The possibility of buying real estate rests normally on the
capacity of an individual or company to acquire debt, reason why
credit entities play an essential role in the success of the real
estate market. Lately, we have noticed that in addition to the
traditional loan guaranteed by a mortgage, there is an offer for
loans guaranteed by a security trust.
The vehicle becomes more common every day thus making it
essential for consumers to understand it because although it's
been used for such purpose for decades, it's becoming more
popular nowadays to guarantee bank loans.
In Panama, the trust is governed by Law 1 of January 5, 1984,
"Whereby matters concerning trusts are regulated in Panama and
other provisions are adopted". This legal figure allows for
several uses in the real estate sector as well. Notwithstanding the
foregoing, we will focus on the security trust used to finance the
purchase of real estate.
Doctrine states that "in a trust with these
characteristics, the debtor (trustor) delivers part of its
patrimony to a trustee to be kept by the latter, appointing the
creditor as beneficiary of the guarantee agreed thereby and to
proceed, in case of default, as mandated, to encumber the trust
fund. Upon payment of the credit as established in the contract
clauses, the trustee shall return the trust fund to the debtor
The person asking for a loan to purchase property will deliver
this to a trustee who will keep it encumbered at the Public
Registry until the debtor settles the loan in full. The trust names
the creditor as beneficiary since if the debtor defaults the loan,
the trustee proceeds to transfer the property to the creditor
expeditiously in accordance with the procedures set forth in the
trust. However, if the debtor fulfills the obligations under the
loan, the trustee returns the property to the debtor evidencing
this at the Public Registry. For all purposes, the debtor holds the
same rights and obligations of the property owner except for the
restrictions established in the trust.
In the event the debtor defaults the loan making its collection
impossible, the security trust seems to represent a swift manner to
execute the real estate guarantee and more effective the process of
converting a bad asset into a good one. This is one of the
advantages for credit entities and indirectly, also for consumers
seeking more comfortable interest rates since, in theory, a bad or
illiquid credit portfolio could affect the structuring of interest
and expenses in the granting of loans.
Another advantage is the possibility of designating a substitute
beneficiary in case the beneficiary (debtor) dies. Another scenario
in case of the debtor's death is a formal probate process to
adjudicate the property.
Such is the usefulness of this figure that on March 18, 2015
Bill 189 was presented to the Assembly of Legislators, which is
waiting its first debate at the Commercial and Economic Matters
Commission, proposing an amendment to the current trust law.
Without going into details, the improvements to be introduced by
the Bill include more detail in the requirements that the trust
agreement ought to contain, clarification on the exemption to pay
the sales tax for the transfer of real estate placed upon trust or
in case of return to the trustor or blood relatives up to the
fourth degree or second of affinity (although in practice, this tax
is not paid upon transfer of the guarantee to the trust or return
to the trustor). Among other things, the goal is for this figure to
receive the same tax treatment and benefit as mortgages provided
that the trustee holds a license issued by the Superintendence of
Banks of the Republic of Panama.
Despite its great acceptance among consumers, greater disclosure
is needed about this legal figure and its use in financing the
purchase of real estate.
 PAPA, Rodolfo G., Trusts for lawyers and accountants,
2014, pg. 300, quotes CAMPI, German, "The Security Trust.
Superposition of trustee-beneficiary roles". Published in the
financial supplement for lawyers of Universidad del Cema (Ucema),
included in newspaper La Ley of 18/12/2009.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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