What should I consider in buying a property of a deceased person? How should I deal with the heirs? Is estate settlement a requirement for transactions like these?
Who owns the property?
When you consider buying a property, the first thing that comes to mind is the property’s owner. A careful buyer will most likely check whether the property has a certificate of title. If there is one, you must inspect this title. Sometimes, a property’s only “registration” is a tax declaration issued by the local assessor’s office.
Anticipate the process ahead
Real estate transactions used to be simple and fast. In a sale of land, for example, the seller will receive the payment for the land while the buyer will take possession of the property by starting to fence its perimeter. The payment of capital gains tax and registration with the proper government agency was not a matter of course then.
Today, registration of these real estate transactions is a must. The buyer must not be content to take possession of the real property.
This registration process includes within it a number of transactions with other government agencies. There is the payment of taxes with the Bureau of Internal Revenue (BIR) and the sale’s registration in the Register of Deeds.
With sales of real property occurring here and there, a common problem occurs when the certificate of title or tax declaration contains the name of a person who is already dead. This deceased may be related to the seller and they may be generations apart. Worse, the property may have been sold multiple times without the needed registration.
This problem shows that the systematic procedures in order to reflect the death of the previous owner and transfer of the name to his heirs have not been made.
The example below tells just that.
Anna and Consuelo are the only daughters of Felicitas. Both of them grew up in Australia. Felicitas secretly owned a two-hectare rice field in Bukidnon. After Felicitas died in 2019, Anna and Consuelo learned about this property. They wasted no time and went back to Bukidnon for the estate settlement. Since both of them did not want to manage the property, they decided to sell it to Renato, their cousin. During their negotiation, Renato learned that the title of the property is still under Felicitas’ name. Renato now asks his lawyer about the proposed sale. What should he look out for? What are the things he must consider before concluding the sale?
Some important reminders for potential buyers like Renato will be addressed in this article.
Deal with the right person
First, you want to make sure that you are dealing with the right person. This person should have the authority to deal with potential buyers. If the owner of the property directly deals with you, that owner has every right to sell his property.
Sometimes the seller assigns an agent to deal with the buyer. The seller is the principal and his designated is the agent. This is a contract of agency.
Article 1868. By the contract of agency, a person binds himself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter.
The buyer must take an active role in knowing the full extent of the agent’s authority. Dealing with an unauthorized person leads to unfortunate events. The buyer may end up losing his money or be deprived of the property itself.
In particular, for the sale of real property through an agent, the buyer must ask for the written authority of the agent.
Article 1874. For a sale of land or any interest therein is through an agent, the authority of the latter shall be in writing; otherwise, the sale shall be void.
This authority should specifically task the named agent to sell the property on behalf of the principal or seller. A special power of attorney or a “SPA” is what the buyer should look for.
Article 1878. Special powers of attorney are necessary in the following cases:
(5) To enter into any contract by which the ownership of an immovable is transmitted or acquired either gratuitously or for a valuable consideration;
Ask for an estate settlement?
The buyer must also check whether there was a proper estate settlement. An estate settlement accounts for all the assets and properties. It also covers the payment and fulfillment of the estate debts and obligations. One such obligation of the estate is to pay the correct estate tax.
Estate settlement is necessary because the properties under the deceased’s name cannot be properly transferred without first clearing the estate’s obligations.
As a buyer, you want to transfer the title over the property under your name. Without first settling the estate, the deceased’s name will continue to appear in the property’s record.
The Tax Code makes this requirement clear.
Section 95. Duties of Certain Officers and Debtors. Registers of Deeds shall not register in the Registry of Property any document transferring real property or real rights therein [...] by way of gifts inter vivos or mortis causa, legacy, or inheritance, unless a certification from the [Commissioner of Internal Revenue] that the [estate] taxes fixed [...] and actually due thereon had been paid [….]
There are sales of real property where no estate settlement has been made before. The buyer in these cases is at a disadvantage and exposes himself to a great risk.
