Real estate acquisition: Financial issues and legal audit

One of the most common questions that investors have is: Is it possible to buy an apartment for cash? Resolution of the National Bank’s Board of Ukraine of 29.12.2017 № 148 prohibits payments of more than 50 000 hryvnias between individuals under contracts of sale, which are subject to notarization. As the value of real estate usually exceeds this amount. The calculation can only be non-cash, for example by bank transfer. It can be made via SWIFT payments from your account. But taking into account bank fees and often with the provision of documents proving the source of funds.

We should also take into account that a non-resident as an individual is entitled to import into Ukraine. Across the border cash in the equivalent of not more than 10,000 euros without a written declaration. If a non-resident imports an amount exceeding the specified one. He must declare it to the customs authority and obtain a customs declaration.

Real estate acquisition: financial issues and legal audit

If a foreigner lives and works in Ukraine (has a residence permit, employment permit, official income in the amount arranged by the bank). Or has a guarantor, a citizen of Ukraine, he can apply for a mortgage loan. But keep in mind: each bank sets the requirements for a certain category of borrowers, so the terms of the mortgage will be slightly different.

To reduce the risks of both parties related to the sale and payment of real estate. It is advised to pay attention to the escrow account agreement as a mechanism to ensure the fulfillment of obligations. Point is, the buyer opens a current account in the agreed bank with a special legal regime (escrow account), to which he transfers money (usually equal to the value of the real estate). The recipient of such an account is the seller, but he will be able to receive funds from it only by providing the bank with documents. Confirming the fulfillment of its obligations in favor of the buyer, such as an extract from the State Register of Real Property Rights.

As a general rule, all settlements on the territory of Ukraine should be made only in the national currency – hryvnias. At the same time, some exceptions allow you to pay in foreign currency. Thus, under Ukrainian law, a non-resident investor has the right to open a foreign currency escrow account with a Ukrainian bank for investment, including real estate. A resident individual, in turn, has the right to open a current foreign currency account, that can take funds from the sale of real estate to a non-resident investor. This allows a non-resident investor to transfer currency from abroad directly to his foreign currency escrow account opened with a bank in Ukraine. And then pay for real estate under a contract of sale to the current foreign currency account of a resident individual (seller).

One of the advantages of this option is that, unlike payments in UAH, in case of failure of the agreement. The non-resident does not suffer significant losses associated with bank fees: first when selling foreign currency, and then again when buying it to return abroad.

Due diligence when buying real estate property in Ukraine

Buying real estate is a very responsible business. Given the involvement of a substantial amount of money, there is a high risk of facing fraud. In addition, an incorrectly concluded contract can be canceled, this should not be forgotten.

Also, based on your interest, the seller may offer to enter into a deposit agreement. That should not be done in any case. At least until you are sure that the property you want to buy does not have legal defects. You can see more

In addition, you should not fully rely on notarization, as it is not carried out comprehensively. But only by state registers for registered prohibitions (restrictions, burdens) and it does not include. For example, verification of the presence of lawsuit over real estate.

To avoid financial and legal risks, it is necessary to check the “legal purity” of the property before preparing the documents. To do this, it is very important to enlist the support of a qualified lawyer. Who will protect you from various dangers in the implementation of the transaction.

Financial & legal risk Unsplash License

The extent of legal due diligence depends primarily on the nature of the asset itself. As well as on its history of ownership. It must be checked how the property right was bought. For example, through privatization, construction, purchase. The presence of one or more owners, whether the statute of limitations has expired after changing of ownership, etc. So that, the subject to verification includes dates. To show how the current seller has legally acquired the asset he is currently selling. In particular, if the legal document is a court decision. Even if it has entered into force, it should be read the case file in detail. And given a legal assessment of such a decision. And the circumstances in which it was made to avoid unpleasant surprises in the future.

In the case of buying real estate on the primary mark. There are several stages, that must be legally verified. The developer’s documents for the right of using land, building permits. As well as the legal mechanism for selling real estate under construction. And the documents that will be offered to the non-resident investor for signing. If the subject of the agreement will be corporate rights (share in the authorized capital of the legal entity), it is necessary to check the legal entity (perform legal, accounting, and tax due diligence of its activities).

Mandatory stage – a comprehensive check of information on all available state registers in the context of registered prohibitions (restrictions, encumbrances), open enforcement proceedings against the seller, as well as the existence of lawsuits.

By all means, the object will be checked in terms of registered persons. And whether there are minors among them, whose rights may be violated by selling the property. In addition, it is necessary to check the asset for the presence (or absence) of the current owner’s debts under contracts related to its operation. And only if the due diligence of the object confirmed the absence of legal defects and legal risks, you can begin preparations for the purchase.

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