Real Estate Buying Process
If you are considering a real estate
investment in Costa Rica, the following
information will help you understand
the real estate buying process.
The information is divided into three
main sections:
I. Property types in Costa Rica
II. Basic steps to purchase property
in Costa Rica
a. Legal vocabulary
b. Step-by-step buying process
III. Ensure a real estate transaction
is legally executed in Costa Rica
Property types in Costa Rica
Just like in the US, Canada, and Europe,
there are different types of properties
available to buyers. Understanding the
various types of properties is crucial
in the evaluation process. This section
highlights the property types that can
be purchased in Costa Rica.
A. Fee Simple:
i. The most comprehensive form of property
ownership in Costa Rica is fee simple.
The conditions for this type of ownership
are the same for foreigners as for Costa
Rica citizens. The concept of fee simple
ownership in Costa Rica is the same
as in the US. Basically, fee simple
ownership gives the owner of the property
the absolute right to physically own
the property, use it, enjoy it (i.e.
usufruct), sell it, lease it, improve
it, etc., subject only to conditions
outlined in the Costa Rica Laws.
B. Concessions in the Maritime Zone:
Concession property is more commonly
known as beachfront property. In Costa
Rica, 95% of beachfront property is
considered concession property and is
governed by the Maritime Zone Law and
other specific regulations including
but not limited to special dispositions
stated by municipalities and the ICT
(Costa Rica Institute of Tourism).
These legal dispositions set forth the
conditions under which foreigners and
local residents can own concession property.
A concession in Costa Rica is defined
as the right to use and enjoy a specific
property located on the maritime zone
for a pre-determined period of time.
The government through the respective
municipality grants this right.
The first 200 meters measured horizontally
from the high tide line defines the
boundary of the maritime zone.
This zone also includes islands, pinnacles
of rock, mangroves, estuaries, small
islands and any small natural formation
that overcome the level of the ocean.
This 200 meter zone is divided into
two areas:
1. Public Area: The first 50 meters
measured horizontally from the high
tide line. This zone is not available
for ownership of any kind. No kind of
development is allowed except for constructions
approved by government entities.
2. Restricted/Concession Area:
The area comprised of the following
150 meters is available for concessions
to be granted. A concession
is in essence a "lease" on the property
granted to the lessee for a specific
period of time. Normally the concession
period is granted for 20 years. An owner
of a concession may build on that concession,
subdivide the concession and make other
changes to the property with the appropriate
permits from the local municipality.
There are some limitations regarding
properties located within the maritime
zone. The law establishes that foreigners
cannot be concessionaires except through
a partnership with a Costa Rican or
foreigners residing in Costa Rica for
at lease five years.
C. Properties in Condominium:
When US citizens think of condominiums,
they normally think of large apartments
or townhouses. In Costa Rica,
there is a specific law that in combination
with other legal dispositions regulates
all conditions required in order to
set up a condominium. Each condominium
development has its own bylaw containing
all the restrictions, limitations and
privileges that can be enjoyed by the
owners.
Ownership of property "in condominium"
is fee simple ownership. It is important
to obtain a copy of the bylaws to check
the architectural guidelines, land usage
restrictions, and others. Developers
commonly use the condominium laws to
build private roads and to set architectural
guidelines to prevent abuse. For the
most part, condominium laws in Costa
Rica are designed to protect the integrity
of a development.
D. Time Share:
The right to use a property during certain
weeks of the year. In most cases the
time-share ownership grants similar
rights as implied in the condominium
regulation except that in the time-share
it is limited to certain weeks during
the year. Consequently, one single unit
is subdivided into parts and sold individually.
Basic steps to purchase property
in Costa Rica
Once a buyer has seen a property of
interest, the next step is to understand
the process for acquiring the property.
The following are basic steps that a
purchaser follows when buying a property
in Costa Rica:
1 - Sign a purchase/sale contract with
the seller
2 - Deposit funds in an escrow
3 - Title research is performed
4 - Closing – Execution of Transfer
Deed, Endorsement of Shares and/or Mortgage
Deed and disburse funds
5 - Register new owner with the Public
Registry
6 - Receive official Title Guaranty
1. Basic Terminology – While the purchase
process may seem simple, there are some
key legal terms a buyer should know.
The following is common vocabulary used
in real estate transactions in Costa
Rica.
a) Folio Real: This is the "social security"
number of properties. It is a unique
number assigned to each property to
identify it and distinguish it from
others. This number is comprised of
three parts where the first number indicates
the province, the second group of numbers
is the number of the property itself
and the last group indicates how many
owners the property has or has had.
The property that you are buying MUST
have this number in order for you to
obtain clear title.
b) Transfer Deed (escritura de traspaso):
This is the document that contains all
of the stipulations regarding the transfer
of real estate. This document must be
prepared by an attorney who must also
be a Public Notary and the deed must
be recorded in his/her notary book as
well as at the Public Registry of Properties
in San Jose. Stewart Title Costa Rica
provides this service. Further, Stewart
Title guarantees that the deed will
be registered the same day or next day
after the close to insure the government
recognizes your purchase immediately
and no other party can claim it before
you.
c) Power of Attorney (Poder): This document
authorizes a person to act on behalf
of another to perform specific actions
such as the purchase of a property.
