Understanding Extrajudicial Settlement with Deed of Sale in the Philippines

Handling inherited land in the Philippines can be a challenging process, especially when the heirs decide to sell the asset immediately. The most practical way to achieve this is through an extra judicial settlement with deed of sale. This legal procedure allows heirs to partition the estate of a deceased person and convey it to a buyer in a single, combined document.
What is an Extrajudicial Settlement?

When a person is deceased without leaving a will and has no outstanding debts, the heirs are not forced to go to court. Instead, they can choose for an extrajudicial settlement. By signing a notarized deed, the heirs decide on how to divide the properties among themselves.

However, when the heirs already have a buyer waiting, they often perform an extrajudicial settlement with deed of sale. This simplifies the process by combining the adjudication of the property and the subsequent sale into one legal instrument.
The Benefits of Combining the Settlement and Sale

Trading inherited assets through this method offers several advantages:

Speedier Process: It eliminates the need for two separate transactions and two sets of documentation.

Cost-Effectiveness: While taxes must still be paid, handling the documentation simultaneously can reduce administrative burdens.

Simpler Registration: The Register of Deeds can update the transfer from the deceased directly to the new buyer, assuming all requirements are met.

The Step-by-Step Process

To effectively execute an extrajudicial settlement with deed of sale, certain conditions must be met under Philippine law:

Absence of a Will: The deceased must have left no will and the estate must be free of debt.

Unanimous Consent: All legal heirs must be in agreement regarding the sale and the division of proceeds.

Public Notice: The settlement must be extrajudicial settlement of estate with deed of sale published in a newspaper of general circulation for three consecutive weeks.

Settling Tax Obligations: The Estate Tax must be paid to the Bureau of Internal Revenue (BIR) before the property can be sold.

The Role of Taxes

One of the vital aspects of transferring inherited land is the settlement of taxes. Aside from the Estate Tax, a Capital Gains Tax and Documentary Stamp Tax will be required because of the sale component. Forgetting to settle these taxes will prevent the issuance of a new Certificate of Title in the buyer's name.
Risks and Safeguards

For buyers, purchasing through an extra judicial settlement with deed of sale carries a particular risk under Rule 74, Section 4 of the Rules of Court. This law stipulates that the property is subject to the rights of any excluded heir or creditor for a period of two years. To reduce this risk, many buyers demand an heir's bond or delay until the two-year period has lapsed.
Conclusion

Handling an extrajudicial settlement with deed of sale is a smart move for families looking to liquidate inherited assets quickly. By learning the necessary documentation, heirs can ensure a smooth transition of ownership while maximizing the value of their inheritance