Real estate has proven to be one of the safest investments, whether for residential purposes, development of a project or merely for the purpose of renting. However, the price of the investment requires serious analysis of the risks related to the purchase. In the following article we share our experience with the advisable process of purchasing real estates on the territory of Bulgaria.
Legal Due Diligence
Legal due diligence is usually a preliminary stage in the process of purchasing real estate. Its aim is to confirm whether the seller is the owner of the real estate, whether there are any encumbrances or other restrictions over it and could it serve the needs of the purchaser. On the basis of these findings, the major risks related to the respective real estate shall be determined.
The analysis is based on the documents provided by the seller, references to public registers as well as publicly available documents and information, e.g., sketches, ownership deeds, heir certificates, court judgements etc.
The research about the respective real estate could take up some time, therefore reservation agreements and deposits are a common practice. They also represent an additional guarantee of the purchaser’s intentions to acquire the property.
The conclusions of the legal due diligence determine the decision whether to purchase the real estate and what terms and conditions should be set for its acquisition. E.g., easements in favour of neighboring real estate could serve as ground for a price reduction.
After positive legal due diligence, the purchaser could sign a preliminary or final agreement for the acquisition of the property.
Preliminary agreement
Signing a preliminary agreement is not a mandatory stage in the acquisition of real estate, but it is often resorted to when the purchaser and seller are not ready to conclude a final agreement due to encumbrances, lack of up-to-date documents or the need for financing.
Preliminary agreements negotiate the structure of the transfer considering the risks identified in the legal due diligence, the tax implications for each party and the financing for the sale price. The price and method of payment, the terms and conditions for entering into a final agreement, the liability for default are some of the most common clauses in preliminary agreements.
They also guarantee the purchaser that if the requirements for a final agreement are met but the seller does not cooperate, the purchaser would be entitled to apply to the court for assistance and acquire the property.
Bank Financing
Purchasers often resort to bank credit to pay the agreed price or part of it. The process of financing the purchase of a property involves providing the required documents and information about the property, the seller and the purchaser, their analysis by the bank, anassessment of credit risk and a determination of financing options. Banks usually require that the borrowers cover a certain percentage of the sale price with their own funds, when approving the loan.The granting of credit is often linked to the establishment of collateral such as mortgages and pledges.
Notary Deed
The conclusion of a final agreement in the form of a notary deed is the stage where the ownership over the real estate is transferred. All terms have expired and the negotiated conditions for the final agreement have been fulfilled.
Where the payment of the sale price or part of it is financed by a bank and the collateral agreed between the purchaser and the bank is a mortgage over the real estate, the latter shall be established on the date of the final agreement. The registration of the mortgage is usually negotiated as a precondition for the payment from the bank to the seller.
And What`s Next?
Upon the acquisition of real estate, the purchaser is obliged to declare the purchase with the local authorities, to inform the exploitation companies for the transfer of ownership, to pay local taxes and waste fees. Some of these obligations are subject to short deadlines and non-compliance with them is sanctioned with fines.