For one, the title over the property cannot be transferred and recorded in the proper agency. It will remain in the name of the decedent or the last person whose name is reflected in the certificate of title.
Add to this the worry and fear that one day an heir might question the transaction and claim a share over the property. The more heirs there are, the greater is the risk on the part of the buyer. In other words, the ownership over the property will be in limbo unless the title over the property is properly recorded in the buyer’s name.
The best way to avoid these scenarios is to make sure that the heirs have satisfied their legal obligation for the settlement of estate.
How to do an estate settlement?
An estate settlement can be either extrajudicial or judicial.
The simpler process between the two modes is through an extrajudicial settlement. In this mode, the heirs can settle the estate on their own and without going to court. They simply have to execute a Deed of Extrajudicial Settlement.
The Rules of Court outlines this process.
Rule 74, Section 1. Extrajudicial settlement by agreement between heirs. — If the decedent left no will and no debts and the heirs are all of age, or the minors are represented by their judicial or legal representatives duly authorized for the purpose, the parties may without securing letters of administration, divide the estate among themselves as they see fit by means of a public instrument filed in the office of the register of deeds, and should they disagree, they may do so in an ordinary action of partition. If there is only one heir, he may adjudicate to himself the entire estate by means of an affidavit filled in the office of the register of deeds. [...]
The parties must bear in mind that this process requires that the deceased left no will and the estate has no debts. For the heirs, they should all be of age and the minors should be represented by a guardian authorized for the purposes of settling the estate. If there is only one heir, he can execute an Affidavit of Self-Adjudication and file it in the register of deeds
Agreement of all the parties
Real property and the whole estate owned by someone who died are transferred to his heirs at the exact moment of death.
Article 777 of the Civil Code. The rights to the succession are transmitted from the moment of the death of the decedent.
These heirs become the owner of the property even if the estate of the deceased is to be settled later on.
All of the heirs are now the owner of the properties or every one of them is a co-owner. The buyer who intends to acquire a real property of the estate should deal with all of them if the property has not been assigned to any one of the heirs. Before the partition of the estate, every heir has a share in the real property.
In entering a contract of sale with these heirs, the buyer must take their consent in order to avoid legal problems in the future. All of them must agree to the sale of a real party, which forms part of the co-ownership.
Their consent must be reflected in the written contract of sale.
A complete contract
The buyer should make sure that the contract of sale is complete and detailed because this document is the law between the parties to it.
Article 1458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent.
The parties must clearly state the rights and obligations each of them is entitled to and burdened with.
The usual stipulations in this contract are the selling price, the terms of payment, the identity of the real property, and the signatures of the parties. To avoid confusion, the contract should also state who will pay the capital gains tax or the tax imposed on the sale of real property.
The buyer’s goal is not to enter into a transaction that will cause him headaches years ahead. He should not be lured by a generous offer from an heir. The buyer may end up assuming the heir’s burden along with the real property.
Always deal with the true owner of the property or with the owner’s agent. If dealing with an agent, make sure that the agent is armed with an SPA. This SPA must expressly state the tasks delegated by the owner to his agent.
In the case of a property owned by a deceased person, it is advisable to ask the heirs if there has been a proper estate settlement. The heir can show the deed of extrajudicial settlement, proof of payment of estate tax, and the certification from the BIR that the estate tax has been paid.
If the estate has not been settled, the buyer should reconsider whether he will continue this transaction. He may do so but at his own risk. He may end up assuming the payment of estate tax and other penalties that have accrued due to non-payment.
The buyer should seek the consent of all the heirs of the property to be sold that has not yet been partitioned or assigned. Make sure that everyone’s consent is reflected in the contract of sale.
Lastly, have a contract which details in clear terms the rights and obligations of each party. This will avoid any confusion on what is due from each of them.
If you have more questions about Estate Settlement, here’s an additional resource
I hope the article was able to help you out, but chances are you may have more questions about Estate Settlement. Please check out this additional resource and see if it can help you. Go to info.legalguide.ph/estate to learn more.