LEGAL STEPS WHEN BUYING REAL ESTATE IN COSTA RICA
Published in Paradise Properties Magazine
By Thomas A. Burke, Real Estate Attorney
The question most commonly asked by foreigners wishing to acquire real estate in Costa Rica is: "Can I legally own real estate in Costa Rica?", to which the answer is a definite "YES". With few exceptions, such as the ownership of corporations holding leases to state shoreline property, foreigners are not restricted in holding property rights to land, shares or any other form of private property. They enjoy the same degree of Constitutional and Legal protection as Costa Rican citizens. The principle of private property is a basic tenet of the Costa Rica legal and economic system, as well as the culture itself. This means that it is neither a requisite to be a citizen, a legal resident nor to be even physically present in order to acquire or hold property rights in Costa Rica.
This of course implies that as anywhere else in the world, one must follow the legal requisites in order to obtain the full protection of the law itself. The law assumes the owner or potential investor is a "reasonably intelligent person" and thus will seek competent advice and exercise due diligence and vigilance in his own interest. Most cases of losses in this area are due to cutting costs, and time and investing without thoroughly investigating all legal and other aspects involved with a property.
The single most critical experts to be consulted in the real estate field are a knowledgeable real estate agent and an attorney specialized in your area of interest. Beyond obtaining recommendations on these professionals, I believe the single most important indicator of success in the relationship with them, is the degree to which they show interest in your actual short and longer range goals, your budget, family and even psychological situation should be important to them before advising you on where and how to make your decisions. By all means if you find yourself "pressured" into a particular option and short on real background explanations, stop and seek a second or even third opinion. This is much cheaper and easier that undoing a regrettable decision later.
The following is a summary the most important points to be considered from a strictly legal standpoint, while it is clear that each individual case will vary in some aspects, thus making personalized counsel a necessity at all times.
1) Real Estate purchases in Costa Rica and most other contracts affecting property must be formalized by a locally commissioned notary public who in this country must also be a licensed attorney with a private law practice. This is a must in order for a title to be publicly recorded. An attorney acting as a notary in a transaction is by law a "neutral third party" and obliged to see to it that contracts are legally and soundly drafted, protecting both sides stated and unstated interests. The buyer, however, when paying cash, can and should determine which attorney-notary is to control the drafting and formalization of the legal closing documents. The buyer thus assures him/herself of counsel beholden primarily to him/her. If there is a mortgage or other financing involved, it is the seller's prerogative to designate the attorney-notary as he continues to have an interest in the property and must secure his/her credit. In this case as in any other when the purchaser deals with the seller's attorney, experience has shown it to be an absolute necessity that the purchaser obtain independent and competent legal counsel. The investment in fees will probably be one of the best investments in a future real estate holding.
2) In order to properly understand property transfer procedures it is important to take into account that Costa Rica has a very well ordered and modern Property Records system. Although some information is still retained in large handwritten or typed Register books, even this information is centralized in a general owners listing. Most information is stored in a microfilm library and summarized in a computer data base. Recently digitalized computer stored copies are being made of document referring to property transactions, liens, mortgages, etc. All procedures are computer controlled and efficiently executed by quiet zealous registrar clerks. Most delays in registering are centered on tax payments and mistakes made in relation to proper description of property dimensions by the notary involved.
3) Title searches and their results can only be validly certified by such an attorney-notary or a records office official. in the latter case such records official can only certify legal facts on record, while not being able to give valid legal opinion as to their significance. It is advisable to have your attorney certify in writing the legal situation of a particular property before making a final decision. This will assure you that your attorney will take extra care in ascertaining that the full picture is obtained.
4) A National Cadastre at the Public Registry keeps copies of plot maps for virtually all titled Real Estate. Some of the plot maps made more than 20-30 years ago are unreliable with respect to real dimensions, particularly those relating to large rural holdings. It is therefore a good idea to have a modern topographer remeasure and make any necessary corrections as well as set out true boundary markers. Minor adjustments can usually be recorded without trouble. Keep in mind that the owner name registered on a plot map is no proof of current ownership, as property transfers are not registered at the Cadastre unless a new owner specifically applies for it.
