Potential risks when buying real estate through banks

The buyer needs to finance the purchase of real estates for some reason, which is done often through banks. During this financing transaction process, what issues should investors notice to ensure their legitimate rights, interests and save time and find the most suitable direction?

Advantages and disadvantages

With financial support from the bank, the buyer feels secure about the legality of purchased real estates and the seller’s credentials. As the bank only agrees to assist and establish procedures for the secured properties, which is time-consuming and frustrating to the interested parties. Most importantly, many real-estate sellers are likely unwilling to coordinate with buyers to complete the purchase.

Potential Risks during the real estate financing process

As each bank will have different banking practices to carry out this real estate financing process, the interested parties could consider the following risks of some common transactions.

Stage 1: The properties assessment of the bank

It takes a long time to preliminarily assess the buyer’s financial capacity together with the value and legal issues of the real estate. In case the real-estate assessment results are inappropriate, the bank will reject the application. If the assessed value of the real estate is much different from the purchase one, the buyer will not receive effective financial support to perform the procedure.

Therefore, at the beginning, the buyer needs to be sure of the legal issues of the real estate and determine its correct value. It avoids wasting time asking the bank for assessment but did not achieve the original goal. Typically, the bank will lend about 70-80% of the assessed property value, this loan amount will depend on the proven income of the buyer.

Stage 2: Payment of deposit

After completing the assessment, the buyer can negotiate the transfer value and proceed with the deposit procedure based on the assessed value. Then, the buyer should strictly regulate the conditions of the deposit contract to legally bind the seller and avoid disputes in the future.

Stage 3: The bank makes a loan decision. The parties conduct the notarization of the sale contract

Upon completion of the assessment, the bank will notify the buyer of the term and amount of the loan, payment plan, etc. The buyer can discuss with the bank to agree on adjusting these criteria based on reasonable grounds.

After that, the buyer and the seller perform the procedure for notarization of the sale contract. Then, the buyer can pay the seller the difference between the sale value and the amount financed by the bank.

As the two parties complete the notarization procedure, the bank will disburse the buyer’s loan amount into the escrow account of the seller.

After that, the parties perform the registration procedures of the real-estate changes and fulfil the tax obligations at the tax department.

Stage 4: The bank clears the escrow account, transfers money to the seller and completes the transaction

Upon receiving the new/amended land use right certificate or contract transfer, the bank will sign a credit contract with the buyer and notarize it. After that, the bank will clear the blockade of assets, so that the seller receives the transaction money.

The process of purchasing real estate through the bank only ends when the buyer pays the full number of principals and interest according to the payment schedule.

However, the buyer should note that, when the buyer has received the real-estate ownership and completed the above-mentioned process, the bank and the seller will not hold responsible for legal risk of the real estate. Thus, the buyer should investigate the property’s source, the seller’s information, and relevant legal issues carefully before deciding to buy real estates. Besides, choosing a bank with an appropriate business process is also an important factor in this transaction.

Legal support

Purchasing real estate through the bank not only helps investors mobilize capital quickly, but also guarantees ownership of the purchased properties. However, to ensure legal rights and interests, and save time and avoid potential risks, the buyer should seek legal support where lawyers can guide the buyer through the financing process to complete the purchase.

Nguyen Thi Thuy Ngan (Paralegal)
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