This article is divided into four parts. Part One discusses the importance of due diligence in the context of home buying essentials. Part Two will discuss how to do due diligence of titled properties. Part Three will guide you through due diligence of untitled properties. And Part Four will discuss Relocation Survey and the Costs attending land transactions. This article contains Part One. Kindly search our site for Parts Two through Four.
This article contains Part One. Kindly search our site for Parts Two through Four.
Home Buying Essentials in the Philippines: Navigating Due Diligence
Due diligence simply means taking the required care to ensure that what you are buying is what it is presented to be. When the object of the transaction is a piece of land, the risk can take many forms. Due diligence addresses at least four of the risks that commonly attend land transactions: i.e., impostor sellers, wrong property, double sale, hidden encumbrances, and inalienable lands. These risks, and how due diligence addresses them, are discussed below.
Impostor Sellers
Anyone can come forward and claim to own a piece of land. If this person offers to sell the land to you, your first step should be to verify if his claim of ownership is true. You should never buy a property from anyone other than the owner or his duly authorized representative. Buying the land from an impostor is perhaps the biggest mistake you can ever face in a land transaction. Because an impostor does not have title to the land, he has no title to transfer to you, which means that you can never own a land which you bought from an impostor. Due diligence will uncover the identity of the owner and the seller, and will give you an assurance that you are buying the property from the person who can transfer title to you.
Wrong Property
When buying a car, it is easy to identify what you are buying. You get to drive away with exactly the thing you intended to buy.
The same is not true for land. Let us say you see a piece of land. It is fenced, and the seller shows you the muniments (i.e., mojon) indicating its boundaries. Is that enough to establish the identity of the land? No. The identity of the land does not depend on the physical muniments existing at its every corner. It is as is indicated in the technical description in the Torrens title.
This means that it is important for you to verify that the land you are seeing with your eyes is the same land described in the technical description, because if there is a conflict between the two, you acquire the land that is described in the technical description, not the one that you saw with your eyes.
Due diligence will ensure that you are buying the property as described in the Torrens title. If the property is untitled, the technical description can be found among the records of the Bureau of Lands.
Double Sale
Unlike personal property, real property cannot be moved from the seller’s place to yours, so there is no physical action that will give the presumption of the property’s ownership. A car in your garage, for instance, is presumed to be yours, and it is unlikely for the previous owner to sell it to another person. A piece of land cannot be delivered in the same way, which is why double sale of parcels of land is fairly common.
Double sale means a piece of land is sold twice by the same seller to two (or more) different buyers. For instance, Juan owns Lot 1 and sells it to Pedro. One year after, and without Pedro knowing it, Juan sells the same lot to Maria.
In case of double sale, who has a better right to the land? The answer depends on whether the land is titled or not, and what each buyer does after the transaction. This will be covered by another article. For purposes of this article, I will only say this: that it is important for you to ensure that you are not the victim of a double sale, because even if you have a better right to the property than the other buyer, a double sale still creates a headache that you would rather avoid. Due diligence will reveal all transactions affecting the land you are trying to buy. This will help you avoid the risk of a double sale.
Hidden Encumbrances
An encumbrance is a burden. Anything that creates a burden on the land is an encumbrance. For instance, a land that has been used to secure a bank loan is encumbered by virtue of the mortgage.
Mortgages are not the only encumbrances that the land can possibly have. Encumbrances come in different forms, and the danger is that, they are attached to the property and not to the owner. It means that if you buy an encumbered property, the burden becomes yours.
Sellers often downplay the existence of encumbrances, and if you are not careful, you can be buying an encumbered property. Due diligence will reveal if any encumbrances exist. You may still decide to buy an encumbered property. What is important is that you are aware of its existence.
Inalienable Lands
For more people, the objective when buying a piece of land is to be able to own it. And owning a piece of land means acquiring title to it. Title means being able to do with it what a full owner can do with it, including the ability to dispose of it if they so desire. There are buyers who are not after title but long-term possession. And for some types of properties, long-term possession is the only option. A good example is a foreshore lease over a beach property, and a long-term lease over forest land.
Up front, you need to decide whether title is important to you or not. Likely, it will be, and if you are buying a property that has already been titled to a private individual before you, I insist that you make sure that you get title to the land after you acquire it.
However, if you come upon a piece of property that is inalienable, meaning a land that is still owned by the State and cannot be transferred to a private individual, know that all you can probably get is possession. Due diligence will reveal this, and while the information need not deter you from acquiring the property, you need it in order to make an informed decision.
There are ways to acquire an inalienable land, but you will need to consult a lawyer about your options.
All of the above are risks attending land transactions, which can be minimized, if not totally avoided, by due diligence.
How do you conduct due diligence? Part Two will deal with due diligence of titled lands, while Part Three will guide you through due diligence of untitled land. Part Four will discuss the why a relocation survey is a necessary part of the due diligence process, and the costs attending land transactions in general.
Kindly search our site for Parts Two through Four.
