Payment Methods – Real Estate

When investing in real estate in Panama, it is common for the parties involved in the transfer of real estate to prepare an agreement, which will regulate all steps, obligations, and foreseeable scenarios for the upcoming weeks or even months of the transaction; this document is commonly known as the “Promise to Purchase and Sale Agreement”.

Within the draft of the Promise to Purchase and Sale Agreement, the sale price is often divided into two or more initial payments, starting with a lower one (typically expected to be 10% – 20%). The method and date of each payment must be specified, indicating, for example, that an initial payment will be made on the execution date of the contract by cashier’s check, a second payment 30 days later (or conditioned on a certain event), ending by setting a deadline for the closing and how the final payment will be executed. This final payment can be made in various ways; however, to provide security to both parties, there are two commonly used payment methods in Panama: (i) an irrevocable payment letter issued by a local bank, or (ii) a cashier’s check held by a notary.

To ensure the last payment, the promissory buyer may choose to buy an Irrevocable Payment Letter from any local bank, where the funds will be frozen from the promissory buyer’s account, and the bank will act as a guarantor of payment in favor of the promissory seller once certain conditions have been met, including the official transfer of the property title to the promissory buyer or whoever he designates. This instrument guarantees the execution of payment on behalf of the promissory seller and protects the funds of the promissory buyer until the transfer is confirmed. This method is also commonly used by banks when disbursing loaned funds resulting from a mortgage to a seller. It can also be used to pay other debts or obligations of the seller, such as existing mortgages.

Alternatively, the parties may choose to handle the disbursement of the last part of the sale price through a cashier’s check in custody of a local notary, where the notary will commit in writing to handle such a check to the promissory seller only when they can prove that the transfer of the property title has occurred on behalf of the promissory buyer. This method also provides security to both parties that the funds will only change hands once the closing has been completed and not before.

The correct use of either of these two methods avoids the need for title insurance or a similar indemnity insurance instrument.

Our constant advice when it comes to these types of investments is to always hire legal representation from day one, guaranteeing a simple and uncomplicated transaction.

By: Emilio Cornejo Vernaza LL.M.

Founding partner of PGS Attorneys and PGS Realty

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