Buying Land In Panama - the Irrevocable Payment and Bank Accounts
by Ives Brant
When buying land in Panama, the buyer kicks off the transaction with a contract and a down payment of about 15%. The seller is to receive the remainder upon transfer of title to the buyer.
The remainder is not paid in cash. Some condo developers may require cash (which means a cashier's check) at the traspaso, but every Seller in Panama SHOULD accept a Carta de Promessa de Pago Irrevocable. In English, this translates to an Irrevocable Letter of Payment, or irrevocable letter of credit.
The key word there is Irrevocable. The buyer cannot revoke the payment. If the property goes into the buyer's name, the seller gets his money. The Seller cannot cash the Pago Irrevocable, however, until he delivers to your bank (which freezes your 85% funds for this purpose) a new deed that proves you have full title to the property. The deed comes from the Registro Publico. The bank is required to check it carefully. Presumably, if they make a mistake and issue payment on the Irrevocable Payment on a fake deed, they are liable to the buyer.
This is a very workable system. It does a good job of protecting buyers - certainly it's better than Costa Rica's system. Escrow in Panama tends to be costlier than Costa Rica, and certainly more expensive for you the Buyer than obtaining a Pago Irrevocable. When using a Pago Irrevocable, and most land sales do, there's no reason to pay for escrow.
Here's how the Pago Irrevocable works. If you are buying a property for $400,00 then you make a down payment of, say, $60,000 and deposit $340,000 into a Panamanian bank account in your name. By the way, establishing that account can take several months, so it would be clever of you to start that process on your very first trip to the country. As an alternative, if you have no bank account, a lawyer can prepare the Pago but will usually bill you 2% of the face amount, a ridiculous $6,800 in our example. A bank will charge you $50 to $75 rather than $6,800, so having your own account is very much worth the trouble, hassle, annoyance and all the hoops a bank will put you through.
You will sign and give to the bank a form called a Prenda, which authorizes the bank to freeze your $340,000. The branch manager will usually supply you with the Prenda form to fill out. They can also help you fill out a Solicitud, or application, for the Pago Irrevocable (Irrevocable Payment). The Solicitud should spell out that the property must be in your name, or the name of your corporation, for the Seller to cash it. Basically the Pago Irrevocable is a letter of credit that is always meant to be cashed. This Pago is basically useless to the Seller until you own the property.
Some buyers like to give the Pago Irrevocable to the Seller at the same time as the down payment, because holding a Pago for $340,000 is powerful motivation to pay those taxes with your down payment and do everything quickly to get the property into your name.
One tip: if at all possible, leave the bank three weeks to prepare the Pago Irrevocable. Go get it in your hands and check it three days before the traspaso/closing. Often - let me say NEARLY ALWAYS -- there are mistakes that only you will spot; such as the wrong amount, a missing seller, or a wrong property number. Check it at the bank before you leave; if it's wrong, have them fix it right then and there. Remember - your purchase contract must be worded so that you have enough time to have the bank issue the Pago Irrevocable, to avoid any danger of defaulting and losing your down payment.
If an escrow company prepares your Pago, they will charge you a hefty fee and the risk they'll make a significant error is high. I must caution you NOT to allow them to deliver the Pago directly to the Seller or his lawyer until you have had time to check it. Leave enough time in your schedule to fix any mistakes the escrow company causes through carelessness. If you get the idea that experience has made me distrustful of Panama's escrow agents, you are 100% correct. If their error causes you to miss a contractual deadline and lose your down payment, I seriously doubt the escrow company will make good on their mistake. If you simply cannot get your own bank account, then you may be forced to have an escrow company provide the Pago for you.
Opening the bank account in Panama may be a saga you can recount for your grandchildren. The best experience I've had with this is Banvivienda, where it took only two months. I recommend against Citi because of their bureaucracy and tendency to turn a two-day matter into two months of pleading and frustration. I can assure you that they may ask you for 20, 30, or 50 documents to prove you are not a money launderer while you miss a contract deadline and lose your down payment. Wherever you have personal connections, like a lawyer who knows a bank manager, USE them. Even if you are related to Panama's president, you will need letters of reference from your banks and investment brokers at home. Do not expect this step to be anything but harrowing.
The bank account can be in your own name even if a corporation will take ownership of the property. Explain in detail to the bank manager that you are buying property, you will need a Pago, it cannot be wrong or late, you rely on them absolutely to get it right. Panama's banks are famous, but they make a lot of mistakes and they rarely accept responsibility or even admit their mistakes. The notion of customer service is absent at the institutional level; if you're fortunate you may find a branch manager or headquarters individual who will deliver for you.
