2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16
Purchasing real estate is a high-risk transaction, so the seller may only require a transaction to be made using a letter of credit. This is understandable, since settlements using such a system are the most reliable option for both parties. That is why it is required to consider in detail not only what it is, but also how it works in reality.
Real estate transactions
If we consider this type of interaction in the most simplified form, then the buyer buys the object, pays money for it, and the seller sells it at the price at which the agreement was reached, and receives the money. Everything is quite simple, but there are certain nuances.
It is important to understand that the sale and purchase transaction will be recognized as completed only in case of successful registration of the sale and purchase agreement in the relevant registering structures. It is quite possible that a contractsigned, and even referred by the buyer to the registration authorities, but then the seller changed his mind about selling his property. He goes to Rosreestr to pick up a statement of intent to sell real estate.
In such cases, there is a problem, especially if at that time the money has already been transferred to the seller. To return them, you will need to go to court, which is a rather lengthy and costly matter. Here it turns out a situation where it is impossible to pay right away, but it will not work either, because the seller will not have a guarantee that the buyer will return the money after registration. In this case, there is a great risk for both parties to be left both without money and without an apartment.
General characteristics
Letter of credit is one of the modern forms of non-cash payments used for interaction between the seller and the buyer. In fact, it is a guarantor of the security and legality of any transactions. For individuals, a letter of credit when buying real estate has such an indisputable advantage, like all non-cash transactions: this is the absence of the need to have a large amount of money on hand, as well as worrying about their transportation. When issuing a letter of credit, the buyer authorizes the bank to transfer a certain amount of funds to the seller's account after he fulfills and confirms certain obligations under the agreement.
Practical application
If we talk about how to apply a letter of credit when buying real estate, then there are certain features. Calculation scheme inIn this case, it looks like this. An agreement is drawn up between the buyer and the seller stating that this particular form will be used for mutual settlements under the transaction. The letter of credit agreement contains all the information about what payment terms and methods of notifying the parties will be used, as well as the details of the participants in the transaction.
The buyer must apply to the bank that serves him to issue a letter of credit there. A special account is also opened in the seller's servicing bank. The buyer's bank will transfer funds to him from his client's account. It turns out that the funds in the seller's letter of credit account are usually located even before the start of the transaction. This is the essence of security for both parties.
How to get funds
Money for the seller will become available only when the sale and purchase transaction is completed, and all the documents necessary to confirm it will be provided to the bank. If there is no doubt about their legality, correctness and reliability, then the seller's bank will debit the funds from the letter of credit account to the client's account.
Required documentary evidence
This type of transaction, such as the purchase of real estate, involves the provision of a contract for the sale of a house or apartment, which has passed the state registration procedure. Some banks request extracts from the unified state register of rights, which will confirm the buyer's ownership of the purchased property. When finding merchant accounts andbuyer in the same bank, the scheme becomes much simpler.
Letter of credit benefits
If you use a letter of credit when buying real estate, then there is a whole range of advantages for both parties to the transaction. For the seller, this will be a guarantee of receiving funds in full from the buyer. The money will be in the buyer's letter of credit account already at the time of the transaction, so he will be sure of their safety. The bank guarantees payment if the seller submits all required documents and complies with the terms of the letter of credit.
The buyer can count on a full guarantee of the transaction: if for some reason the transaction does not take place, then the refund will be made in full. If the seller does not fulfill at least one condition of the letter of credit, then the payment by the bank will not be made.
Purchasing real estate using a letter of credit allows you not to make an advance payment or pay for the transaction in installments.
Cashless interaction is safe and convenient.
The observance of the terms of the contract is closely monitored by third parties, that is, bankers. If you use a letter of credit when buying real estate, then not only the participants in the transaction are interested in the correctness and legality of its execution. Credit institutions in this case are also liable in accordance with applicable law. In this case, it is guaranteed that the executing bank will not accept fake or incompletely executed documents for the transaction for payment. When a loan person acts as a guarantor of the transaction, that is, a letter of credit is used when buying real estate, this is always a sign of reliability.
Disadvantages of a letter of credit
Despite the fact that this form of mutual settlements has a whole range of positive aspects, there are also certain disadvantages. The document flow is quite complicated, since at each stage of the transaction its careful control is required. Drawing up a letter of credit agreement and carrying out operations on it is usually accompanied by the need to pay a commission. Usually its amount depends on the amount of the transaction.
Why not used
Few people now use a letter of credit when buying real estate. Sberbank has long been offering its customers to use such a secure service. This form of mutual settlement is often compared with the use of bank cells, but it is used much less frequently. The methods have similarities, but there are also strong differences. The use of a cell implies the presence of money in physical form, and for the second case, these are non-cash payments, and this is what a letter of credit consists of. Sberbank provides both options, but most often customers choose the first one.
This is due to many things. Depositing funds into a safe deposit box by the client is carried out secretly, that is, he does not disclose its contents to the bank. In this case, the seller cannot be sure of the honesty of the buyer. And in this case, the bank does not bear any responsibility, even if it has already been concludedcontract of sale. In this case, the letter of credit protects both parties, since the credit institution is responsible for any violations during the execution of the transaction.
Conclusion
The use of a letter of credit form of payment when buying real estate is recognized by experts as a good option. Banks are interested in the success of the ongoing transaction, so they will carefully monitor it at every stage.
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