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.