Real estate letter of credit
A real estate letter of credit is a documentary letter of credit where Raiffeisenbank irrevocably and in writing undertakes to execute a payment in favour of the beneficiary, typically the seller of the real estate, when all documents specified in the letter of credit are properly presented Raiffeisenbank during the validity of the letter of credit.
- Guarantee of performance by the seller of all conditions set in letter of credit before the payment of the purchase price.
- Guarantee for the seller that after the performance of all the conditions set in the letter of credit the purchase price will be paid by the buyer.
The transfer of the ownership of the real estate during its sale takes place upon the registration of the buyer’s ownership right in the land registry and any payment before such registration is a risk for the buyer. In contrast with this, if a payment is not made upon the signature of the purchase contract, the seller exposes itself to the risk that after the buyer’s ownership right is registered in the land registry, it will not receive payment by the set deadline and in the set amount. A seller and buyer can use a real estate letter of credit to significantly limit such risks.
Issuance and validity of real estate letter of credit
- Raiffeisenbank issues a real estate letter of credit based on a request by the client, up to the amount and for the term of the contractually approved conditions.
- The documents requested for the performance of the letter of credit to settle the real estate price are, for example:
- A purchase contract for the transfer of the real estate that is usually signed after the letter of credit is opened in favour of the seller (beneficiary) – sale through a letter of credit, the conditions for its drawing and date of opening should be part of the purchase contract.
- Documents showing that the applicant (buyer) became the proper owner of the transferred real estate.
- A letter of credit is usually payable “on sight,” i.e. as of the date of verification of compliance with the letter of credit conditions.
- A letter of credit, however, can be executed in connection with the gradual performance of the letter of credit conditions in several partial amounts.
A real estate letter of credit is usually issued by a bank under the condition of the prior deposit of a financial amount corresponding to the amount of performance of the letter of credit by the bank upon the performance of its conditions by the seller.