For many Jews in the Diaspora, acquiring real estate in Israel has become the latest trend. Purchasing property in Israel is probably one of the most meaningful and satisfying investments many people will ever make in their lifetime. It might, however, be more complicated and challenging than most may realize.  

A combination of culture, customs, bureaucracy and laws relating to real estate sales make the purchase process in Israel different from the American system. 

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According to the Israeli system, the signing of a contract is probably the most crucial stage in the real estate transaction. Once a contract is signed, the buyer is bound by it, and any breach or alteration in contract is likely to have serious implications and monetary consequences. As opposed to other systems, where the majority of the responsibilities and privileges are delegated to the closing stage of the deal, during which, most of the money is transferred, according to the Israeli legal system privileges are shifted from seller to buyer upon signing a contract. 

 The Israeli system does not incorporate a grace period during which a down payment can be placed in escrow, while the purchaser may make inquiries and decide whether the property is the right purchase. Typically, at contract all property deeds are signed by both parties and a significant down payment is made. Within 30 days from signing of the contract the tax authorities will have to be notified of the transaction and a purchasing tax will have to be paid. 

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For this reason, it is vital that all research on the property (physical, legal, municipal and financial) is performed before signing of any written document with the seller.  

It is important to keep in mind that the Israeli courts have recognized even a general memorandum of intention as a binding contract. Therefore, nothing should be signed without first being reviewed by an experienced lawyer. Even a semi-used napkin scribbled with some terms of payments and a general property description bearing purchaser’s and seller’s signatures might be viewed by an Israeli court as a binding sales contract. In many cases the seller will try to encourage the purchaser to sign a document of intent to purchase the property, in order to prevent the prospective purchaser from backing out on the deal. Yet, signing such a document, even if eventually the deal will follow, might negate the purchaser’s ability to negotiate optimal agreement terms. 

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To make things more complicated, there is no title insurance in Israel. Because insurance to provide legal security in case there are any faults, problems, mortgages, liens or conflicting rights in the title of property doesn’t exist in Israel, it is imperative that purchaser seek top notch legal representation by a lawyer who specializes exclusively in real estate transactions, to ensure that the prospective property is properly investigated. 

 It is also recommended that purchasers hire an engineer to ensure that there are no serious physical problems with the structure and an architect to check that all construction on property matches the zoning permits in the area. In many situations property is purchased with the intention of making structural changes, and without these changes the property may not be desirable to the buyer. For this reason, it is imperative that purchasers inquire that structural and zoning measures allow these changes to be made, prior to signing of contract.

 
Moreover, Israeli contracts typically include a provision that the purchaser has had an opportunity to examine the property and waives all claims in relation to its condition (e.g. no repairs can be demanded if defects are found after the signing of the contract). For this reason, if there are any serious defects, the purchaser will probably prefer to look for another property. However, if the defects are minor, he may use this information as negotiation leverage to his advantage. He may also incorporate these minor defects into the contract and demand that the seller fix all defects before the date of possession.

 
Because of the serious implications that might follow if the contract is altered after signing, purchasers should make sure that they know how they are going to finance the purchase and when their money will become available to them. 

 

For those who are planning to obtain a mortgage from a bank in Israel, it is advised that all inquiries and a general approval of terms from a bank be sought before signing the purchase contract. Banks in Israel are usually willing to finance up to 50%* of the purchase price or purchase value as assessed by a surveyor certified by the bank (the lesser of the two). Yet, there are banks that will not approve a mortgage for a purchase in specific locations or if the deal appears to be risky. All this should be sorted out ahead of time. 

In light of the potential pitfalls outlined above, it is advisable to adopt a cautious approach when purchasing a property in Israel. It is important to remember that since once a contract is signed, there is no going back, it pays to be vigilant. Chances are, that the more information that is gathered and the more preparation done before embarking on a real estate purchase in Israel, the smoother the negotiation and the transaction will be in regard to all aspects of the deal.

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Buying a home with proper guidance will make your purchase a worthy, fulfilling and enjoyable experience and will enable you to finally own your own בית נאמן בישראל.
 

 

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Disclaimer: The information presented above is general information and should not be regarded as legal advice. For any specific advice, one should consult with an Attorney, as there may be particular considerations that are not mentioned here.