Real Estate Escrow Service?

[Iolare]

An acquaintance of mine has decided to buy 3 condos off plan, and his friend another one, in a resort-type condo development in the south of the island. These are quite expensive for their size but the developer is guaranteeing an annual return for a number of years which makes the investment look viable. The developer who is a foreigner, suggested an attorney who is the same nationality to represent the buyers in the drawing of documents and closing the deal. The buyers suggested that their money be placed in escrow and paid out in increments. It turns out that the escrow account was actually the attorney's personal bank account, and now the buyers are trying to decide what to do.

Buying off plan in this economic environment would make me nervous, but that's my opinion and it wasn't asked for or given. I was asked if I knew if there was a secure escrow service here, and I don't know as I've paid cash for my few deals and taken title concurrently at the land office. Does anyone know if such a thing exists here?

[2fishin2]

An acquaintance of mine has decided to buy 3 condos off plan, and his friend another one, in a resort-type condo development in the south of the island. These are quite expensive for their size but the developer is guaranteeing an annual return for a number of years which makes the investment look viable. The developer who is a foreigner, suggested an attorney who is the same nationality to represent the buyers in the drawing of documents and closing the deal. The buyers suggested that their money be placed in escrow and paid out in increments. It turns out that the escrow account was actually the attorney's personal bank account, and now the buyers are trying to decide what to do.

Buying off plan in this economic environment would make me nervous, but that's my opinion and it wasn't asked for or given. I was asked if I knew if there was a secure escrow service here, and I don't know as I've paid cash for my few deals and taken title concurrently at the land office. Does anyone know if such a thing exists here?

Ding ding, ding! The attorney's personal bank account is the escrow account. Just that statement alone says stay as far away from anything that guy or a company he works for that you can get!

Theres currently and article in news about people paying for "off plan" condos and the problems they have encountered. The condos are suppose to be finished next month. The condos havent been started. Their is an internal problem with the condo company. This is in PHUKET!

Dont ever purchase anything off plan here. These crooks will take your money without hesitation, no questions asked. They will flee and never look back.

People fall victim to this all the time. Dont do it

[steelepulse]

I'd tell them to back out. Too many red flags here including "guaranteed" roi which in reality means the units are this much overpriced and they will get this money back over time. The personal bank account used as an escrow account is also a serious red flag.

Have your friends read the reports about the Ace condo project which is in pretty much every local news outlet. Money has been paid off plan, and nothing is happening.

[DrDave]

I'd tell them to back out. Too many red flags here including "guaranteed" roi which in reality means the units are this much overpriced and they will get this money back over time. The personal bank account used as an escrow account is also a serious red flag.

Have your friends read the reports about the Ace condo project which is in pretty much every local news outlet. Money has been paid off plan, and nothing is happening.

Be very wary of any guaranteed ROI, or even the guaranteed buy backs that seem to be in fashion now. Anything to entice a buyer, even if it doesn't pass the common sense test.

While the units are probably overpriced, and the guaranteed ROI may come in part from the overage, there's another scenario to consider. Suppose that the developer sells all the units, then finds that occupancy and rental rates can't support operating expenses (including the guarantee). Not hard to imagine given the glut of hotels, guesthouses and condos in Phuket, and the change in tourist demographics recently. I would think that a bit of legal maneuvering on the developer's part (such as change in control) could cause any guarantees to be void, while keeping the profit earned from constructing and selling the units.

The guaranteed "buy back" (refunding 100% of the buyer's investment) after a certain period of time, is in my opinion, ridiculous and just can't pass the simple common sense test.

[Sharp]

Why not keep it in their own account and pay out in increments subject to build advancement at least there's damage limitation should things go wrong which may well do...

[steelepulse]

I recall reading something about an escrow law, so a quick search of TV brings up this thread http://www.thaivisa.com/forum/topic/199271-the-new-escrow-law/

The covenants of the law were as follows:

Escrow Business Law
24 March 2008 | The new escrow business law was enacted by Parliament on 21 December 2007 and comes into effect on 19 May 2008. The law is intended to protect buyers and sellers of real estate from possible fraud and deceit through the services of a neutral third party who holds funds, property, or legal documents for disbursement once certain conditions are met as instructed by the buyer and seller. An escrow service provider can provide services in the areas of reciprocal contract, contracts for purchase of homes, condominiums, and land. In property purchases, the escrow service provider is responsible for overseeing that payments for purchase of property are made according to schedule and as specified by the conditions under the escrow contract. In the event of breach of contract, such as the seller cannot complete the project as stated in the contract, the funds held by the escrow service provider will not be disbursed to the seller and can be returned to the buyer.

It is not mandatory under Thai laws to enlist the services of an escrow service provider. If the buyer and seller wish to avail themselves of an escrow arrangement, a contract with the buyer, seller, and escrow service provider as signatories will be needed in addition to the contract between buyer and seller.

The details are as follows:

1. The escrow service provider must be a financial institution, a commercial bank, or a financial company.

2. The escrow service provider must have received authorization to provide escrow services from the Ministry of Finance.

3. The escrow contract must be signed by the buyer, seller, and the escrow service provider.

4. The escrow service provider must be a neutral third party and have no connections to buyer or seller either directly or indirectly.

5. The escrow service provider must open a bank account for the parties to the contract with a financial institution.

6. The property, funds, or legal documents held in trust by the escrow service provider must be kept separate from the escrow service provider's personal assets.

7. For escrow property agreements, the escrow service provider must inform the Land Department that the property comes under the escrow agreement and that transfer of ownership is not permitted until the escrow service provider provides the department with a written notice authorizing transfer of ownership. The department's official must make a written record to that effect.

