New Legal Question Regarding Real-estate

EncoreFun · Mar 2, 2006

To the point, when making a purchase of a Condominium Unit within a respected Development in Bavaro. Legal Question regarding new Construction of a Condo that is 50% finished.

This was sent to me from an American Attorney who is well versed in business dealings in the DR.

"Stewart will probably want to guarantee/insure title from the date of final payment backward. In the US, title insurance covers from the actual date of the deed/title recording, backward, which also coincides with final payment. As we have discussed, your title/deed transfer will be occurring some time after all the $$ has been paid. I would want title certified/insured from the actual date the deed is transferred into your name...period. You should make that quite clear to Stewart during your next conversation."

Through my research I have discovered from the time I actually receive the keys to my Condominium it could(probably) take 3 years before I actually receive title to my Condominium. For example once ALL of the units are sold the Condominium will go into "Subdivision". Titles will not be available until after this process. Furthermore I dont believe that subdivision happens until at least 80% of the units are sold ( 24 units )

My question is what legal avenue do I have to protect myself from the Seller of the Condominium project from Mortgages, liens, or other instruments of loan against the Condominium, once I have paid all of my money. It appears to me that Title Insurance only protects me from the time I "pay" for the Condo backwards.

What's to stop the Developer from Legally using the property to secure further loans in the potential 3 year waiting period it takes for me to receive actual title. I have been told that it is wise to "Hold Back" a percentage of the final payment to the Developer until I have received the actual title, but this is only about 5 or 10 percent of the actual purchase price. However I do not see anything in a Dominican Real estate Contract that stops the developer from using the property to secure loans. It appears legally that the Seller/Developer holds all of the Rights. Even though I have paid I own nothing until title is issued in my name, even after I am handed over the Keys to the Condo. What protection do I have if the Seller/Developer cannot deliver good title. What happens if the developer runs into Construction Problems and cant finish ( unlikely with this project ).

Is there a "Legal Clause" I can add to the Sales Agreement that offers me Protection. I should mention that this type of purchase would be illegal in the USA or Canada. The buyer is protected.

Thanks in advance.

HOWMAR · Mar 2, 2006

This may be a major reason for the large discount in "preconstruction prices" vs. completed projects.

Robert · Mar 2, 2006

I can't answer your question, but if it's any help, Palma Real have a very good name in the market.

Can I ask you why you decided to buy at Palma Real and how you heard about the project? Feel free to email or send a private message (PM). Thanks, Robert.

Mirador · Mar 2, 2006

Many people have been defrauded this way, and the court system in obtaining redress for the victims. One of the more recent case, covered by the media, is that of the company represented by Augusto Men?ndez, promotor of the artificial island Novo Mundo Siglo XXI. Mr Men?ndez company sold individual residential plots in a development by the name of Ciudad Internacional in Avenida Las Am?ricas, Santo Domingo, and after the sale, used the title to the land as collateral obtain a US$15 million loan from Banco Progreso. He defaulted, and the bank forclosed on the buyers of the individual plots, who lost their money. Mr. Menendez has pulled this same modus operandi from Argentina to Miami...

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Ken · Mar 2, 2006

You don't mention a Dominican attorney. I hope you have a good one and are not relying on the attorney for the project. Fabio Guzman, the attorney who answers questions is this section, has an office in Punta Cana and is opening one in La Romana. They have a reputation for protecting the interests of their clients. If you don't yet have a Dominican attorney you are sure you can trust, the Guzman office would be a good choice. Here is the link to their website http://www.drlawyer.com/

EncoreFun · Mar 2, 2006

Yes Ken I have an attorney- I'm seeking out other legal opinions and hoping to hear from a DR attorney or Professional for specific ways of minimizing risk. Furthermore; I'm trying to investigate if "addendums to agreements" are possible. I've seen several copies of "Conditional Sales Agreements" from the DR, and almost all are the same- they are standard templates with slight modifications.

Ken · Mar 2, 2006

EncoreFun said:
Yes Ken I have an attorney- I'm seeking out other legal opinions and hoping to hear from a DR attorney or Professional for specific ways of minimizing risk. Furthermore; I'm trying to investigate if "addendums to agreements" are possible. I've seen several copies of "Conditional Sales Agreements" from the DR, and almost all are the same- they are standard templates with slight modifications.

I meant do you have a Dominican attorney. If you are buying property here, I think you should either have a Dominican attorney or the attorney you are relying on should arrange with a Dominican attorney to assist him on matters of Dominican law. The latter is a common practice.

