Of PDCs and Unsuccesful Sales

My mother has been trying to sell her condo unit beside ours for the past few months and there have been several inquiries but no serious buyers, until recently when I met with a newly married couple who had to move out ASAP from their rented place. 

The couple liked the unit and requested that I furnish them a copy of the condo title to facilitate their bank loan. However, the bank would only loan them 80% of the assessed value, so they requested if they could just turn over the loan proceeds to my mother and then pay off the 20% directly to her through installment.

I said that this was not possible because the only way that the bank would release the loan was if the title was turned over to the couple and the property mortgaged to the bank, no way would my mom agree to the transfer of ownership if the property has not been fully paid. I mean really, who would agree to that right?

To make a long story short, I presented them with an agreement where they will pay off the 20% through monthly payments for a period of three years. And after three years, then they can apply for the loan and the unit will be theirs once the 80% is released. It was a straightforward and modified rent-to-own arrangement which I thought benefited all the parties because they could immediately move in once the agreement was inked and my mother will finally earn some cash with this property.

The basic terms were that the couple would issue 33 post-dated-checks and give 3 months worth of rent as security (1 month advance and 2 months deposit).

Now this was where the problem began.

They wanted to issue 12 PDCs yearly as they said they would be using their mother's checking account because they didn't have time to open their own account. Being Little Ms. Helpful, I told them that it was easy to open a checking account and that the BDO branch near both of us was open 7 days a week so they could easily open their checking account there.

But then they said that their mother advised them to only issue 12 PDCs because they might already be able to apply for a loan after 1 year. To which I responded that if that was the case then we would gladly return the uncashed PDCs to them.

Still they persisted because as it turned out, it was their mother who would be paying for the unit using her own checks. By then I was incredulous, because why would they tender checks from another person if they were going to be the ones to sign the contract? Wasn't it SOP that whoever signs the contract would also be the one to issue the checks?

I asked them why they couldn't issue their own PDCs, to which they answered "Kasi nga po mother namin ang magbabayad". I clarified my question and asked: Bakit hindi niyo magawa magbukas ng checking account? Bakit nakikihiram pa kayo ng cheke?

And they replied the same way: Kasi nga po mother namin ang magbabayad.

Suffice to say, the sale didn't push through and in their last text they accused me of not trusting them even if we still had the title in our possession. To which I answered that if they cannot even comply with issuing PDCs from their own account, which frankly was the simplest requirement, then "nakakawalang-tiwala talaga". I actually had an "as an adult you should be responsible enough to have your own checking account" speech ready, but let it go.

This then had me thinking about why PDCs had to be issued by the buyers themselves, as in this case. I know that this is the SOP in sales by installment, but what's the primary reason behind this? It can't be as evidence for a case under the bouncing checks law (B.P. 22), because the mere act of issuing a bounced check is already enough evidence, with knowledge of insufficiency of funds at the time of issuance presumed.

My conclusion was that it's for the seller's convenience. If the buyer fails to pay several monthly amortizations in succession then the contract will be easy to cancel, with the checks issued from the buyer's account entered into evidence as proof of default. But if two separate people sign the contract and issue the checks respectively, then that would be a more complicated affair necessitating additional evidence linking the two together (like why would Person B agree to shoulder Person A's obligation if Person B had no interest in the obligation). I'm not fully convinced with my conclusion though and if anybody out there has a simpler explanation then I'll be very grateful.

Congratulations to you if you read through the end of this lengthy post!


Our seller’s terms were 20% dp, 80% bank or inhouse financing. The DP can be paid in installment. We were asked to issue 24 PDCs for the 20%DP and 1 PDC for the 80%. That’s almost 2M in one check. I was told that they are going to return the PDC upon approval of the bank loan. I was also assured that they will never deposit/cash it. I could even write on the face of the check “for security purpose only, not for deposit) I asked them what’s the use of the PDC, and the only answer I got was “it’s in the contract.” They failed to convince me. It’s just too risky.
Jillsabs said…
Yeah, that's too risky nga. The 20% DP should be paid upon approval of the 80% bank or in-house financing. It doesn't make sense to ask for a PDC for the 80%.

And it doesn't matter if you both agreed that the check will only be for security purposes, it can still be encashed by the payee.

Good on you for not agreeing to their terms!
Anonymous said…
Methinks: bakit hindi na lang ung mother nya ang papirmahin dun sa contract? then include na lang dun sa contract that the mother could opt to have the condo "sub-lease" to her daughter? (is consanguinity the legal term?).is this possible?
Anyway, I don't have checking account myself. I have been working overseas for 7yrs and when I decided to apply for a checking acct one time umuwi ako, ang sabi ng bank eh I don't have credit history daw to back it up. (BDO & BPI same responses)
I only maintain remittance acct with both of these banks which I rarely use kasi western union and other over the counter remittance center proved to be more economical and faster.
just saying.cheers!
Jillsabs said…
I also thought of that, and there's even no need to have a provision allowing her to sublet to her daughter, ipagamit lang niya and then later on, when the title has been transferred to the mother, they execute another agreement among themselves.

