Buying an apartment using a Bank letter of credit: features of the transaction
Using a Bank letter of credit for real estate transactions is a convenient and safe method of making settlements between the buyer and the seller. The letter of credit involves the Bank's participation as an intermediary serving both parties to the transaction.
The essence of a Bank letter of credit is that the buyer transfers funds to a specially opened Bank account in the amount of the cost of the apartment, and the Bank reserves them. Subsequently, the seller will be able to get access to this money after completing all the documents and registering the ownership of the property by the buyer.
A letter of credit is a kind of guarantee of payment to the seller. At the same time, in case of problems with the transaction or its failure, the buyer can simply take their money back.
Types of Bank letters of credit used for the purchase of housing
Letters of credit can be used by both legal entities and individuals. The Bank allows the latter to use the following types:
Revocable letter of credit. In this case, the buyer reserves the right to withdraw its own funds from the account at any time.
In accordance with the procedure for mutual settlements in this case, the seller fully retains ownership rights, since the transaction will automatically be canceled.
Irrevocable letter of credit. Provides for the possibility for the buyer to withdraw money from the account only if the seller gives written permission to do so (or if the validity of the letter of credit has come to an end, and the transaction has not taken place).
After registering the property rights, the seller takes the money from the account.
Non-acceptance letter of credit. It differs from the irrevocable type only in that the seller does not require the direct presence of the buyer to receive money.
A person simply presents the Bank Manager with documents confirming the completion of the transaction and gets access to the account.
When buying an apartment, realtors, Bank managers and lawyers recommend using an irrevocable account type. It will become a kind of protection for the seller, since it will not give the buyer the opportunity to refuse preliminary agreements without good reasons. Accordingly, the risk of failure of the transaction will be minimized.
Stages of buying an apartment using a Bank letter of credit
After reaching agreements on the purchase of real estate between the buyer and the seller (approval of the final price, distribution of responsibility for paying Commission to the Bank, agreement on the term of eviction and re-registration, etc.), the following occurs:
The purchase and sale agreement is drawn up in writing and signed by all parties to the transaction. The buyer submits the contract to the Bank with a request to open a letter of credit. A three-way letter of credit agreement is signed (the Bank is the third party). The buyer transfers the amount of the apartment's cost to the account. The transaction is registered in Rosreestr. The seller collects a set of documents – an extract from the usrn, Rosreestr (on the transfer of ownership under the contract of sale), information about the extract from the apartment, etc. The Bank checks the submitted documents and, if no violations are found, transfers the money to the seller's account.
The main advantage of using a letter of credit is one hundred percent protection of the participants of the transaction from any type of fraud. The seller and the buyer automatically receive additional legal assistance from the Bank, as their representatives will check all documents – any defects, errors of registration, problems will be detected. The letter of credit also protects people from default on any of the parties.
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