Dodgy Contract On House Purchase

[RickBlaine]

I’m looking for a little advice, hope someone can help, and maybe help anyone else in a similar position.

We (Thai wife and I) thought we had found our first property to buy. It’s a house, freehold, about 4 years old.

The owner is a lady who lives some distance away. She bought the house 6 months ago as an investment. We are dealing with her brother, who apparently deals in houses ‘on the side’. He has a contract with his sister which states that he can sell on her behalf. He showed my wife the contract, on which it says it’s a bungalow (it’s a 2 storey house), he said, for tax reasons.

He is trying to push us along asap, too quickly for my liking and too quickly to arrange a lawyer to check his contract. He has also said he wants to put ‘bungalow’ and a reduced price on the new contract (the one we complete at the land registry) when (if) we buy – again for tax reasons.

I’m almost certain we won’t proceed, and I know the advice is always 'consult a lawyer', but I’d like your thoughts, for the next time.

My questions are;

am I worrying about nothing? Is this common practice to use a slightly dodgy contract to try and reduce the tax liability? If his contract with his sister (the true owner) is incorrect, doesn’t that make it void? Then he has no legal right to sell the property?

The Thai law I’ve seen online states that for the tax calculation, the contract price or assessed price is used - whichever is the greater. So, if a Land Office assessor comes round after 6 months, and sees it’s a house, not a bungalow, worth more than the contract price, is ‘someone’ going to get a nasty surprise?

Thanks for any comments.

[ludditeman]

Don't buy this house bungalow.

If you really must illegally buy a house in your wife's name, buy from the owner.

(I assumed your money, hence illegal in Thailand)

[dave111223]

Is this common practice to use a slightly dodgy contract to try and reduce the tax liability?

Yes it is common practice to give fake prices to reduce tax. Not saying it's right or wrong, but it is fairly common.

If his contract with his sister (the true owner) is incorrect, doesn’t that make it void? Then he has no legal right to sell the property?

It's up to the land department whether they accept him as having a right to sell the property on the sister behalf.

If they don't accept it you will not be able to do the transfer. End of story.

If they do accept it and the deals goes through, it's done you already own the land, they can't come and take it back later.

The Thai law I’ve seen online states that for the tax calculation, the contract price or assessed price is used - whichever is the greater. So, if a Land Office assessor comes round after 6 months, and sees it’s a house, not a bungalow, worth more than the contract price, is ‘someone’ going to get a nasty surprise?

Taxes are paid upfront before you do the transfer, they will not come around later asking for more.

But when you come to sell your house, if you don't find a buyer who is willing to go along with the status quo, then you may end up getting hit for more taxes than you expected then.

The thing i'd be more wary of is him trying to push it through ASAP. In my experience Thai's are slow as sh*t when it comes to real estate (buyers take forever to decide, and sellers take forever to get their sh*t together). So I'd be wary of a Thai trying to make you think that it "has to happen now"... he knows full well that is not the norm here.

Also Thais often misuse "brother", "sister" etc... he wouldn't be considered a "liar" if actually he's just some distance friend but refers to her as "sister". If i was you i'd demand to speak to the owner directly. If he won't allow it, he is probably 3 or 4 tier seller and you are paying him and all the other middlemen inbetween you and the owner. If this is the case go to the land department and try to get the contact info of the person listed on the Chanote and call them direct.

Edited February 26, 2012 by dave111223

[Theo007]

Find another house and save yourself future problems!

[thaiwanderer]

Walk away, or perhaps run.

No time to check his contract under which he purports to be able to sell on her behalf?

Are we to assume he's suggesting no direct contract between you and his sister?

What else isn't there time for? even a cursory due dilligence?

tax is likely to be the least of your worries if you buy without checking amongst other things the history of the title, whether it was legally built (doubtful), whether any bulding (even a bungalow) is even allowed there etc.

[MJo]

Don't buy this house bungalow.

If you really must illegally buy a house in your wife's name, buy from the owner.

(I assumed your money, hence illegal in Thailand)

It is not illegal to donate money to your wife. It is not illegal for your wife to use money received from spouse to purchase property.

Land office will process the transfer as long as foreign spouse signs document confirming the property is not part of marital assets i.e. belongs to the Thai fully.

[RickBlaine]

It felt like we were being stitched-up, but no harm done, no money changed hands.

We're walking away from this one.

Thanks for your comments.

[donx]

I completely agree with dave111223's post.

In the future if someone asks to reduce the recorded price of the property, go ahead and agree so long as they pay all of the taxes. When it comes time for you to sell, your taxes will be determined without considering the price you paid. In other words, there isn't a cost basis to subtract from the selling price when determining the tax you will pay when you sell.

[thaiwanderer]

While OP is now walking away (briskly) I do wish to respectfully disagree with some issues raised above.

It's up to the land department whether they accept him as having a right to sell the property on the sister behalf.

If they don't accept it you will not be able to do the transfer. End of story.