Denmay565 · Mar 3, 2006

Valid Question

The American attorney raises a valid point. In the US, the monies and deed are transferred on the same date but if that is not the case in the DR on a new condo construction project, you would need to have the title policy amended to state that the policy extends to the period the deed is actually issued. Has anyone else run into this as an issue? How did your attorney address this concern? Perhaps Mr. Guzman can weigh in on this.

HOWMAR · Mar 3, 2006

Denmay565 said:
The American attorney raises a valid point. In the US, the monies and deed are transferred on the same date but if that is not the case in the DR on a new condo construction project, you would need to have the title policy amended to state that the policy extends to the period the deed is actually issued. Has anyone else run into this as an issue? How did your attorney address this concern? Perhaps Mr. Guzman can weigh in on this.

How can you expect a title company to guarantee the future? They are guaranteeing clear title up to the issue date (transfer of funds), but have no control of the title after that date.

EncoreFun · Mar 3, 2006

That is the Problem

That's the exactly the problem Howmar. Title Companies are not going to insure into the future. They will do a 'Final Search' on title handover. But what 'legal instrument' is there to protect the buyer in the 3 year waiting period to receive title in New Construction Cases. One option is to pay the Seller a small down payment up front and pay the balance on Title handover. But I haven't found a developer that will even agree to these types of terms, and I can understand that. But it doesn't help me as a buyer.
It's a crap shoot. This is why I am searching for some type of other Security, which I don't think exists. Even a developer with the best intentions who plans to deliver Good title can run into problems and screw you legally by mortgaging the property. It's the Wild West over there! The entire DR Real-estate system needs an overhaul and provide security to buyers.

ElPuma · Mar 4, 2006

well it may be a scam or not, but be assured that if there are any problem with that aparment you will lose, I know a lot of condmominiums in SD that "will be finished in april, XXXX" and 1,2,3 years later are not finished yet, specially if all the aparments have been sold there are no "incentives" to finish them.

EncoreFun · Mar 4, 2006

ElPuma said:
well it may be a scam or not, but be assured that if there are any problem with that aparment you will lose, I know a lot of condmominiums in SD that "will be finished in april, XXXX" and 1,2,3 years later are not finished yet, specially if all the aparments have been sold there are no "incentives" to finish them.

That's to bad- however the DR real estate contract should have offered a 'time provision' . For instance I have a finish date on my contract and if it exceeds 120 days past due I can request a full refund of any monies put forth.

Fabio J. Guzman · Mar 5, 2006

The gentleman is 100% correct. Unfortunately, most real estate attorneys in the Dominican Republic do not do a proper job of protecting their clients. Some act as brokers in the deal and therefore are driven mainly by their commission, others are pressured by the real estate broker into a fast closing, others are just incompetent. I have ranted and raved about this issue for years. I have even been criticized by fellow attorneys for preparing the checklist published in my website ( http://www.drlawyer.com/txt/articlesreal.html ) detailing the steps required for a proper real estate closing.

The main problem is that many developers in the Dominican Republic sell property that is in essence untitled and sometimes not even legally theirs. A typical example goes like this:

(a) Developer plans a condo project.
(b) Developer buys an option on the property where the condo project will be built.
(c) Developer markets and begins to presell condos at ?preconstruction prices? in order to obtain 0% financing for his project from the buyers. Note that at this point title may not have been passed from the original owner of the property to the Developer, not to mention that there are neither condo declaration nor condo titles to convey to the Buyer.
(d) Buyer enters into a Promise of Sale or Conditional Sale with the developer whereby he obligates himself or herself to pay x amount of dollars on certain dates without any reference to conveyance of title to the Buyer.
(e) Developer builds condos with Buyers? funds. If marketing and management of the project is successful, Buyer will obtain title to his or her condo some time in the future. If the project was ill-conceived or if the developer is a crook, Buyer will lose his money.

To adequately protect the Buyer, the ideal solution would be to have all of the funds, except for a small down payment, in escrow until title is conveyed (I can hear developers gasp in unison!) or to have developers issue a bank guarantee for the funds. Most developers, however, will refuse to do this, mainly because 99% of buyers are willing to give their money without any security and their lawyers do not warn them of the risk.

