The "Under the Table" Transaction: A Direct Threat to Your Ecuadorian Property Title

As a practicing Ecuadorian Real Estate Attorney and Land Specialist, I am obligated to provide counsel that prioritizes your absolute legal security. I have managed countless transactions, from simple urban apartments to complex rural land acquisitions, and have seen firsthand how seemingly minor deviations from legal protocol can lead to catastrophic financial loss. One of the most dangerous red flags is the seller’s request for a portion of the purchase price to be paid "under the table" — undeclared, in cash, and outside the official legal framework.

This proposal is not a clever negotiation tactic; it is an invitation to commit tax fraud and fundamentally invalidate your property title. Understanding the precise legal mechanisms at play is your first and most critical line of defense.

The Legal Fallacy of the Cash Payment: A Direct Threat to Your Title

The allure of a reduced tax burden is a powerful-yet-deceptive incentive. The Ecuadorian legal system, grounded in the Napoleonic Code, demands absolute transparency in property transfers to ensure legal certainty. Participating in an undeclared payment scheme exposes you to severe and immediate consequences.

A Fatally Flawed Escritura Pública (Public Deed): Your legal ownership of property is only conferred through a registered Escritura Pública. This public deed, executed before a Notary, is the foundational document that must state the real purchase price. An artificially low declared value creates an incurable defect in your title for several reasons:
- Rejection by the Registro de la Propiedad: The Municipal Property Registry in each canton can and does reject deeds where the declared value is egregiously out of line with the official cadastral valuation (avalúo catastral).
- Annulment Risk: Should any dispute arise—from an heir of the seller, a creditor, or a government audit—the demonstrable discrepancy between the true price paid and the price declared in the Escritura can be used as grounds to annul the entire sale. You would lose the property and the undeclared cash you paid.
- Future Sale Impossibility: When you eventually decide to sell, any competent buyer's attorney will perform due diligence. They will discover the valuation discrepancy, making your property legally toxic and unsellable to any prudent investor.
Complicity in Tax Evasion and Criminal Liability: By under-declaring the value, you are actively participating in the seller's evasion of the Impuesto a la Ganancia Ocasional (Capital Gains Tax). This is not a trivial offense. The Servicio de Rentas Internas (SRI), Ecuador's national tax authority, has broad powers to conduct retrospective valuations. If discovered, you face:
- Substantial Fines and Interest: The SRI will assess penalties against both parties.
- Legal Complications: You become a party to the seller’s tax fraud, which can complicate your immigration status, financial standing, and expose you to potential criminal investigation.
Total Loss of Legal Recourse: Any funds paid "under the table" are, in the eyes of the law, a gift. You have zero legal proof of this payment. If the seller fails to complete the transaction after receiving your cash, or if a title defect emerges, you have no legal basis to reclaim that undeclared portion. Your only provable investment is the artificially low number recorded in the official documents.

Unmasking the Seller's True Motivation

A request for an off-the-books payment is never a sign of a healthy transaction. It is invariably a symptom of a deeper problem:

Tax Evasion: The most common motive. The seller is attempting to defraud the SRI.
Hiding Assets from Creditors: The seller may be facing lawsuits or have outstanding debts and is trying to liquidate assets into untraceable cash. A thorough due diligence check must include a Certificado de Gravámenes to uncover this.
Obscuring a Defective Title: This is the most dangerous scenario. The seller knows the property has a fundamental legal problem—such as being part of an undivided estate (Proindiviso), where they only own a percentage (derecho y acción) and not a physically defined lot—and is trying to rush a non-compliant sale before you discover the defect.
Concealing Boundary or Permit Issues: A cash incentive can be used to distract a buyer from verifying property lines with the municipality or confirming the legality of existing structures.

Your Strategy: Firm, Professional, and Legally Sound Refusal

When a seller makes this request, your response must be unequivocal. This is not a point of negotiation.

Step 1: Acknowledge and State the Legal Impediment. "I understand your position. However, my legal counsel has been clear: for my title to be valid and defensible in Ecuador, the full and actual purchase price must be declared in the Escritura Pública. This is a non-negotiable legal requirement for my protection."

Step 2: Control the Narrative. Defer to Legal Authority. "My priority is a clean, transparent, and legally secure transaction. Therefore, all funds must be transferred through verifiable banking channels and documented precisely in both the preliminary Promesa de Compraventa and the final Escritura. This protects both of us and ensures the sale is recognized by the Registro de la Propiedad and the SRI."

Step 3: Stand Firm. Be Prepared to Walk Away. If the seller insists, it is the clearest possible sign that you must terminate negotiations. "I am legally unable to proceed with any transaction that involves undeclared payments. If we cannot agree to a fully documented and transparent sale, then I must respectfully withdraw my offer."

This firm stance does not make you a difficult buyer; it makes you a prudent one. Any legitimate seller with a clean title will understand and respect this position.

Indispensable Due Diligence: Your Shield Against Fraud

A request for a cash payment should automatically trigger heightened scrutiny. My firm’s due diligence protocol always includes these non-negotiable checks, which become even more critical in such a scenario:

Certificado de Historial de Dominio y Gravámenes: This is the single most important document. We obtain this directly from the Registro de la Propiedad of the canton where the property lies. It is an official, stamped certificate that provides the complete ownership history (dominio) and lists any and all encumbrances (gravámenes), including mortgages (hipotecas), liens, lawsuits (demandas), and easements. It is the only definitive proof of a clean title.
Verification of Water Rights (Derechos de Agua): For rural properties, this is paramount. We do not take the seller's word. We initiate a formal inquiry with SENAGUA (the National Water Secretariat) to verify the existence and status of any registered water use permits (Autorización de Uso y Aprovechamiento del Agua). Many rural water rights are informal or communal (juntas de agua), and their legal validation is a complex process that a fraudulent seller will try to bypass.
SRI and Municipal Solvency Certificates: We require official certificates proving that the seller is current on all national income/asset taxes with the SRI and local property taxes (impuestos prediales) with the municipality. A seller evading capital gains tax is often delinquent in other areas.
Full Cadastral Verification: We compare the property deed's description (linderos) against the official municipal map (plan catastral) to ensure the boundaries, size, and location are accurate and there are no disputes with neighbors.

The request for an "under the table" payment is not a cultural quirk or a harmless shortcut. It is a direct assault on the legal integrity of your investment. Adhering strictly to the formal legal process is not an obstacle; it is the only path to securing a valid, defensible, and valuable property title in Ecuador. Any other route leads to unacceptable risk.

Secure your Ecuadorian investment with unwavering legal certainty. Do not proceed without expert counsel. Schedule a confidential due diligence consultation with a certified Ecuadorian Real Estate Attorney to protect your assets.