Bank-Financed Purchases

Here's a short explanation of how bank-financed purchases work in the country. (I thought of making something I could forward whenever someone asks me about it.)

In the Philippines, a bank-financed purchase is a COMMON way for buyers to acquire a property. What makes this method complicated is the fact that the buyer will use the same property being bought as collateral for the loan. For a buyer to do this, he first must own the same property. Thus, banks require the title and tax declaration to be transferred to the buyer's name BEFORE the loan proceeds can be released to the seller.

This means the seller must sign the Deed of Absolute Sale (DOAS) and surrender the title to the buyer even BEFORE he gets fully paid. All the seller receives in return is the downpayment ("Equity Portion") and a "Letter of Guarantee" from the buyer's bank, which states the bank will pay for the balance provided the title is transferred to the buyer’s name. Once the title is transferred (conservatively takes three months), it is surrendered to the bank, and the bank releases a Manager's Check for the balance to the Seller.

Is it safe?

Yes, for as long as the Seller:

1. Verifies the Letter of Guarantee with the issuing bank;

2. Don't foresee any problems with the transfer (e.g., the sale is not subjected to VAT/CWT);

3. The transfer is completed within the given deadline by the bank.

Why does it take so long for sellers to get the proceeds?

How quickly you get the proceeds is based solely on how fast the title transfer is completed (i.e., how long the lines are with the BIR, the Registry of Deeds, and City Assessor). Sometimes, it can take as short as one month. Once the title and tax declaration are submitted to the buyer's bank, it would take 1-2 weeks for them to process the seller's manager's check.