The Dangers of 'Verbal Agreements' in Ecuadorian Real Estate: A Broker and Lawyer's Guide to Formalizing Every Step for Expat Security

As a Real Estate Broker and Lawyer practicing in Cuenca, I have navigated countless transactions for expatriates. I've also been called in to clean up the legal disasters that arise from deals based on handshakes and verbal promises. The allure of a quick, informal arrangement is a siren song that can lead your investment onto the rocks. My professional duty is to shield you from this risk. This guide is not just about avoiding danger; it's about mastering the legally mandated process to ensure your purchase is secure, transparent, and unassailable.

The Legal Fiction of a Handshake Deal in Ecuador

In Ecuador, a verbal agreement concerning the sale of real estate holds zero legal weight. It is unenforceable and offers you no protection. The Ecuadorian Civil Code is explicit: the transfer of property rights must be formalized through a public instrument. Relying on verbal promises—whether about price, repairs, or the property being free of debt—is a catastrophic error that exposes you to immediate and severe risks:

• Price and Term Ambiguity: A seller can "forget" the agreed-upon price, change their mind about included appliances, or deny promises of pre-sale repairs with impunity. Without a written contract, your position is indefensible.
• Title and Ownership Invalidity: A verbal agreement does not transfer ownership. Only a registered Escritura Pública (Public Deed) can legally convey title. Until that happens, the seller can legally sell the property to someone else, even if you've already paid a deposit.
• Inherited Liens and Encumbrances: A seller's verbal assurance that the property is "clean" is worthless. You could unknowingly acquire a property with outstanding mortgages, municipal tax debts (impuesto predial), or court-ordered liens (embargos), which become your responsibility.
• Undeclared Construction (Obra Gris No Declarada): A common issue in Cuenca is unpermitted additions or renovations. A seller may verbally dismiss this, but the municipality can later impose significant fines or even demolition orders on the new owner—you.

My entire practice is built on replacing ambiguity with legal certainty. We will use the robust Ecuadorian legal framework to your advantage, ensuring every step is documented and legally binding.

The Mandatory Path to a Secure Transaction: Written Contracts

Every phase of an Ecuadorian property purchase must be memorialized in a formal, written document. These are not bureaucratic formalities; they are your legal armor.

1. The Offer: Promesa de Compraventa (Promise to Buy and Sell)

While an initial offer letter (Minuta) can be used, serious transactions proceed directly to a Promesa de Compraventa. This is a powerful, legally binding contract that, once notarized, obligates both parties to complete the sale under specified terms. It is your single most important document before the final closing and must be drafted by a legal professional. Key components include:

• Precise Identification: Full legal details of the buyer(s) and seller(s), and a complete legal description of the property, including its cadastral number (clave catastral).
• Price and Payment Schedule: The exact purchase price and a detailed schedule for the deposit (arras) and final payment.
• The Power of Arras (Earnest Money): The deposit is governed by specific legal terms. Typically, if the buyer defaults, they forfeit the deposit. Crucially, if the seller defaults (e.g., gets a better offer), they are legally obligated to repay the buyer double the amount of the deposit. This penalty clause provides you with significant leverage and protection.
• Contingencies and Conditions Precedent: This section must be ironclad. It makes the contract contingent upon your complete satisfaction with due diligence, including a clean title search, professional home inspection, and verification of all municipal records.
• Closing Deadline: A firm date by which the final Escritura Pública must be signed.

2. The Closing: Escritura Pública de Compraventa (Public Deed of Sale)

This is the final instrument that officially transfers the property title to you. It is executed before a Notario Público (Public Notary), a specialized lawyer appointed by the state who acts as a neutral agent to ensure the transaction's legality. The process includes:

• Pre-Closing Due Diligence Verification: Before signing, we obtain a brand new, updated Certificado de Gravamen (Certificate of Liens and Encumbrances) from the Registro de la Propiedad (Property Registry). This is non-negotiable and must be done on the day of, or the day before, closing. It provides definitive proof that no last-minute liens have been placed on the property.
• Tax and Fee Settlement: At the closing, several payments are made:
  • The final payment to the seller.
  • Property Transfer Tax (Alcabalas): Paid by the buyer. In Azuay province, this is approximately 1% of the property's municipal valuation.
  • Seller's Capital Gains Tax (Plusvalía): While this is the seller's responsibility, we ensure it is paid from the sale proceeds at closing. This prevents any future tax claims from being attached to your new property. For sellers who are not long-term residents, this tax can be significant, and verifying its settlement is a key part of protecting the buyer.
• Notarization and Registration: After signing by all parties, the Notary formalizes the document. Their office then submits the Escritura to the Registro de la Propiedad. Ownership is not legally perfected until the deed is inscribed in the public registry. We personally track this process until we have the final registered deed in hand.

Expert-Level Due Diligence: Your Financial and Legal Shield

A generic checklist is not enough. My due diligence is an exhaustive investigation designed to uncover any potential issue before you are financially committed.

Real Estate Due Diligence Checklist:

• Title and Ownership Verification:
  • Meticulously analyze the Certificado de Gravamen and the complete Historial de la Propiedad (Property History) to trace ownership and identify past issues.
  • Confirm the property is not part of an unresolved inheritance (posesión efectiva).
• Understanding Property Structure: Propiedad Horizontal vs. Cuerpo Cierto
  • Propiedad Horizontal (Condominium/Horizontal Property): If you are buying an apartment or a unit in a gated community, you are also buying into a legal entity. We must obtain and review the condominium bylaws (reglamento de co-propiedad), verify the financial health of the Homeowners Association (alícuotas), and confirm there are no outstanding special assessments or internal legal disputes.
  • Cuerpo Cierto (Independent Property): For a standalone house, we verify the registered property lines (linderos) against a physical survey to ensure there are no encroachments.
• Municipal and Tax Compliance:
  • Secure a Certificado de No Adeudar al Municipio (Certificate of No Debt to the Municipality) for the seller, proving all property taxes and improvement levies are paid in full.
  • Verify all construction on the property is legally declared and permitted.
• Physical Property Assessment:
  • Engage a trusted structural engineer to inspect the property, focusing on seismic resilience, water intrusion (humedad), and the state of electrical and plumbing systems.

⚠️ Broker's Legal Warning: The One Risk You Can Never Afford.

Never transfer any significant sum of money—not a deposit, not an advance, not a reservation fee—without a notarized Promesa de Compraventa that has been drafted or reviewed by your own legal counsel. A simple receipt (recibo) or a developer's informal sales sheet offers you zero legal protection against seller default or fraud. The Promesa is your shield. Without it, you are not a buyer; you are an unsecured creditor with little hope of recovering your funds or claiming the property.

Building Your Secure Future in Cuenca

Purchasing a property in Cuenca is an exceptional investment in your future. My role as your Broker and Lawyer is to ensure that investment is built on a foundation of legal rock, not financial sand. By adhering strictly to the formal, documented process, we eliminate risk and transform a complex transaction into a secure and rewarding experience.

Ready to secure your dream property in Cuenca with absolute legal and financial confidence? Schedule a complimentary property-risk consultation with me today. Let’s build your future in Ecuador the right way.