I have had many clients who have decided to buy property despite the fact that the legal documentation is not 100% in order. However, in those cases the proper thing to do is to spell out the deficiencies to the client and have him or her decide whether to take the risk. Most Dominican real estate attorneys don?t do this and the buyer comes out of the ?closing? believing that the piece of paper in his or her hand, a simple ?Contrato de Venta? or ?Promesa de Venta? is sufficient protection.

In a nutshell, don?t buy property without going through the due diligence checklist, making sure that all items are in order. Don?t believe the developers and real estate brokers who try to convince you to do otherwise, telling you that nobody else does it. Protect yourself! Caveat emptor!

iluvdr · Mar 5, 2006

Fabio J. Guzman said:
The gentleman is 100% correct. Unfortunately, most real estate attorneys in the Dominican Republic do not do a proper job of protecting their clients. Some act as brokers in the deal and therefore are driven mainly by their commission, others are pressured by the real estate broker into a fast closing, others are just incompetent. I have ranted and raved about this issue for years. I have even been criticized by fellow attorneys for preparing the checklist published in my website ( http://www.drlawyer.com/txt/articlesreal.html ) detailing the steps required for a proper real estate closing.

The main problem is that many developers in the Dominican Republic sell property that is in essence untitled and sometimes not even legally theirs. A typical example goes like this:

(a) Developer plans a condo project.
(b) Developer buys an option on the property where the condo project will be built.
(c) Developer markets and begins to presell condos at “preconstruction prices” in order to obtain 0% financing for his project from the buyers. Note that at this point title may not have been passed from the original owner of the property to the Developer, not to mention that there are neither condo declaration nor condo titles to convey to the Buyer.
(d) Buyer enters into a Promise of Sale or Conditional Sale with the developer whereby he obligates himself or herself to pay x amount of dollars on certain dates without any reference to conveyance of title to the Buyer.
(e) Developer builds condos with Buyers’ funds. If marketing and management of the project is successful, Buyer will obtain title to his or her condo some time in the future. If the project was ill-conceived or if the developer is a crook, Buyer will lose his money.

To adequately protect the Buyer, the ideal solution would be to have all of the funds, except for a small down payment, in escrow until title is conveyed (I can hear developers gasp in unison!) or to have developers issue a bank guarantee for the funds. Most developers, however, will refuse to do this, mainly because 99% of buyers are willing to give their money without any security and their lawyers do not warn them of the risk.

I have had many clients who have decided to buy property despite the fact that the legal documentation is not 100% in order. However, in those cases the proper thing to do is to spell out the deficiencies to the client and have him or her decide whether to take the risk. Most Dominican real estate attorneys don’t do this and the buyer comes out of the “closing” believing that the piece of paper in his or her hand, a simple “Contrato de Venta” or “Promesa de Venta” is sufficient protection.

In a nutshell, don’t buy property without going through the due diligence checklist, making sure that all items are in order. Don’t believe the developers and real estate brokers who try to convince you to do otherwise, telling you that nobody else does it. Protect yourself! Caveat emptor!

Dr Guzman, I understand that there is no formal escrow service or notory services in the DR. At least not as we know it in the US. Basically, if we put the funds with an attorney it turns out that instead of trusting the developper, we simply in turn in trust the funds to the attorney....With all respect, it turns out that we still have to chose between the devil and his brother?

HOWMAR · Mar 6, 2006

EncoreFun said:
That's to bad- however the DR real estate contract should have offered a 'time provision' . For instance I have a finish date on my contract and if it exceeds 120 days past due I can request a full refund of any monies put forth.

Try to enforce it in a Dominican court where you, as a non-Dominican, have limited standing.

Fabio J. Guzman · Mar 12, 2006

There are formal escrow services in the Dominican Republic. We have used Stewart Title many times.

Also, there are many established firms and notaries with excellent track records as escrows.

Robert · Mar 12, 2006

iluvdr said:
Dr Guzman, I understand that there is no formal escrow service ..

As Fabio said, Stewart Title. The have an office here in Santo Domingo and are 100% owned by Stewart Title USA, they are not a franchise.

Making a claim here is no different to making a claim in the USA.

Stewart Title Website

EncoreFun · Mar 12, 2006

Fabio J. Guzman said:
There are formal escrow services in the Dominican Republic. We have used Stewart Title many times.
Also, there are many established firms and notaries with excellent track records as escrows.

Fabio you have given such good and clear information- and even with that said let me elaborate even a bit more on this situation. And thank you for posting on this thread.

Some of what I posted below was covered in your original post on this thread.

