certificate of payment is made or at closing? A point the buyer should be aware of when negotiating with the seller.

Case in Point 2 - The client owns a property appraised at over $600,000 in a very up scale urbanization. The client presented an outstanding credit report, W-2 forms, tax documentation and accounting information on the businesses at a level far beyond what was required. The client is also a “significant” client for the lender’s bank. The client sought a loan for slightly over half the value of the home for renovation purposes. The local lender refused a construction loan, offered a personal loan at a much higher interest rate. The fact that the lender would hold the title and if the loan went into default could make almost a 100% profit on the sale had no bearing on the decision. The client refused to take the personal loan. The point here is that only a basic mortgage is available unless the borrower is willing to accept the personal loan conditions for construction purposes.

Case in point 3 - The client personally submitted documentation to the local lender’s main office to obtain a mortgage. His wife who is fluent in Spanish assisted with all the documentation. The application lay dormant for six months with no action. The client contacted us and we obtained the documents. We then resubmitted the application and the mortgage was approved within three days. We simply knew the system and lender personnel. However, on the subsequent submission a significant issue was discovered. The client had purchased property from a company that did not hold a shareholder meeting and provide at closing the document showing agreement to sell the property. Thus, the client technically, was not the legal owner although he had paid for the property. The seller was contacted and a law firm engaged to establish the required document. That transaction is now being completed. The deal eventually fell through and the owner is seeking to sell.

Case in point 4 - A buyer looked at three properties. He asked for an appraisal and the agent hired the appraiser, paid for by the client. The client was not however allowed to see the results. The agent told the client he must first make a deposit on the property before he could see an appraisal. The client ended up walking away. The caution here is to use an official appraiser. Contact a local lender and let them provide you the name of an official appraiser authorized by the government.

* The above general Information is designed to inform and educate buyers and investors. It is not all-inclusive and is not a legal interpretation of Dominican Law. Nor does it represent a legal opinion.

If you need clarification on any of the above discussion or require a legal opinion, we recommend you contact:

ROMERO & Del ROSARIO LEGAL SERVICES

OFICINA #204, CALLE ALEJO MARTINEZ
SOSUA, EL BATEY, PUERTO PLATA, DR
TEL: (809) 571-1414
E-MAIL: n.delrosario@romerodelrosario.com
E-MAIL: s.romero@romerodelrosario.com

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