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Buying Real Estate via
Installment purchase plans
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It is common for
many foreigner investors with their respective spouses to make a
purchase of a lot, or purchase of a house and lot together,
using an installment plan, many of these plans are what is
termed pre-sell plans, in other words, bought from the glossy
brochure, which promises, exquisite land, club houses,
gymnasiums, saunas, tennis courts, golf courses, multiple
facilities of this and that, they make it sound so attractive,
in reality all the buyer gets is a purchase agreement, which is
not it shall be said, a contract of sale, this is where people
both Filipino's ( you might be surprised by this, even
kababayans, get caught with this one, you don't have to be a
white boy to get caught out in the Philippines, unscrupulous
developers shaft their own people just as happily as they would
you) and foreigners, end up thinking it is a contract of sale,
in fact it is nothing more than a wish list, it is only several
months down line, when you have made several installments, that
a contract of sale appears, it is only then that provisions not
discussed at the time of the purchase agreement being made,
suddenly appear in the small print.
One of these is the Escalation clause ! this subject we are now
to discuss is very important, and if you don't learn anything
from this section, please try and learn this one as it could end
up costing you more money than you initially costs for, so
listen and learn !
The developer will insist and quietly put into the contract of
sale, that the project they are building is based on a certain
dollar exchange rate, that is of course the United States
dollar, which the Philippine Pesos is closely linked to for
foreign exchange purposes, or another one is the depreciation of
the 91 day treasury bill, or T-Bill as they are known, or a
pronouncement of the buying power of the Philippine pesos as per
the Bangko central ng Pilipinas, ( Central bank of the
Philippines).
Other costs such as closing costs are very often only mentioned
in the final contract of sale, it is then very difficult for the
buyer to back out of the said purchase after putting down
several installments and if they back out of the deal at that
point, they will forfeit any monies already paid.
The Supreme Court has had to deal with this issue several times
in the past, based on the insistence of developers, putting in
the escalation clause based on the foreign exchange rates and
here is what the supreme court held :
"The contract of sale in question is for a parcel of land in the
Philippines which is to be payable in Philippine pesos, while
the balance of the purchase price is payable in Philippine
pesos, measured by a foreign currency, no foreign currency was
directly involved in the transaction. The amounts due for the
balance of purchase shall therefore be paid in Philippine pesos
as stipulated in the contract at the time of the contract being
signed, wihout any adjustment based on the prevailing exchange
rate of the U.S. Dollar to the Philippine peso, the transaction
does not involve a loan in a foreign currency stipulated to be
payable in Philippine currency, but measured by a foreign
currency, in which case the rate of exchange prevailing at the
stipulated rate of payment shall apply." **
**Palanca vs court of appeals and Sanicas, G.R. No 106685,
December 2nd 1994, Lily San Buenaventura v Court of Appeals 181
SCRA 197 (1990).
Buyers who buy on installment plans, can loose everything if
they fail to keep up with the installments, remembering of
course this is not like the UK, where the mortgagee is in
possession of their asset, that is normally they are living in
it, unlike buying through a mortgage where the title has changed
hands to your WAG a pre-sell plan is a hire purchase plan
effectively meaning that you are waiting for the property to be
erected, the buyer does not have any title at this stage, nor
vacant possession and no foreclosure proceedings would take
place, giving the buyer a chance to redeem his/her property,
installment purchase on pre-sell plans are fraught with danger
for the would be foreigner investor so be very wary, and make
sure that you can make any installment that is due, as if the
buyer defaults on any installment, the developer who is the
seller, can force a non compliance of the agreement, and any
monies paid is forfeit.
The Supreme court of the Philippines has recognized in the past,
the power of sellers to extra judicially foreclose on
installment buyers for failure to make payment, and the seller
has kept part or all of the paid installments, however the
seller has no legal right to do this, so this is subject to
negotiation ( the buyer could negotiate up to 90 per cent of all
monies to be returned for units the buyer never gets to enjoy)
little is known about this, but the fact of the matter is, it is
only via knowledge that unsuspecting buyers can be made aware of
this very valuable piece of real estate information
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