If they do accept it and the deals goes through, it's done you already own the land, they can't come and take it back later.

The land office can make mistakes and sometimes more than mistakes. No liability attaches for the mistake of an official and in such circumstances the transfer can be rescinded and the OP would be left without the land and chasing the 'brother' for the money and he may be a man of straw. There is no reason not to contract directly with the seller and many valid reasons to insist on it.

Taxes are paid upfront before you do the transfer, they will not come around later asking for more.

But when you come to sell your house, if you don't find a buyer who is willing to go along with the status quo, then you may end up getting hit for more taxes than you expected then.

They can come back later. Its not enough that the current seller pays, the contract should specifically agree the seller is liable for all. This may only be a key to claim back from the seller if the tax come back for more but its better than being sloppy and assuming. Also misdeclaring though entirely common does involve an offence.

Edited February 27, 2012 by thaiwanderer

[RickBlaine]

Sorry to reopen this - after I had already thanked everyone - but I think there was an added stitch-up attempted here. The brother/owner was trying to get me to pay all taxes, which I almost agreed to, thinking it would only be the 2% transfer fee. There is, of course Specific Business Tax (SBT), stamp duty and Withholding Tax(WHT).

I am understanding WHT correctly? As far as I understand from other websites, if the seller is a company the WHT is 1% of the price, but if the seller is an individual, the WHT is based on their tax rate (he is a doctor, so could be on top tax rate).

Can this be correct, the WHT could be based on a 30% tax rate!!?? Surely I've misunderstood this?

[donx]

Sorry to reopen this - after I had already thanked everyone - but I think there was an added stitch-up attempted here. The brother/owner was trying to get me to pay all taxes, which I almost agreed to, thinking it would only be the 2% transfer fee. There is, of course Specific Business Tax (SBT), stamp duty and Withholding Tax(WHT).

I am understanding WHT correctly? As far as I understand from other websites, if the seller is a company the WHT is 1% of the price, but if the seller is an individual, the WHT is based on their tax rate (he is a doctor, so could be on top tax rate).

Can this be correct, the WHT could be based on a 30% tax rate!!?? Surely I've misunderstood this?

Yes you have misunderstood this. I don't know the details but I do know the tax doesn't correspond to an individual's income. There are many threads on the topic of what the fees are for transfer of property. I suggest you find one of them and get the details. I do know that one of the taxes is based upon the number of years that the property has been owned by the seller. The tax is less each year until after 5 years when the rate is the same. I'm sure someone else will provide a more accurate response than I can provide.

[dave111223]

While OP is now walking away (briskly) I do wish to respectfully disagree with some issues raised above.

It's up to the land department whether they accept him as having a right to sell the property on the sister behalf.

If they don't accept it you will not be able to do the transfer. End of story.

If they do accept it and the deals goes through, it's done you already own the land, they can't come and take it back later.

The land office can make mistakes and sometimes more than mistakes. No liability attaches for the mistake of an official and in such circumstances the transfer can be rescinded and the OP would be left without the land and chasing the 'brother' for the money and he may be a man of straw. There is no reason not to contract directly with the seller and many valid reasons to insist on it.

Taxes are paid upfront before you do the transfer, they will not come around later asking for more.

But when you come to sell your house, if you don't find a buyer who is willing to go along with the status quo, then you may end up getting hit for more taxes than you expected then.

They can come back later. Its not enough that the current seller pays, the contract should specifically agree the seller is liable for all. This may only be a key to claim back from the seller if the tax come back for more but its better than being sloppy and assuming. Also misdeclaring though entirely common does involve an offence.

Where did you get this information? Do you have specific examples of this happening?

[thaiwanderer]

While OP is now walking away (briskly) I do wish to respectfully disagree with some issues raised above.

It's up to the land department whether they accept him as having a right to sell the property on the sister behalf.

If they don't accept it you will not be able to do the transfer. End of story.

If they do accept it and the deals goes through, it's done you already own the land, they can't come and take it back later.

The land office can make mistakes and sometimes more than mistakes. No liability attaches for the mistake of an official and in such circumstances the transfer can be rescinded and the OP would be left without the land and chasing the 'brother' for the money and he may be a man of straw. There is no reason not to contract directly with the seller and many valid reasons to insist on it.

Taxes are paid upfront before you do the transfer, they will not come around later asking for more.

But when you come to sell your house, if you don't find a buyer who is willing to go along with the status quo, then you may end up getting hit for more taxes than you expected then.

They can come back later. Its not enough that the current seller pays, the contract should specifically agree the seller is liable for all. This may only be a key to claim back from the seller if the tax come back for more but its better than being sloppy and assuming. Also misdeclaring though entirely common does involve an offence.

Where did you get this information? Do you have specific examples of this happening?

Yes. Several.

Of which bit are you unaware, sceptical, concerned or whatever?

[dave111223]

Yes. Several.

