When investing in real estate in Panama, it is common for parties involved in the transfer of real estate to prepare an agreement, which will regulate all steps, obligations and foreseeable scenarios for the next weeks or even months of the transaction; this document is commonly known as the “Promise of Purchase and Sales Agreement”.
Within the draft of the Promise of Purchase and Sales Agreement, the selling price is often split
into two or more down payments, starting with a lower one (10% – 20% is expected). The
method and date of each payment should be specified, stating for example that an initial down
payment will be done on the date of the agreement’s execution, by means of a cashier check, a
second down payment 30 days later (or conditioned to a particular event), ending on establishing a deadline for closing to take place and how the final payment will be executed.
This final payment may be done in several ways, nevertheless to provide security to both
parties, there are two payment methods of common use in Panama: (i) an irrevocable letter of
payment issued by a local bank, or (ii) a cashier check held in custody by a notary.
To secure the last payment, the promissory buyer can opt to buy an Irrevocable Letter of
Payment from any local bank, where funds will be frozen from the promissory buyer’s account
and the bank will act as guarantor of payment to the benefit of the promissory seller once
certain conditions have been met, among those, the official transfer of title of the property to
the promissory buyer or whomever he or she assigns. This instrument guarantees execution of
payment on behalf of the promissory seller and safeguards the promissory buyer’s funds until
transfer has been confirmed. This method is also commonly used by banks when disbursing lent
funds product of a mortgage to a seller. It may also be used to pay off other debts or
obligations of the seller, such as existing mortgages.
As an alternative, the parties may opt for handling disbursement of the last part of the selling
price by means of a cashier check held in custody by a local notary, where the notary will
commit in written to handle such check to the promissory seller if and only when he or she can
prove that the transfer of title of the property object of the transaction on behalf of the
promissory buyer has taken place. This method also provides security to both parties that funds will only exchange hands once closing has taken place, and not before.
The correct use of any of these two methods avoids the need of a title insurance or 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 you an uncomplicated, straightforward transaction.
By: Emilio Cornejo Vernaza LL.M.
Founding Partner of PGS Attorneys and PGS Realty