When conducting various real estate transactions, you can often come across such concepts as “deposit” and “collateral”. Many consider them to be similar phenomena due to the fact that each of these terms involves the transfer of some amount of money. Meanwhile, pledge and deposit have different meanings, and their use entails completely different legal consequences.
The concept of advance in the Civil Code
There is no clear formulation of what an advance is in the Civil Code. The meaning of this concept is interpreted on the basis of a systematic explanation of the norms in the comments to legislative acts.
⇒ Important to know! A prepayment made is considered an advance unless it is stated in writing that the payment is a deposit!
The advance serves a payment function. It is paid at the conclusion of a transaction as an advance payment for a product or service.
An advance payment is made so that the object of purchase is not intercepted by others. If either party fails to fulfill obligations, the advance is subject to a 100% refund.
The transfer of money is formalized by a bilateral agreement on the payment of an advance. The document describes the rights and obligations of the parties and liability in case of violation of obligations.
All documentation must be concluded in accordance with the legislative acts in force in the territory where the transaction is made.
If the contract stipulates obligations that are contrary to the law, then, by a court decision, liability arises in accordance with the law, regardless of what is stated in the agreement of the parties.
What is not refundable: deposit or advance payment?
If an advance payment was made for the apartment, then in the event of cancellation of the main agreement, the money is not returned to the buyer only in one case - if an agreement on a deposit was concluded and the buyer himself is the culprit for canceling the contract.
If the seller is responsible for canceling the agreement, then he must return the money to the buyer in double amount.
If the parties used an advance, then in the event of cancellation of the main contract, the money must be returned to the buyer in the standard amount, regardless of the fault of one party or another.
The concept of a deposit
According to Art. 380 of the Civil Code of the Russian Federation, a deposit is a sum of money that guarantees the fulfillment of obligations.
The deposit of funds is formalized by a written agreement, which necessarily stipulates the rights and obligations of the parties.
If the document does not state that the amount paid is a deposit, if a dispute arises, the court will decide that the amount is an advance and must be returned if the transaction is refused.
If the party who has undertaken the obligation to purchase the property refuses to complete the transaction, the deposit is not returned.
If the seller for some reason changes his mind about selling the property or is prevented from doing so by circumstances, he is obliged to return the funds to the potential buyer in double amount.
If force majeure occurs: war, flood, hurricane, the contract is suspended until the end of the disaster.
The recognition of force majeure circumstances as force majeure is made by a decision of the Chamber of Commerce and Industry.
It is important to understand the difference between a deposit and a pledge. These are completely different concepts.
Registration of collateral and deposit
The advance and deposit are drawn up on paper between the seller and the buyer independently. Notary and legal services are not required. Although the presence of witnesses when drawing up and signing such guarantees is allowed and encouraged.
The deposit agreement contains the following items :
- real estate price;
- its characteristics - area, number of rooms, features;
- address of the apartment being sold;
- deposit amount;
- information about the parties to the transaction - full name, passport details;
- deadlines for fulfilling the obligations of the participating parties.
The written advance agreement also stipulates the terms of the purchase and sale transaction, the terms of return, and penalties for refusing the transaction.
The pledge is often prepared with the participation of a notary. The pledge agreement contains many positions that outline the obligations of the parties - the pledgor and the pledgee - before the transaction. Main provisions of the agreement :
- distribution of roles of the parties - pledgor and pledgee;
- information about the requirements that the pledge secures, that is, information about the main contract;
- information about the property that is the subject of the pledge, a description of the exact characteristics;
- whether the collateral can be replaced, under what conditions;
- obligations, rights of the pledgor and pledgee in detail (rights to use the subject of pledge by the pledgee, conditions for return, non-return of property, etc.);
- in what proportion the pledged property covers the claims;
- what risks do both parties bear, as well as responsibilities;
- validity periods, conditions for change, etc., details of the parties to the transaction.
An excellent additional step would be to insure the property against collateral. The transfer of the property itself occurs after signing the pledge agreement.
Pledge concept
You can pledge valuables and property owned by the pledgor. Serves as a guarantee of repayment of the loan in part or in full
When renting an apartment, a security deposit is paid, which is a guarantee of ensuring the integrity of the property located in the apartment and the proper condition of the apartment itself. The contract takes into account the degree of wear and tear during operation. When tenants move out, the owner checks the integrity of the apartment. If everything is in order, the deposit is returned. If damage is detected, the damage is assessed and paid from the deposit amount.
