What is Pacto de Retro ?
Recently i came across a property owner who owns various tracts of land but needed cash for personal reasons. He had no other collateral except his / her properties and Pacto de Retro was an option discussed. Below is the definition for your reference …..
This is an issue wherein a landowner is need of money and basically mortgages his / her property with the option of buying the property back in the future. Terms must be agreed upon specially the rate at which the interest will be and how long the term of mortgage will be. This applies mostly to properties in the province categorized agriculture and industrial.
It means sale with stipulation for repurchase.
It is a principal contract.
In sale with pacto de retro the title is conveyed; in mortgage not.
It also means contract of retrocession and it was used historically:
It was the process by which principal acquired control of most land in the province, pacto de retrovendendo (pacto de retro, or pacto, for short).
Through this contract, land was sold for less than its true value, but with the provision that the seller had the right to repurchase within a specified time limit, with the addition of an interest charge. In essence this arrangement amounted to a way of pawning land to raise cash; however, the system was subject to much abuse, including excessive interest charges. Moneylenders employed the pacto de retro as a means of taking land from poor farmers.