8. In the event of disagreement between buyer and seller, the escrow service provider must not transfer funds or property to either party until the parties come to an agreement or under order of the court.

9. Once the funds have been transferred from the escrow service provider's account to that of the rightful owner and the escrow agreement comes to an end, the escrow service provider must close the escrow bank account and inform the parties immediately."

Further reading of that thread suggests that no developers are using escrow ( it's no wonder, they want their money now).

[hansgruber]

Oh dear. Red flags is an understatement. If the personal bank account doesn't make you back out you're asking to be had.

Run don't walk.

[Iolare]

Thanks for the replies and especially to Steelpulse for the citation and the link concerning the escrow service law in Thailand. I haven't heard of any financial institutions offering an escrow service here, but I think it would be a useful and valuable one.

For the record, I agree with the general sentiment to run from the deal in this case. Anyone know what percentage of Phuket condo projects that sell off plan in advance of breaking ground fail and cost the purchasers their money? Is it over 25 percent?

[2fishin2]

Nobody could give you an accurate percentage or figure. However a day drive around Phuket and you can see many remnants of developments that didnt make it. I would venture with a guess that the condo I live in (which is only a couple years old) is at less than 50% occupancy. This is normal. Its a buyers market all over.

There are so many reasons, actually pages of reasons to not buy a condo....I cant find a single reason to purchase one. There is a huge overage of brand new ones.

[KarenBravo]

Why buy off-plan when there are so many people desperate to sell?

Fire-side prices are available if you are willing to wait and find the right ones.

[Iolare]

I agree with KB that buying completed, existing condos from sellers desperate to leave the island would be a better investment plan for these uncertain times. These buyers however, are comfortably retired and split their time between here and Europe, so investing in a string of condos and managing them would be difficult for them. In addition, they don't speak Thai, so arranging tradesmen and vendors would be a hassle that I don't think they would wish to undertake.

So buying from a developer who handles all the management and then guarantees a handsome return holds appeal to such a buyer. Also they are considering the possibility of selling when their units are completed and pocketing a profit (I'm pretty sure the salesman put that notion in their ears). Unfortunately, I fear that train left the station in 2004!

[Shot]

"So buying from a developer who handles all the management and then guarantees a handsome return holds appeal to such a buyer."

It looks like a very talented sales person gave your friends an ear full.

As Mr. Gruber said "Run don't walk"

[2fishin2]

I agree with KB that buying completed, existing condos from sellers desperate to leave the island would be a better investment plan for these uncertain times. These buyers however, are comfortably retired and split their time between here and Europe, so investing in a string of condos and managing them would be difficult for them. In addition, they don't speak Thai, so arranging tradesmen and vendors would be a hassle that I don't think they would wish to undertake.

So buying from a developer who handles all the management and then guarantees a handsome return holds appeal to such a buyer. Also they are considering the possibility of selling when their units are completed and pocketing a profit (I'm pretty sure the salesman put that notion in their ears). Unfortunately, I fear that train left the station in 2004!

Well there ya have it. They arent going to listen to anyones advice except from a developer. Tell them to go right ahead and buy. They will contribute their hard earned money to someone other than themselves.

Selling a condo in this overage market isnt going to happen. There are thousands of brand new already built condos all over Phuket unoccupied.

Buying from a developer is absolutely the worst thing a buyer can do in Thailand....

[eisfeld]

Buy off plan? Escrow with personal bank account? A foreign lawyer suggested by the developer?

Hihi haha, foreigners can't practice law here. If the guy is even a lawyer wherever he's from. Also as steelepulse pointed out this "lawyer" can't legally provide escrow services in Thailand.

Please introduce me to your friends, I got a bridge with guaranteed ROI to sell...

[SeanPhuket]

One should be careful when buying from foreign developers here. 99% of the time they don't have the funds to complete, or won't use their own funds, they rely on sales. If the sales don't happen <fill in blank>.

Believe it or not, but try to stick with Thai developers. 99% of the time they are cash rich and they complete even if sales are short.

All allegedly of course

[Iolare]

Well, they've decided to go ahead with this deal. I feel bad because they worked very hard for a long time in their business to accumulate these funds (the equivalent of over a half million US dollars including the contribution of their friend). I finally said that in my humble opinion it's more like a roll of the dice than a real estate investment. My wife thinks saying that was saying too much, so we'll not willingly discuss it with them again. Time will tell.

[2fishin2]

Sad, these developers prey on people like your friends. Hopefully they do ok.

[steelepulse]

Well, they've decided to go ahead with this deal. I feel bad because they worked very hard for a long time in their business to accumulate these funds (the equivalent of over a half million US dollars including the contribution of their friend). I finally said that in my humble opinion it's more like a roll of the dice than a real estate investment. My wife thinks saying that was saying too much, so we'll not willingly discuss it with them again. Time will tell.

Any way to point them to the news about the condos that take off plan payments and then don't build as well as this thread? I sure hope this isn't their only retirement funds, but just a small piece of it.

[SeanPhuket]

Well, they've decided to go ahead with this deal. I feel bad because they worked very hard for a long time in their business to accumulate these funds (the equivalent of over a half million US dollars including the contribution of their friend). I finally said that in my humble opinion it's more like a roll of the dice than a real estate investment. My wife thinks saying that was saying too much, so we'll not willingly discuss it with them again. Time will tell.

Pity for them.

With such funds they could actually do what their seller is doing; build their own project and rely on sales.