When purchasing a home on credit, the collateral is the purchased real estate. The bank issues funds as collateral; if the borrower fails to fulfill its obligations to repay the loan, the bank will sell the property at auction to recoup its losses.
The pledge agreement must be registered with a notary. A sum of money cannot act as collateral.
What is collateral?
What is the difference between a deposit and a deposit when buying an apartment? This is a common question that realtors are asked. Very often, a pledge and a deposit are confused, although there are significant differences between them.
The specificity of the pledge is that the fulfillment of the obligation is ensured only through the property form, and money acts only as property. If the obligations are not fulfilled at all or are not fulfilled as envisaged, then the creditor has the right to sell the pledged object, thus satisfying his own requirements. Moreover, the creditor has the property right to receive payment from the value of the pledged property (except for those cases described in legislative acts). If a client took out a loan to purchase something using real estate as collateral, then if the money is not returned on time, the bank will take away from him the property that was provided as collateral. We discussed above the difference between a deposit and a deposit when renting a premises.
The concept of “deposit” is used primarily in the rental industry, and not in the purchase and sale.
Individuals use collateral in the real estate market primarily when renting housing. The owner of the apartment has the right to demand from the tenants not only payment every month, but also any amount if the property is suddenly damaged. In this case, the repair of a broken item, for example, will be paid for by the owner from the deposit amount.
Thus, in terms of the effectiveness of material support, collateral comes first. But in terms of ease of use, registration and security as a whole, the deposit stands out.
We answered the question what is the difference between a deposit and a deposit when renting.
How to apply for a deposit when buying an apartment
Let's consider what is better to arrange, a deposit or an advance payment when buying an apartment.
Purchase and sale transactions are carried out in the following sequence:
- They sign a deposit agreement, which indicates the full name, passport details, place of registration and actual residence of both parties, the amount of the deposit and a full description of the terms of the transaction.
- The deposit agreement is certified by a notary, one copy remains in his custody.
- The buyer transfers the agreed upon amount of the deposit to the seller into the hands or custody of the real estate agent.
- The documentation necessary for the sale of real estate is drawn up (certificate from the BTI, management company, if children are registered in the living space, you need to obtain permission to alienate the property from the guardianship authorities).
- Concluding a purchase and sale transaction.
- Calculation, handing over keys.
The deposit guarantees the fulfillment of obligations by both parties. The person who refuses the transaction bears financial liability in the amount indicated by the amount of the deposit.
How to make a deposit
The pledge agreement is drawn up in writing and certified by a notary. It is a guarantee of ensuring the circumstances of one party in relation to the other.
The debtor or his authorized representative can act as a pledgor. A minor cannot mortgage property without the permission of his representatives and guardianship authorities.
Instructions for concluding a contract:
- You will need documents for the mortgaged property. The collateral must be assessed by expert organizations, or by agreement of the parties.
- The agreement specifies the property being pledged and its detailed characteristics, the reasons for concluding the pledge agreement, and who will own the object of the transaction.
- The agreement is registered with a notary and the justice authorities.
After the conclusion of the agreement, the pledged property can be held by both the pledgor and the pledgee.
Upon expiration or if circumstances change, the contract may be renewed. This requires the consent of both parties.
Is an oral agreement allowed?
If people trust each other, then they may not draw up a preliminary agreement, and may also not use the agreement to confirm the transfer of collateral or deposit. Under such conditions, they will not be able to officially prove the existence of an agreement. They will only be able to refer to the testimony of witnesses.
In the absence of official documents, usually the pledge and deposit are only a share of the payment, and not a guarantee of the transaction. If the requirements of the parties are violated, it will be impossible to prove that the object is pledged to the other party to the agreement.
How to apply for an advance
Unlike a deposit, the definition of an advance is more of an economic nature. This procedure is not regulated by legislative acts.
An advance payment is most often made in the amount of no more than 10% of the cost of the purchased object. It is better to confirm the deposit of the amount with documents with the signatures of witnesses or register it with a notary. The law does not impose strict requirements for making an advance payment when purchasing real estate.
If the transaction did not take place and the seller turned out to be dishonest, problems may arise with returning the amount paid if the agreement was not registered with a notary.
What is the difference between an advance and a deposit?
In the system of civil and labor relations, the question quite often arises of how an advance differs from a deposit and a pledge. In this article we will tell you what the differences between these concepts are, based on how all this is described in civil law.
