Understanding Extrajudicial Settlement with Deed of Sale in the Philippines

Managing inherited property in the Philippines can be a complex process, especially when the heirs wish to sell the asset immediately. The most efficient way to achieve this is through an extra judicial settlement with deed of sale. This legal procedure allows heirs to distribute 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 unpaid debts, the heirs are not obligated 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 interested party waiting, they often sign an extrajudicial settlement of estate 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

Liquidating inherited land through this method offers several advantages:

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

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

Easier Consolidation: The Register of Deeds can handle 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 criteria must be met under Philippine law:

No Will and No Debts: The deceased must have left no testament and the estate must be cleared of liabilities.

Unanimous Consent: All legal heirs must be of one mind regarding the sale and the distribution of proceeds.

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

Payment of Taxes: The Estate Tax must be paid to the Bureau of Internal Revenue (BIR) before the property can be transferred.

The Role of Taxes

One of the most critical aspects of transferring inherited land is the payment of taxes. Aside from the Estate Tax, a transfer tax and Documentary Stamp Tax will be applicable because of the sale component. Failure to settle these taxes will block the issuance of a new Certificate of Title in the buyer's name.
Protecting the Buyer

For buyers, purchasing through an extrajudicial settlement of estate with deed of sale carries a particular risk under Rule 74, Section 4 of the Rules of Court. This law extrajudicial settlement with deed of sale provides that the property is subject to the claims 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.
Summary

Executing an extrajudicial settlement with deed of sale is a strategic move for families looking to sell inherited assets quickly. By understanding the procedural steps, heirs can ensure a smooth transition of ownership while maximizing the value of their estate