Understanding Extrajudicial Settlement with Deed of Sale in the Philippines

Dealing with inherited land in the Philippines can be a complex 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 pending debts, the heirs are not forced to go to court. Instead, they can choose for an extrajudicial settlement. By signing a public instrument, the heirs concur on how to divide the properties among themselves.

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

Selling inherited property Philippines through this method offers multiple advantages:

Time Efficiency: It removes the need for two separate transactions and two sets of notarization.

Lower Expenses: While taxes must still be paid, handling the paperwork simultaneously can lower administrative burdens.

Clear Title Transfer: The Register of Deeds can handle the transfer from the deceased directly to the new buyer, granted all requirements are met.

How to Proceed

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

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

Agreement Among Heirs: All legal heirs must be of one mind regarding the sale and the division of proceeds.

Public Notice: The settlement must be advertised in a newspaper of general circulation for three consecutive weeks.

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

Financial Obligations

One of the most critical aspects of transferring inherited land is the payment 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 extrajudicial settlement with deed of sale Safeguards

For buyers, purchasing through an extra judicial settlement with deed of sale carries a specific risk under Rule 74, Section 4 of the Rules of Court. This law provides that the property is subject to the rights of any excluded heir or creditor for a period of two years. To mitigate 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