Although it is a common practice, making a drawer contract when buying or selling a property has several risks; Here’s how to prevent yourself to make a safe trade.
What is a drawer contract?
Table of Contents
The drawer contract occurs when the negotiation of a property is made directly between owner and buyer, without any other official documentation being made. This type of contract began to become popular in the 1980s, when there were restrictions on the granting of real estate credit and it became very expensive to buy a property through traditional channels, such as bank financing.
9 Persuasion Techniques for Closing Real Estate Sales
Thus, buyers and sellers started to document the business through the drawer contract, without registration with financial institutions or a notary’s office. The buyer had the down payment, but could not get credit for the rest. The seller then agreed on how the payment would be and this was recorded in a contract between them.
How does a drawer contract work?
To understand how the drawer contract works, it is important to always keep in mind that it is a private instrument, made only between two parties: seller and buyer. And why is it just a private instrument? Without public knowledge about the contract, such as notaries and banks, the document is valid only between the parties involved.
But how to make a property drawer contract and what is it currently for? To have more security in the negotiation, the drawer contract can be used as a first step in the transition of the asset, as a purchase and sale contract. It must contain all the characteristics of the property, as well as details about payment, delivery of keys and when the change of ownership will be made.
It is important to look at this type of contract as just one of the steps, because, as the name suggests, the drawer contract is something made to be kept in the drawer at home. The document is not valid in relation to the ownership of a property, such as the public deed and registration at the notary’s office.
However, the contract between seller and buyer is still widespread in Brazil, in general due to difficulties in obtaining real estate financing because their name is linked to credit protection services (SPC) or cannot prove income. Despite being popular, the drawer contract brings together many risks, as we detail below.
What is the risk of the drawer contract?
Now that you know what a drawer contract is, it is essential to understand what the risks are. In a direct way, there is much more than a risk in transactions of this type, and full attention is needed if you want to close a deal on a property on these terms.
Risks to the buyer
- The seller can act in bad faith and sell the same property twice;
- The real owner of the property is someone else, and not the seller with whom you closed the drawer contract;
- The seller can leave debts linked to the property, such as property tax and condominium in arrears;
- Without a name in the deed, the buyer cannot use the property as collateral in loans or be a guarantor in rent;
- At the end of the payment, the seller does not pass the property to the buyer’s name through the public deed;
- The seller dies during the private financing and the buyer has the property tied to an inventory process of the heirs.
Risks for the seller
- Likewise, the buyer can make debts related to the property and, if the seller’s name is still on the deed, he is the one who will be required by law to pay the amounts;
- The buyer fails to pay the private financing agreed in the drawer contract.
To avoid the double or triple sale of the property, it is necessary to make an annotation in the registration of the property in a notary’s office. In other cases, if there is no amicable agreement between the parties, it may be necessary to file a lawsuit.
How to regularize drawer contract
First, the good news is that there is a way to regularize a drawer contract. If the contract was written in full, it will contain the mode of payment, value of the installments and, at the end of the private financing, how the change of ownership of the property will be made.
Transferring the property from the seller’s name to the buyer’s name is essential to regularize the situation of the property. This happens through the public deed of purchase and sale, which is a mandatory act for the transfer of real estate negotiated from 30 minimum wages. With the public deed in hand, register the transaction in the property registry.
How to cancel a drawer contract
And what happens with breach of a drawer contract? Is there a way to annul a drawer contract? Currently, jurisprudence is already able to solve cases in which the parties are no longer in agreement with the drawer contract. For example, if the buyer wants to annul the contract and the seller does not agree, it will be necessary to go to court to resolve the issue.