Of which bit are you unaware, sceptical, concerned or whatever?

With both assertions that:

1) Additional transfer fees/tax can be assessed after the transfer is completed.

2) That the land department can rescind a completed transfer at their will.

I'm not doubting you; but i'd be interested to hear the circumstances surrounding the cases that had this happen. Please elaborate on why this occurred in the several cases that you are aware of.

[ludditeman]

Yes. Several.

Of which bit are you unaware, sceptical, concerned or whatever?

With both assertions that:

1) Additional transfer fees/tax can be assessed after the transfer is completed.

2) That the land department can rescind a completed transfer at their will.

I'm not doubting you; but i'd be interested to hear the circumstances surrounding the cases that had this happen. Please elaborate on why this occurred in the several cases that you are aware of.

I would agree.

I have seen a land office rip up a legal and paid for 30 year lease at the request of the land owner.

(the land owner did forge a signature, but still pretty amazing)

[thaiwanderer]

Yes. Several.

Of which bit are you unaware, sceptical, concerned or whatever?

With both assertions that:

1) Additional transfer fees/tax can be assessed after the transfer is completed.

2) That the land department can rescind a completed transfer at their will.

I'm not doubting you; but i'd be interested to hear the circumstances surrounding the cases that had this happen. Please elaborate on why this occurred in the several cases that you are aware of.

Taxes -

'mistaken' calculation by officials needing rectifying

parties colluding to misdeclare too much

Transfers -

recorded borders being way off

faked POAs used by lawyer

title having been upgraded incorrectly

apparent title holder having no actual right to the land

nominees having been used

Various incidences of the above and combination thereof.

Proper due dilligence and straight shooting would reveal some but not all.

Genuine mistake sometimes, not so genuine or mistaken at other times.

[PattayaPhom]

Is it any wonder with the rididculous comments made on this thread that so many people have reservations about buying property in Thailand...mis informed bar fly comments...illegal for your wife to buy a house..codswallop...legal leases torn up...poppycock.....its common practice for the valuation to be reduced to save on transfer taxes but even so the OP should stear well clear of this property.

[PattayaPhom]

Don't buy this house bungalow.

If you really must illegally buy a house in your wife's name, buy from the owner.

(I assumed your money, hence illegal in Thailand)

Why assume its the OPs money...do you only know and mix with poor Thai people.

[dave111223]

Taxes -

'mistaken' calculation by officials needing rectifying

parties colluding to misdeclare too much

Can you please give more details on this? How does this process of collecting additional taxes even work? An "example" might be something like:

"A friend purchased some chanoted land, transfer all when through properly at the land department, 6 months later a guy from the land department called him and said he must return to the land department and pay XXXX baht additional taxes, because of land department miscalculation"? What happens if you refuse to pay the additional taxes?

Transfers -

recorded borders being way off

faked POAs used by lawyer

title having been upgraded incorrectly

apparent title holder having no actual right to the land

nominees having been used

You said you had experience of titles being rescinded by the department, but could you please give specific example of how this occurred? An "example" might be something like:

"My uncle bought a house, chanote was transferred, 2 weeks later the land department staff came to the house and said the seller had used a fake POA, and the chanote had been given back to the old owner"

[thaiwanderer]

Taxes -

'mistaken' calculation by officials needing rectifying

parties colluding to misdeclare too much

Can you please give more details on this? How does this process of collecting additional taxes even work? An "example" might be something like:

"A friend purchased some chanoted land, transfer all when through properly at the land department, 6 months later a guy from the land department called him and said he must return to the land department and pay XXXX baht additional taxes, because of land department miscalculation"? What happens if you refuse to pay the additional taxes?

Transfers -

recorded borders being way off

faked POAs used by lawyer

title having been upgraded incorrectly

apparent title holder having no actual right to the land

nominees having been used

You said you had experience of titles being rescinded by the department, but could you please give specific example of how this occurred? An "example" might be something like:

"My uncle bought a house, chanote was transferred, 2 weeks later the land department staff came to the house and said the seller had used a fake POA, and the chanote had been given back to the old owner"

Probably easier and less rude if you say what you've done that you are now concerned about.

All of the incidences I'm aware of (and fully conversant with the facts on) didn't involve a friend or family member, which is precisely why its entirely inappropriate and I'm extremely reluctant to enter a custard test at your behest.

[dave111223]

Probably easier and less rude if you say what you've done that you are now concerned about.

I have done several land/condo/building deals and I'd like more information as to when/how/why an official from the land department might randomly show up X number of years later and say "Pay more transfer tax", or "You no longer own this property it's gone back to the old owner".

I'm sure a lot of people would be concerned if this type of thing could happen...but you do not seem to want to provide any useful information on how/why it can happen, other than just saying "it can happen".

I don't see how it is rude to ask for more information? I'm not asking for any specific names/dates, but just give us the general details that caused these serious consequences. As it would be extremely useful in helping others (such as myself) avoid these pitfalls.