- Buying an apartment in Israel
- Contract Structure
Payments are made chronologically – payment by signing a contract, revenue in the middle, and payment at the time of delivery of possession and transfer of rights.
Determining the payment schedule is of great importance.
It is advisable to pay the payments carefully while securing and protecting the seller and buyer’s rights.
The Premium way in the country is to pay equal payments. Payment on the date of signing the contract and the same payment on the date of delivery of the possession, and the rest of the payments in the middle of the contract period.
This is not self-evident, because, for example, in the United States it is customary to pay ten percent when signing a contract and the balance at the time of handing over possession.
In order to deal with this, a young couple who lives in a rented house and buys an apartment will find themselves for a certain period of time both paying rent and paying back their mortgage.
In order to determine the order of payments, we must take into account a number of facts.
Should the rights of the buyer in the apartment be guaranteed, we would write a cautionary note in favor of the buyer.
The mortgage registered in the registry must be removed, as well as the mortgage registered with the registrar of mortgages when the seller has taken out a mortgage.
It is also possible to allow the buyer to take out a mortgage and ensure the tax payments related to the transaction, as well as the transfer of the rights in the apartment in the name of the buyer in the registry.
In addition to all this data, there are sometimes additional constraints, such as the seller’s obligations to other parties, or constraints on behalf of the buyer, if he deserves to receive funds from third parties and that he is supposed to use to purchase the apartment.
The amount of the first payment varies from transaction to transaction, and cannot be determined without considering each transaction separately, however it is customary that the first payment should not be less than ten percent of the transaction.
This is usually the agreed compensation if one of the parties violates the fundamental breach agreement.
It is important that the first payment is made at the time of signing the agreement.
The importance is known in the case of breach of contract on the part of the buyer, when the seller may find himself without payment while his apartment is mortgaged for the benefit of the buyer. The buyer, however, will be afraid to make a payment before writing a cautionary note in his favor, otherwise, he will make a payment when he is exposed until a cautionary note is registered in his favor.
The usual solution is to make the first payment by bank check and hand it over to the seller’s representative in trust, and this will be sent to the seller only after registering a cautionary note in favor of the buyer.
It is very important that the check be recorded for the benefit of the seller only with a ‘non-negotiable’ or ‘beneficiary only’ note, thus ensuring that only the seller can deposit the check.
Another solution could be to deposit the first payment into a trust account, which will be opened by one of the lawyers. After registering a cautionary note in the register, the funds will be transferred to the seller.
After registering the cautionary note in favor of the buyer, the parties must remove the seller’s mortgage on the apartment.
Of course, the date and manner of removing the mortgage depending on the amount of the mortgage. The higher the mortgage, the more protections the buyer will have to demand.
The mortgage is removed in stages: In the first stage, the seller’s mortgage bank issues an up-to-date letter of intent to the buyer or his mortgage bank with an explicit commitment by the bank to remove the mortgage if a sum of money is paid to him by a certain date.
The buyer must make the payment exactly according to the instructions in the letter of intent. According to the guidelines of the Bank of Israel, the bank must submit to the ‘tabu’ banknotes canceling its mortgage within 60 days from the date of payment according to the letter of intent.
In practice, the seller will be responsible for receiving from the bank the cancellation notes of the mortgage registration and deleting the mortgage in the ‘tabu’. Along with the removal of the mortgage, the bank will also remove the mortgage insofar as it is registered in its favor in the name of the seller with the registrar of mortgages.
It is important to note that it is possible to physically go to the registry office and the registrar of mortgages and cancel the registration of the mortgage and the mortgage, and there is no need to deposit the file or make an appointment in advance.
In return for the transfer of possession and the transfer of rights, the buyer will pay the balance amount. To the extent that at this time the transfer of rights cannot be completed due to the lack of full tax certificates, a sum of money must be transferred to the trust account until the documents are presented.
It is important to note that the seller gives an irrevocable instruction to the lawyer to use the trust funds for the purpose of obtaining tax clearances as soon as possible.