Nine Things You Should Know before Purchasing an Apartment on the Open Market
By Yaacov Epstein
You’ve finally found the apartment that you love. You have negotiated the price and terms. Before signing a contract however, be aware of important information that will save you money and spare you aggravation and legal difficulties.
- Memorandum of Understanding (Zichron Devarim) – Often after the parties have reached a mutual decision to buy and sell an apartment, they summarize the terms in a document called a Memorandum of Understanding (“Zichron Devarim”). This document can include information such as the dates of payment, the agreed upon apartment price among other terms. In many cases this seemingly informal document is considered a legal contract, enforceable in Israeli Courts, despite the fact that both parties might have expressly written that a contract will be prepared by an attorney. Do not sign a Zichron Devarim but insist on a meeting with an attorney who is expert in real estate transactions. This attorney can prepare a proper contract that will protect your interests.
- Taxes – Before buying an apartment, you should obtain legal advice regarding applicable taxes. As a result of changes in Israeli real estate laws, taxes can be substantial, especially for non-residents. Advance planning and getting sound legal advice can save taxes!
- Improvement Levy (Heytel Hashbacha) – This Levy is a type of tax that the municipality requires the apartment owner to pay if there is a local planning improvement plan that raises the value of the apartment. The municipality requires that each property owner pay the tax on the upgraded value once the apartment is sold or once the municipality’s improvement plan is implemented by the apartment owner. If you purchase a second hand apartment, the seller will be required to pay the Municipal Improvement Levy (“Heytel hashbacha)”.Obtaining a pre-ruling regarding the seller’s obligation (if it exists) in this area can help you negotiate the apartment price and prevent many problems that might arise. With careful research and planning the seller’s Improvement Levy may be reduced or exempted.
- Municipal Debts –When you register the apartment under your name in the Land Registration Office (TABU or others) you will be required to obtain confirmation from your local municipality that all debts have been settled. Before you sign an agreement, you must ensure that there are no outstanding municipal debts on the apartment. This process can delay or even block the registration of the apartment but if your attorney checks this in advance you can save possible delay and distress.
- Mortgage Eligibility – People often sign a purchase contract before receiving mortgage approval. Be careful. If you are a non-Israeli resident, mortgage approval can be more time consuming and complicated. If the bank rejects your mortgage application, you might not be able to complete your payments. Non-payment can lead to a breach of contract and subsequent penalties. Currently, Israeli citizens are eligible for loans of up to 70% (in unique cases up to 90%) of the apartment’s actual value, but foreign residents usually qualify for loans of up to 50%. Working with the bank in advance can improve the chances of getting a higher mortgage at a lower rate. Please also refer to our article regarding mortgages in our series: “The Ins and Outs of Real Estate in Israel” for non-Israelis on www.epsteinlaw.co.il.
- Foreclosures, Debts, Contradicting Transactions – Before purchasing an apartment, request the “Confirmation of Rights” (Nesach TABU) regarding the acquired apartment/property. The Nesach TABU should state if there are any foreclosures or caveat registration warnings (“Heorot Azahara”) on the apartment. In addition, the buyer must check the TABU (or other Land Registration offices) to determine whether the apartment has been registered properly. In some cases the buyer should also check with The Registrar of Pledges (“Rashsam Hamashkonot”) to verify whether the rights of the seller are in order.
- Planning Information – It’s important to check whether there are any parts of the apartment that were built illegally and/or that were not included in the original building permit. Purchasing an apartment that has undergone illegal construction can impose a criminal liability on the buyer. This also applies even if the seller assures you that they received a permit for additions or changes to the apartment. Don’t rely on unsubstantiated claims. You must independently research the construction history of the apartment you want to buy.
- Carefully Examine the Physical Condition of the Apartment – We recommend against buying an apartment without first thoroughly inspecting it. It is important to either check the apartment yourself or hire an expert to look for problems and defects. This simple effort could help you negotiate a better price and can prevent unpleasant and costly “surprises”.
- Always Consult with a Real Estate Lawyer Especially During Your Negotiations! This will save you much time, stress, money and legal complications. As you have read above, the issues are many and the possible complications can cost you dearly. Be smart and hire an experienced real estate lawyer who will advise you throughout your purchase process. Please feel free to contact out to us with any questions.
Warning: This information is not intended to constitute legal advice and should not be relied upon in lieu of consultation with the appropriate legal advisors.
Please refer to other articles in our series: “The Ins and Outs of Real Estate in Israel” for non-Israelis on www.epsteinlaw.co.il.
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