Russian legal acts provide for several ways to secure obligations. The main ones are an advance payment and a deposit. In both cases, they mean a certain amount of money provided by one of the parties to the contractual relationship against future payments due.
What is a deposit?
In accordance with Art. 380 of the Civil Code of the Russian Federation, the deposit acts as a kind of guarantee or evidence that the subsequently concluded contract will be signed and executed.
In legal interpretation and practical implementation, the difference between a deposit and an advance payment is as follows.
First of all, if the client does not buy any product or changes his mind about concluding a contract for the provision of services, the seller keeps the deposit for himself.
If the situation turns out the other way around - the seller changes his mind, then he is obliged to pay the buyer an amount that is 2 times the amount of the deposit.
In addition, when transferring a sum of money with a receipt, both the seller and the buyer must clearly indicate in it that the money is being transferred specifically as a deposit.
Earnest money is a kind of security payment given by the buyer to the seller as a sign that their preliminary agreements will be fulfilled.
Thus, if we consider the deposit as a kind of prepayment of the cost of a future transaction, then it has the properties of an advance payment.
A deposit is a strict and legally enforceable form of organizing a transaction. Its terms are binding on both participants, and the law protects the interests of both the seller and the buyer.
An advance is an amount that is determined by the contracting parties as the minimum part of payment for the entire cost of a future transaction. In this capacity, the advance bears exclusively the payment burden.
An advance, unlike a deposit, may not have a serious formal basis. This follows from the fact that in the current legal acts regulating civil relations, there are no regulations on advance payments at all.
Nevertheless, in practice, an advance is a fairly common form of transactions. It is used to eliminate various types of risks associated with the circumstances of the transaction.
As a rule, in large transactions, it is better for the parties to enter into a written agreement regarding the payment of the advance.
An advance is a simpler and freer way to declare intentions regarding a future transaction on the part of the buyer. If for any reason it is not concluded within the previously agreed terms, then the advance amount paid to the seller is returned to the buyer.
Important! The categories of advance or deposit should not be confused with the concept of collateral.
In accordance with the rules of law, collateral refers to specific property used as a collateral for obligations (for example, property transferred to the bank as an obligation to repay the loan received on time). In this case, the mortgagee receives the right to dispose of the borrower's funds in the event of non-payment of the debt.
Let's sum it up
So, before choosing a form of security for a future transaction (deposit or advance) when selling or buying, you should remember that a deposit is a statutory obligation to conclude a future transaction. Advance payment is an advance payment, part of the cost of the purchased goods.
The fact of paying an advance can be considered as a kind of way for the buyer to reserve this product and ensure its guaranteed purchase within the agreed time frame. At the same time, the advance is not secured by legal regulation, although the transfer of money in this case is also formalized with a receipt.
This allows, in case of violation of the obligation, to recover from the seller to whom the money was transferred a one-time advance amount.
Source: https://zhazhda.biz/base/chem-otlichaetsya-avans-ot-zadatka
What to choose when buying an apartment: advance payment, deposit, deposit
Let's consider what type of payment to arrange when purchasing real estate, which does not return the deposit or deposit.
A deposit is paid when housing is purchased with a mortgage. The bank must have guarantees of the return of funds paid. The apartment or house is pledged until the buyer pays the full amount specified in the contract.
After the pledgor fulfills his obligations, the pledge is returned to the owner.
Registration of the deposited funds as a deposit is beneficial to both parties.
The buyer is calm that the seller will not refuse the purchase and sale transaction or raise the price. If the seller refuses the buyer for some reason, he must return the amount paid as a deposit in double amount.
The seller will keep the money if the buyer backs out of the deal.
When making an advance payment, both parties bear the risks, although it is widely believed that when buying an apartment, it is most profitable for the buyer to formalize the amount paid as an advance payment as an advance payment. The seller is the opposite.
If an unscrupulous seller refuses to complete the transaction, it will be difficult to obtain the advance amount from him. Courts in such disputes last for years.
Deposit: consequences of failure to fulfill the main obligation
In a situation with a deposit, the procedure is simpler. As indicated, the deposit has a penalty function. Moreover, it simultaneously ensures the interests of both one and the other side. This is as follows (clause 2 of Article 381 of the Civil Code of the Russian Federation):
- If the counterparty who issued the money as a deposit violates the agreement established by the agreement, he will lose it, since the other party has the right to keep it.
