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Due diligence is a type of property assessment that concentrates on the formal and legal aspects of a piece of real estate. The aim of a due diligence process is to assess the legal standing of a property, its owner, as well as the documents related to that property. It also checks the registration of property with relevant government agencies, e.g. the State Land service of Latvia, the appropriate Land Book etc.
In general, due diligence uncovers, delivers and highlights all the information a buyer deems necessary, but also checks whether the facts provided by the seller are true. An especially important aspect of real estate due diligence is the validity of registrations, documents and invoices, as in many cases in Latvia it is forbidden to sell real estate that is either not registered properly or is not legally correct in any terms. Naturally, insufficient due diligence may lead to long-term complications and even possibly violations of the law.
In Latvia, due diligence process checks real estate data from the following institutions:
It must be noted, that, while these are formally three different institutions, functionally, for the purposes of registration, they act as one. Land Registers, in Latvian known as Land Books (zemesgrāmata) are the ones that hold the actual registration, i.e. information about the ownership, parameters, coordinates etc. The State Land Service (in Latvian: Valsts zemes dienests) is the overseer institution that controls the information and provides registration services. The Cadaster (in Latvian: kadastrs) publicly provides certain information from the former two institutions.
Real estate due diligence process is first concerned with the actual fact of registration with the appropriate Land Book, then with parametric data about the property. It checks the owner of a property, if it is rented to anyone, if there are any encumbrances, easements etc.
Legal status check
Legal status check is generally performed together with the registration check, as it involves all the same documents. It confirms that all the documents are correct and all the parts of a real estate are properly legalized, if they require separate legalization. It also incorporates legal advice on further actions in case in violations of the law have been detected.
Risk assessment aims to predict the long-term status of a property, as well as its performance in the nearest future, highlighting potential risks and hazards. In other words, it answers the question of is it worth and is it safe to buy this exact property.
While at the moment of transaction everything may be legally and technically correct, property-bound encumbrances can cause problems further down the road. A pending mortgage might make a property unprofitable in the nearest 10 years, ruining your financial strategy. Poorly made repairs may cause structural damage in a year and require urgent additional investments to fix them.
This aspect of due diligence may also involve checking the current owner of a property, to see if he/she has ties to failed transactions and if he/she is generally trustworthy. This is also applicable if you are planning to build your own property and are working with third party construction specialists.