But by then tinamad na ako to talk to them kasi it was as if they refused to understand anything outside of what they wanted. What was irritating pa was that even if I knew they didn't have the money, I still gave them so many concessions and chances since I knew what it felt like to be newly married with hardly anything to my name, pero yun nga, they were super inflexible. PDCs lang hindi pa ma-produce! Anuber.
I'm glad you really think it through and did not make desperate judgement kahit walang buyers in the horizon.

It's really fishy,2 adults with no financial footprints? Kahit na checking account, which is one of the basic finance stuff you can think of.

No credit history and can't open checking account? I never heard of that. I opened chewing account with no problem even though I am an OFW with no credit history in the Philippines whatsoever. Hmmmmm, lemme research

Anonymous said…
good for you then.
few years back,try applying for a checking account in a bank as a first time customer. they will tell you all kinds of crap (ADB,charges,account history).btw, ADB ties up your money which is nonsensical mngt of personal finance.
and then a month ago, the bank itself asked/wrote to me if I wanted check facility,credit card,online shopping card,etc. I did not even enquired about any of it.
this was after some minimum six months of consistently remitting monies in my account. I don't know how much you frequent banks but this was my experience with them.
so unless im acquiring a property or putting up a business, im not so keen on opening checking account as yet.
and yes jillsabs' right, they should at least be responsible enough to have a checking account at that stage.
Jillsabs said…
Most banks have a minimum requirement of maintaining the average daily balance for a period of 6 months before you become eligible for a checking account. You probably just met those requirements that's why they offered you a checking account and their other services.

But I agree with you, unless you don't need it, there's really no reason to have a checking account. Having one makes you prone to fraud pa nga, since if your checkbook falls into the wrong hands, your signature might get forged.
Just passing by here as I get to know your blog through Brighter Life.

Nice to see more and more personal finance bloggers coming up in the blogosphere. :)
Jillsabs said…
Thanks for dropping by :)
Unknown said…
Did you even meet the mother?
Anonymous said…
Hello Jill. Puede namang iba ang mag-issue ng checks basta specify niyo lang sa "contract to buy and sell" na may permission ng mom ni buyer na check niya ang pinambayad. Isulat niyo din na once na kahit isang check lang ang mag-bounce, forfeited na ang previous payments at null and void na ang contract. Papirmahin din si mom ni buyer as co-maker or as a witness.

I am also selling a house. May mga nae-encounter din akong ganyang buyer - nangangarap pa at walang pambayad ng equity. What I do is dinidiretso ko na sila. I tell them na kung hindi nila itutuloy ang housing loan, abonado ako sa cost ng transfer kaya what I do is I require them to pay a non-refundable downpayment equivalent to twice the amount of the cost of transferring the title to the the buyer's name at pabalik sa akin in case nga na hindi maibigay sa akin ang balance.

Also, I interview the prospective buyer at inaalam ko if they have the capacity to pay or not. If I believe na malabo silang ma-approve ng bank, sinasabihan ko na agad sila.

BTW I'm Dindo, Gary's HS buddy.
Anonymous said…
"It was a straightforward and modified rent-to-own arrangement which I thought benefited all the parties because they could immediately move in once the agreement was inked and my mother will finally earn some cash with this property."

Move in after they have issued the 33 checks or after they have paid the 20% which is after 3 years?

- Dindo
Jillsabs said…
Move in after they issue the 33 checks and 3 months payment (2 months security and 1 month advance)
Jillsabs said…
Thanks for all the tips! I'll keep those in mind next time a buyer comes along again.
Anonymous said…
Buti hindi natuloy. Talo mom mo diyan. Lalabas renter sila. Kung hindi makabayad, baka mahirap paalisin. Kung sakaling mapaalis mo, baka sirain ang unit lalo na kung hindi naging maganda ang usapan ninyo, which most of the time, ganyan ang nangyayari. Baka iwanan ka rin ng malaking electric and water bills. Baka mas malaki pa yung iniwang problema kesa sa 3 months rent.
Jillsabs said…
What's your suggested arrangement in this scenario, where the buyer is unable to pay the 20% equity? Dapat talaga equity or nothing no?
Anonymous said…
20% equity must be paid in full or within 3 months. Masyadong matagal kung more than 3 months babayaran ang equity. Sign an agreement na once one of the buyer's checks is dishonored, forfeited na ang nabayad niyang dp and void na ang contract to sell niyo.

Kung 3 mos. to pay ang equity, dapat within that period napa-appraise na nila ang condo unit at nakapag-submit na ng lahat ng requirements sa bank. Sakto lang yung paglabas ng Letter of Guaranty ng bank.
Jillsabs said…
Thanks Dindo! This is very helpful :)

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