This is especially useful for clients
that wish to close on their property
without returning to Costa Rica.
d) Survey Plan (Cadastral Plan): In
order to transfer or acquire a property
a survey must be recorded at the Public
Registry with the municipality authorization.
The official drawing of the property
is validated through an approval process
at the Public Registry of Properties
as well as at the municipality in which
the property is located.
e) Public Notary: Attorney licensed
by law. A public notary is necessary
in order to purchase a property. He/she
will be in charge of drafting the appropriate
transfer deed.
f) Representatives: If the buyer or
seller will not attend the closing,
an individual with power of attorney
to represent either or both parties
will be required on the day of closing.
If the buyer, seller or both are corporations,
a legal representative should be present
to sign the deed and he/she should have
a legal document to justify his presence.
This document is granted by a Public
Notary.
g) Record of the transfer deed: Upon
the signature of the transfer deed,
the Public Notary takes the deed to
the Public Registry. The record process
is made of two phases. On phase one,
the notary turns the deed to the Public
Registry for the appropriate annotation.
The registry verifies the deed is correct
and on phase two the property is recorded
in the name of the new owner.
Purchasing Methodologies
1. Acquiring real estate in Costa Rica
through a direct transfer: This is the
typical purchase process in which one
or more physical individuals acquire
a property in their personal name.
2. Acquiring real estate in Costa Rica
through corporations: One of the must
common practices in Costa Rica is to
acquire properties through a new corporation
or through an existing corporation that
owns the property. The advantage of
this method is that the buyer can protect
his or her asset anonymously. Further,
if a purchaser acquires a property through
an existing corporation that already
owns the property, there are no transfer
taxes and other stamps to be paid.
This is due to the fact that transfer
taxes and stamps must be paid anytime
there is a change in the ownership of
the property. When acquiring the shares
of an existing corporation, technically
there is no change in the recorded owner
of the property. If a property is acquired
through a new corporation, the transfer
taxes and stamps must be paid because
the name of the property owner changes.
Fee Structure
A. Transfer taxes, stamps and other
costs: In order to record the transfer
of a property, a 1.5% should be paid
for transfer taxes and an additional
1% for stamps at the Public Registry.
B. Notary Fees: Notaries are required
by law to charge 1.25% for legal fees.
C. Survey fees: When a new survey for
the property is required.
D. Mortgage registration fees: The government
charges .6% of the mortgage value to
register the mortgage deed for the property.
Ensure a real estate transaction
is legally executed in Costa Rica
One of the greatest concerns among foreigners
purchasing real estate in a foreign
country is to ensure a transaction is
executed legally and if the legal system
will insure a lifetime of enjoyment
of the property.
The Costa Rica legal system, if followed
correctly, does give ample protection
to investors. However, if a transaction
is not executed correctly, loss can
occur.
To guarantee real estate investments
in Costa Rica, there are three tools
that should be present in a transaction.
a. Adequate legal representation and
an experienced notary.
A notary is an impartial individual
in the closing but his/her job as the
legal representative of the parties
should provide the buyer on the seller
with legal advise as to the complete
process.
b. Title Guaranty in Costa Rica
A contract by which a third party (Guaranty
Company) commits to indemnify losses
due to legal situations that could affect
the property and that are not excepted
or excluded from the respective coverage.
It’s a legal document that grants the
buyer the security and peace of mind
that the buyer has clear title to their
investment is protected in the event
of defect. The process of issuing a
Title Guaranty includes the issuance
of a Title Commitment that allows the
buyer to examine the legal status of
the property and provide them with a
tool to evaluate if the property is
in proper condition for purchase. The
final title guaranty is issued after
the close and is based on the title
commitment. Title Guaranty is a new
concept in Costa Rica, but it has already
proven to add value to initial real
estate purchases, re-sales and has encouraged
transparency and increased liquidity
in the real estate process.
c. Escrow in Costa Rica
Most buyers from the US understand Escrow
service to include not only the managing
of funds for a property purchase, but
all of the administrative work required
to execute a close. In fact, in
states where an attorney is not required
for a real estate purchase, the escrow
agent becomes the central party responsible
for ensuring that all of the documentation
is in order before the close.
In Costa Rica, escrow is more narrowly
defined as a financial service that
prevents the manipulation or mishandling
of funds prior to closing. The
escrow agent is a neutral third party
with responsibility for issuing checks
and executing payments. This system
gives confidence to all interested parties
(e.g. attorneys, brokers, seller) that
they will receive funds at the closing.
Conclusion
The real estate buying process in Costa
Rica need not be intimidating or confusing.
By understanding the steps in the process
and pitfalls to avoid, a buyer can confidently
invest in and enjoy a property.
The above information is in part courtesy
of Stewart Title Latin Americas.
