The due diligence process in a real estate purchase transaction consists of a series of studies, reviews and analysis related to the property being purchased, as well as the seller. During the due diligence period, and normally through the purchaser’s legal counsel, and in part through his/her realtor in the transaction, is their duty to provide the buyer with as much information and documentation as possible for their assessment in making the purchase decision. In addition, the terms and conditions for the purchase will be set forth and determine if the parties requirements can be met or not. The scope and level of detail of such a process will depend on the assessment and investment parameters that the purchaser may decide to use for the specific transaction.
For purposes of this article we have prepared a non-exhaustive list of items classified into two main categories: Legal Due Diligence and Technical Due Diligence. For illustration purposes, we have divided in three groups: first, basic items, the minimal items to be confirmed in order to ensure that the acquisition of the property (as far as to make sure that you will get ownership of the property) can successfully happen; secondly desirable items, to make sure that you understand the regulations that apply to the property and that the property will be suitable for its intended use; and finally additional items, that would ideally be performed during the due diligence period.
Legal Due Diligence
Basic items
A review in the Property Registry of the title inscription of the property, and of the title’s history for at least 10 years back in time, which allows you to know the registered owner of the property, if the property holds any mortgages or other sort of pledges or any attachments (such as leases, easements, etc.) or if it is subject to any liens and embargoes. As well to check if any important situations have happened in regards to the title during the last ten years.
A review of the inscription of the current survey of the property. This will allow you to verify that such survey is properly registered and corresponds to the respective property.
A review of real estate and municipal taxes for the property and other applicable taxes for the property.
A review to confirm that the seller is up to date on all obligations required for the transfer of the property.
Desirable items
Zoning certificate, to know if the property is zoned for the intended use for which buyer is acquiring it, as well as the applicable setbacks and other relevant zoning items.
A review of use regulations that apply to the property. This will include a review of any Covenants, Conditions and Restrictions (CCRs), Home Owners Association regulations, Condominium Bylaws, Ecological and Conservations Easements or any other similar regulations to determine the regulations that will apply to the use of the property.
Utilities availability, to determine the situation of utilities existing on the property and if there are actual service connections established (and their payment status) or if such services are actually available for the property.
Technical Due Diligence
Basic items
Boundaries, survey and setbacks review and auditing, to find out if the boundaries on the field and the measure of the property are accurate in relation to what is shown in its survey or indicating what differences were found, if any encroachments exist and if there is consistency with the maps of the Cadastral Registry. The surveyor will also be looking for water streams or water springs on the property or its vicinity, as certain setbacks apply to them, which determine protection areas on which no development may take place. It may also be recommendable to request a review of zoning setbacks.
Desirable Items
Having a soil test performed on the property, to produce a report which will indicate the conditions of the soil (bearing capacity, permeability and percolation analysis included) and which will include what recommendations should be considered for a building process on the property. Engineering, structural and condition review of improvements.
Additional Items
Water test, to determine biological potability of the water and, if so desired, also chemical potability of the water.
Once all of the information and documentation resulting from the due diligence process is presented to the purchaser, it is important that he/she makes a detailed reading and review and that any questions or inquiries that may arise be presented to the corresponding professionals, to ensure that a clear understanding of the condition of the property is obtained for purpose of the respective property purchase decision making process.
Written by Randall R. Sánchez. Attorney and Notary Public. Sanchez and Associates Law Firm (www.sanchezlex.com)
Disclaimer: The information contained in this article is for illustration, informative and reference purposes only. It is not intended to serve as specific legal counseling. Each specific real estate transaction requires the corresponding specific review and counseling from the corresponding legal and technical professionals.