Stewart has an Escrow service that I can see as very beneficial and slightly offsets some risk when disbursing funds in several amounts for Construction and promises of Developer- but nothing protects you from not having a title.

I have Stewart Title writing a policy for me! But they cant write a solid policy on a Title Certificate that does not exist - or a title that is in a Limbo period for possibly 3 years. I can only see a small advantage in having a title search on new construction maybe showing if there are any clouds on title. But it still doesn't protect you from what can happen in the Limbo period.

Here is my rushed example below, forgive my Grammar.

Company A ( master Developer )
Company B ( Developer)

1. Construction of Condo is 60% completed( in my case)
2. Construction is within a development let's call it Company A ( without naming the development, it has credibility)
3. Developer Purchases 3 parcels of land from Company A
4. Developer starts Construction without title being transferred.
5. In essence the buyer is purchasing a Condo from a Developer that does not own the land 'yet'. And the buyer is NOT buying from the Master Developer, because Company B has paid for the land, but has no title.
6. Not to mention that once the title has finally been transferred to the developer a further process called 'subdivision' will need to take place.

7. Stewart Title Advertises "We Guarantee Your Investment" . They will write you a policy on this above scenario with two pages of 'exclusions' , in other words basically a guarantee that offers very little protection. In fairness to Stewart they will investigate title from Purchase backwards, they can not insure the future. Stewart Title is a business too- and they want to sell policies- I fully understand and respect that, having a sales background myself. And I have found the people of Stewart to be very honest.
However the only credible situation is to have title Guaranteed backwards from the time title is Guaranteed to new Owner(me). Title insurance only makes sense if it can be issued after you actually receive the deed to your condo, house or whatever.

8. Purchaser pays all of the money to the Developer(hasn't happened yet) during the Promise of Sales agreement period, and hopes that the developer will Finish Construction and deliver title in the next 3 Years.

My point is, Stewart Title isn't going to offer much protection when buying a new Condo when Title is still 2 or 3 years away from delivery. A policy with 2 pages of exclusions is useless. In other words they will write you a guaranteed Policy with 2 pages of exclusions. I am certainly not saying anything bad about Stewart- as I have found them very helpful with other matters, and they are really good people especially the SD office that really want to help. But they can not write a clean policy on something that does not exist, only a policy full of exclusions.

The Solution is GAP insurance! Why is this product not available in the DR?

I'm Just trying to navigate through the traps that seem to be everywhere. A friend once told me and I have read and heard it since, "The DR is a beautiful place , but can also be a cruel teacher" .
At one point or another one must decide how much risk they are willing to accept- because in Fabio's ideal example of "small down payment" and "balance on title" is like he said , rare.

Robert · Mar 12, 2006

What about a % paid on delivery of title? I know Stewart do this for other new developments. Yes, some developers don't like this, but I think you will find the larger more reputable ones are used to doing this.

Stewart's marketing director (Ivan Guerrero) was in our office this week and said they write contracts based on title delivery. You can email him directly - iguerrero@stewartdr.com if you need clarification on what they do and don't offer.

EncoreFun · Mar 12, 2006

Robert said:
What about a % paid on delivery of title? I know Stewart do this for other new developments. Yes, some developers don't like this, but I think you will find the larger more reputable ones are used to doing this.

Stewart's marketing director (Ivan Guerrero) was in our office this week and said they write contracts based on title delivery. You can email him directly - iguerrero@stewartdr.com if you need clarification on what they do and don't offer.

Good point Robert, and it offsets a small percentage of risk. But you are still exposed to the bulk of your funds potentially getting ripped.
Example, a developer may allow you to do a 5% to 10% hold back of funds.
Example(made up)
Apartment Cost $250,000
10% Hold back $25,000 (until title is delivered, which could take 3 years)
In other words you are holding back 25,000 dollars until the developer can provide you title to your Condo unit.
Unfortunately you still have exposed 200,000 dollars.

I know Ivan G. of Stewart and have also met him. he is a straight up guy- and will tell you how it is. That's exactly correct they 'write contracts based on title delivery' , and if the title is in limbo , they write you a policy with exclusions until a title can be delivered. The problem is the period you are waiting for title from after you have paid your 200,000 ( 3 years is realistic period of time). Developer can legally mortgage your Apartment to do whatever. There is NO protection.

I should mention if you buy 'land' from Company A - much less risk. In this case Company A is a Huge Corporation. Title may also take a lengthy period of time, but you are buying directly from Company A .

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