5) When planning a business venture, it is also advisable to retain an attorney to study the regulations pertinent to the development of any given piece of property, taking into account possible zoning regulations, restrictions on land use and division, environmental protection laws and public use reservations among others. This should be done before purchasing and immediately after carrying out a title search. The results of the title search and plot map information such as precise location of the property must be related to applicable regulations in a given area.
6) Although some real estate agents ask potential clients to deposit a sum of money in "escrow", this is misleading because the Costa Rican legal system does not have a state regulated "escrow" system nor "title insurance" system although several private companies offer US based title insurance. The most important legal rule in transfer of property rights is that any claims not registered at the Records office do not prejudice the title of a third party buyer. Since one can ascertain that a title is either free of liens, encumbrances, etc. or not, on prior basis at the Records office, one is assured of title if one purchases from the registered owner with the proper formalities executed by an attorney-notary. However particularly when dealing with sales by absentee owners and recently titled properties I strongly advise researching the background of the power of attorney or title and seriously consider paying for title insurance by a U.S. title company with local representation. In all cases I prefer that only smaller sums, as in “earnest” be paid and only when necessary, that is before full due diligence has been completed. Any larger sum should be kept in a reputable attorney’s trust account until then.
7) When purchasing a property with a building as the principal asset, it is often advisable to have a civil engineer inspect it before negotiating a final deal. Civil law in Costa Rica does in theory protect buyers from hidden defects, however the cost and time for necessary Court procedures to enforce a debatable right to indemnization far outweigh those of prior inspections and sometimes the cost of repairs themselves.
8) Closing costs are by law to be shared equally between the buyer and the seller unless they have both agreed to a different arrangement, and nowadays it is usually that the buyer must pay all closing costs. The portion of costs relating to a mortgage are always born solely by the debtor. A simple cash transaction involves payment of approximately 1.25% of the value in Notary fees, plus 2.50% in real estate transfer taxes. Actual declared value for tax purposes may vary from the real negotiated and therefore give a different total amount in closing costs. The seller should deliver property tax payments up to date before closing.
9) Phone lines are in short or nonexistent supply in Costa Rica and will remain so for at least several years. A phone line right with a property must be separately transferred in a special phone company form. This is another aspect often neglected yet crucial to the use of many properties. Your attorney-notary should see to not only obtaining property tax receipts and phone line rights but also the latest utility bills for your later convenience. Thus a fully registered transfer should be evidenced by the notarized sales contract with the appropriate Public registry seals, an recent plot map, municipal property tax receipts, a phone transfer to be presented to the phone company when possible, the latest utility bills, building plans when applicable and documents relevant to any other special circumstances involved such as the full payment of severance to any employees involved with the property. These last remarks although more practical than legal in nature, do help avoid legal problems and clear the way for future plans involving the property.
10) Variations to simple real estate purchases can include among others, buying a corporation holding the property or having one formed to hold the property, using an agent with a special power of attorney to sign for a purchase for the absentee owner, purchasing a property in a legally registered condominium (a form of joint ownership involving a mix of private and common property), privileged stock bearing rights to the use of specific property portions, presale agreements, purchase plus construction contracts and purchase of government leases on shoreline property. In all of these it is necessary to have the benefit of more thorough investigation and counsel in order to understand all future implications for your investment.
In Closing, it is safe to say that a well planned real estate purchase is probably the most secure and stable investment possible in Costa Rica. the long term peace of mind it can afford merits your careful thought, professional consultations and patience.
This document is published and distributed by Burke & Quirós S.A., and is under copyright. The information contained within may be copied in part or in whole if accompanied by a clear reference to the author's name with complete phone, fax and email addresses, and notice is given to same of the use of the information with a copy of the corresponding publication.
Thomas A. Burke, LL.M.