Panama Real Estate Purchase Contracts – Scam Alert

Introduction – Our Law Firm handles a number of expat clients that are interested in purchasing Panama Real Estate. We have come across a number of problems arising in the market recently specifically concerning condo projects that are being built or are scheduled to be built at some future date.

Background – Please bear in mind that anyone who decides to be a real estate developer can create some artist renderings gets an option on a lot, put up a billboard and start pre-selling. The developer may have no track record, he may be starting 12 projects and seeing which of them sell the best and only move forward with those, he may not have his plans and permits approved when he is pre-selling and many other variables come into play. The best advice is buy a condo or house where you can walk in turn on a light and flush a toilet. What you see if what you get. That being said we will move ahead.

Panama Condo Purchase Contracts with Developer Options – We are starting to see these pop up now, well they were probably there for two years or so but we are becoming aware of them now. The options are generally stacked in favor of the developer. One of the options we see allows the developer to refund your down payment money for any reason. Any reason can of course include the market has appreciated to the point where the condo is worth more than the price agreed upon in your contract. The alibi given is likely to be well if we do not sell enough units we will not be able to proceed and thus we will need to refund your money. They will probably include a clause whereby your money is paid back with some sort of nominal interest included. The determination to refund you can be made at any stage of the project before the certificate of occupancy is issued. The developer has the final say This of course gives the developer an interest free loan of 30% of your agreed upon price. If the developer partners with the landowner he can probably get the build out done for the 30% if there is no land cost or at least come close. If he is going to a bank for interim (construction) financing he is using your down payment to secure the loan. Another one-sided clause in favor of the developer gives him the ability to increase the final purchase price if his construction costs increase, which rest assured construction labor and materials costs are increasing. So you in essence you are helping the developer build his project and then he can discard you and sell at a higher price to another buyer or charge you more money. If the project is worth less at completion than the contract price of course you are stuck with no price reduction clause or escape clause. Once again the suggestion is to only buy a condo or home that is finished. In Panama older condos (5 or more years old) are built better, are larger, usually only have two units per floor and are much lower priced. They are generally extremely well maintained as well.

Discussion – It is perhaps not all that likely that the developer will modify the agreement if you retain us or another law firm to negotiate on your behalf. We can point out the one sided aspects of the agreement. If he is hungry for a sale he will negotiate a fair deal like he can only refund if the project fails and he is going to refund everyone and not proceed with the build out. If he is selling units freely to people who do not understand the implications of the agreement then he may decide to not negotiate and wait for another more pliable buyer.

Lawyer review of Purchase Agreement – Always have a Panama Lawyer review your real estate agreement. Never sign any documents in Panama without lawyer review. Never send any money for real estate without lawyer review of the agreements, contracts etc. Get a receipt for any and all monies paid or let us handle the whole matter for you but don’t do it yourself. We have had clients send wires without any paperwork in fear of losing the property to another buyer then we get a phone call that sounds like I sent the money, I have no contract and no receipt. Let us deal with the broker and secure the deal for you correctly and lawfully. Developers deal with a foreigner one way and a Panama Law Firm another way.

Panama Real Estate Brokers – Many deal with a real estate broker who is not a real estate broker. Check for a license; a lot do not have a license. We can refer you to a reputable licensed real estate broker. Our referring potential as a law firm gives you collective bargaining power in terms of fair and honest treatment from a broker.

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