The Essential Guide to Due Diligence in Real Estate Buying

Most issues in purchasing real estate (residential lots, house-and-lots, or condo units) arise from buyers not conducting due diligence. Conversely, those who perform due diligence avoid real estate scams and fraudulent property sales. Let's discuss this crucial first step in the home-buying process.

What is Due Diligence?

Due diligence involves investigating, researching, and analyzing the physical, legal, and financial aspects of a property before purchase. While it may require some effort and time, this step is crucial to protecting your investment and ensuring a smooth transaction.

By performing due diligence, you gain peace of mind knowing that your investment is secure, avoiding the stress and regret of potential issues down the line. You might discover undisclosed problems or potential future issues and identify hidden assets and profit opportunities.

In real estate, property sales are categorized into (1) general brokerage and (2) project selling. In general brokerage, you buy from an individual seller, while in project selling, you purchase from a developer of a subdivision or condominium. Both can be safe if you do your due diligence, though buying from a developer is generally safer.

Doing Due Diligence in General Brokerage

In general brokerage, you must do the following:

1. Verify Ownership of the Property: The first question to ask is, "Who is the registered owner of the property?" If the seller isn't the registered owner, find out where the owner is. Ensure you meet the registered owner or, if unavailable, ask for a Special Power of Attorney from their representative.

2. Secure the Legal Documents: Obtain necessary legal documents, including tax maps and declarations (Assessor's Office), cadastral maps (Bureau of Land Management), subdivision plans (Land Registration Authority), the title (Register of Deeds), and tax assessments (Treasurer's Office). Also, gather legal information about the property (zoning, land use, restrictions), site financial reports (appraisals, taxes), site physical information (survey and soil test), and verify easements, road rights-of-way, and repair quotes.

3. Visit the Property: Visit the property to evaluate its location, such as proximity to schools, public transportation, and shopping centers, and inspect its condition, noting any needed repairs or maintenance. Be cautious if there are occupants, lessees, or informal settlers, as the owner must honor existing agreements, and legal action may be needed to evict occupants. During your site inspection, note the property's accessibility, the neighborhood, local developments, and the area's safety.

4. Verify the Seller: Verify the identity of the owner/seller (e.g., IDs) and check if the owner is still alive. Ask if there are any pending cases involving the property. Whenever possible, meet the owner to learn more about them and their reasons for selling. A friendly conversation can reveal valuable information about the property.

Doing Due Diligence in Project Selling

In project selling, the Housing and Land Use Regulatory Board (HLURB) handles four key due diligence aspects when a developer applies for registration and a license to sell their subdivision or condominium project. Only credible developers with legal and financial standing are granted a Certificate of Registration.

1. The Registration Certificate of the Developer/Dealer: Section 4 of Presidential Decree No. 957, known as the Subdivision and Condominium Buyers Protective Decree, states: "The registered owner of a parcel of land who wishes to convert the same into a subdivision project shall submit his subdivision plan to the Authority which shall act upon and approve the same, upon a finding that the plan complies with the Subdivision Standards and Regulations enforceable at the time the plan is submitted. The same procedure shall be followed for a condominium project, with the Authority also approving the building plans according to the National Building Code (R.A. No. 6541)."
   

2. The License to Sell of the Subdivision or Condominium Project: A registered developer/owner must apply for the License to Sell for each specific subdivision or condominium project. Without the LTS, a developer cannot legally sell any lot, house-and-lot, or condo unit. A crucial requirement for obtaining the LTS is that the property must be owned by the developer and free from liens or encumbrances. If the property is mortgaged for development, the developer must ensure that the mortgage agreement includes a clause stating that the mortgagee will release the mortgage on any subdivision lot or condo unit once the buyer pays the full purchase price.

Therefore, buying from a registered developer with a License to Sell for the subdivision or condominium project is generally safer. If the unit you're buying is in phase 2 of the subdivision project, request the LTS for phase 2 specifically.

A developer with a solid track record of building quality homes, delivering projects on time, promptly issuing property titles, and maintaining previous projects is a significant advantage.

Final Checks

Don't rely solely on the land title provided by the seller, whether it's a photocopy, a recent e-copy, a certified true copy, or even the original. To ensure complete peace of mind, take the simple step of obtaining a Certified True Copy of the property title yourself from the Registry of Deeds. It's a straightforward process and costs less than P300.00.

The Land Registration Authority (LRA) maintains microfilms of land titles in the Philippines, also known as e-Titles, stored at the Computerized Registry of Deeds. The LRA's Land Titling Computerization Project aims to: (1) Maintain current, complete, and accurate online title information; (2) Ensure the security and integrity of records, preventing tampering, destruction, and insertion of questionable data in both paper and digital forms; and (3) Provide a system for timely detection and identification of fake land titles, aiding in the

identification of those responsible.

If the land title isn't included in the computerized system, visit the Registry of Deeds where the land is located. The verification process involves: (a) confirming property ownership based on the document, and (b) checking for liens or encumbrances, including pending court cases, issues with technical descriptions on the title, and adverse claimants.

By thoroughly performing due diligence, you secure your investment, gain peace of mind, and position yourself to make the most informed decision possible when purchasing real estate.

This guide is for educational purposes only. Consult a lawyer for advice on your specific situation. If you have any questions or need personalized assistance, contact us at 0920 207 5035 or email cebuhousefinder@yahoo.com. We're here to guide you every step of the way, ensuring a smooth and confident buying experience.