- If the counterparty who received the money as a deposit does not fulfill the obligations assumed under the contract, he will have to not only return the amount of the deposit received, but also the same amount as a fine.
In the first case, the application of penalties consists of a simple non-return of funds. In the second case, most likely, it will be necessary to collect double the amount of the deposit through the judicial authorities.
In addition to a fine in the amount of the deposit, the counterparty who has not fulfilled the obligation is obliged to compensate his opponent for losses minus the amount of the deposit (see the cassation ruling of the Volgograd Regional Court dated December 16, 2011 in case No. 33-15939/11).
Is the deposit refunded or not?
If the pledgor fails to fulfill his obligations to the creditor, his property becomes the property of the latter.
The deposit is returned:
- the debt is paid to the creditor;
- the creditor poses a threat of loss or damage to property, the contract is terminated in court;
- sale of the collateral to repay the debt;
- termination of the object's existence.
If the above circumstances arise, an appropriate entry is made in the register in which the agreement is registered.
Advance payment for an apartment is refundable or not
The advance payment is made as an advance payment. If the transaction does not take place, the amount of money must be returned in full.
The contract states:
- passport data in full;
- term of transfer of property;
- sequence of paperwork for sale;
- the amount paid, a receipt confirming its receipt;
- signatures of the parties.
You should not make a payment without documenting it. Notarized registration of the advance payment is a guarantee of payment of funds if one of the parties refuses to complete the transaction.
Deposit or advance payment when purchasing an apartment
For real estate purchase transactions, an advance payment is required. It can be issued as an advance or deposit.
If it is written in the form of an advance, the amount is refundable.
If a deposit agreement has been drawn up, then if the obligations are not fulfilled, the amount of money is counted as a fine and is not returned.
When completing the transaction, the deposit is counted towards payment of the cost of the apartment, regardless of how it is indicated in the contract.
For a buyer who is determined to buy a home, the best option is a deposit.
The difference between a pledge and a deposit based on the form of the agreement
The legislation provides that the deposit agreement is concluded between the parties exclusively in writing. However, if the parties have not fulfilled this condition of the transaction, it will not automatically be considered invalid. The interested participant has the right to prove with the help of written evidence (clause 1 of Article 162 of the Civil Code of the Russian Federation) that the deposit agreement was nevertheless completed.
Only if the interested party cannot prove that an earnest money transaction has been concluded will it be considered that the money was transferred as an advance. In this case, the provisions of Art. 487 Civil Code of the Russian Federation. In other words, the transaction will not have a security nature, but will only have a payment function.
The requirements for compliance with the written form of the transaction also apply to the pledge agreement. In Art. 339 of the Civil Code of the Russian Federation determines that this agreement is concluded in simple written form, and in certain cases is subject to notarization if:
- certification of the contract in a notary office is enshrined in its terms and conditions;
- the notarial form is fixed by legislative acts (for example, Article 22 of the Law “On Limited Liability Companies” dated 02/08/1998 No. 14-FZ);
- the agreement on the main obligation is subject to notarization.
Moreover, in some cases, a pledge agreement is subject to state registration (see Article 339.1 of the Civil Code of the Russian Federation). For example, if:
- rights certifying that a thing belongs to a person must be registered with an authorized state body;
- The rights of the LLC participant are pledged.
The requirements for the form of the pledge agreement are more stringent. Their violation entails the invalidity of the specified transaction.
Restrictions on making a deposit
If the above points are not fulfilled, the prepayment made is considered invalid and must be returned:
- all owners must be present at the conclusion of the contract;
- if redevelopment was done, this should be indicated in the project documentation;
- There is a lease agreement with third parties.
The legislation does not indicate certain amounts when making an advance payment or deposit. Most often, they contribute from 5 to 10% of the cost of the purchase and sale object.
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What is a deposit?
The deposit is a sum of money that is transferred by the buyer to the seller as a guarantee of fulfillment of the terms of the purchase and sale agreement. A deposit is a type of advance payment.
The deposit agreement must be in writing, and the agreement must explicitly state that the money is considered a deposit (otherwise it will be considered an advance). The deposit performs not only security, but also penal functions, since in the event of cancellation of the main purchase and sale agreement, penalties are provided. If the transaction does take place, the deposit is recognized as part of the main payment.
The size of the deposit is not regulated by law; however, when purchasing an apartment, the deposit size is usually 5-10% of the cost of the apartment.
