Buying Property Safely in Costa Rica
Sometimes one hears that “buying titled land in Costa Rica is very different from the way it works ‘back home.” Wrong answer! Assuming of course that home is the US, Europe, or Canada. Such a statement probably means that the person dispensing the advice is, at best, not a real estate professional, or, at worst, may have ulterior motives. That’s because the truth is that the process of buying real estate here should very closely mirror the way it happens “back home.” Of course, the languages will vary, as well as the letter of the local laws. But what really matters is that the legal principles associated with a safe purchase—and the procedures designed to protect them — are indeed very similar.
Before we turn to the legal principles, hovering over them all is the requirement of
transparency. This is the key to any reputable deal. Everything good, bad or indifferent about the property should be disclosed by the sellers and their agent, if such items are relevant to the intended use or not. Also, there should be no hidden fees; everybody who gets paid at the closing should have his or her cards on the table, with the amounts they are charging agreed to in writing ahead of time. The commissions that will go to certain parties must also be spelled out in advance. An example of a clear violation of the transparency rule is the practice of overpricing, also called net listing. The broker lists a property for a higher price than the true selling price, and tries to pocket the difference at the closing without the buyer ever realizing it. This is all-too common in Costa Rica. However, a broker is only entitled to the standard, agreed-upon commission. This is usually 10% for raw land and can fall to as low as 5-6% for large deals or centrally located houses. But more important than the exact figure is that all the parties agree in advance to the nature and type of fees. The critical legal principles and procedures include the following:
1st Principle: The land you are shown must correspond to the legal description on the title page in the Public Registry, as well as to the plat map which is inscribed in the “Catastro Nacinal” ( plat map registration bureau). With a small lot, this is pretty straightforward, but for large properties, it’s hard to be sure that you are getting what you were shown. Procedure: After walking the borders, and inspecting the title and plat map to be sure they correspond to each other and to what you were shown and told; you must hire a topographer to verify the borders, before (not after) you buy. If there is a discrepancy, it should be worked out prior to the closing. If your new survey is materially different from the old one, you should re-register your new survey over the old one, again, before the closing.
2nd Principle: When an offer to buy is accepted here in Costa Rica, just as in the US, the terms should be duly written up in a signed purchase agreement, and earnest money placed in escrow. At that point, the owner has a duty to sell to no one else and to honor the established price at the closing. Procedure: You get a written contract in the lawyer’s “protocolo” attesting to the terms of the offer your lawyer records this option in the National Registry, under the title page. That way, nobody can buy the property out from under you during the contract period without facing a loss in court. That’s because the buyer would not qualify as a third party good faith purchaser, thanks to the notice in the Registry of a pending sale.
3rd Principle: Ownership of real property is called fee simple absolute under US common law. The concept is the same here, although the name may be different. Procedure: The title to the property should already have been recorded in the National Registry, so that when you buy it, the ownership is transferred to your name or the name of your corporation (see sample registered plat map or plano catastrado in the adjacent column). Now nobody can try to claim it without due process, just as we are used to “back home.”
4th Principle: You must actively protect and/or use your land or you risk losing it to third parties (squatters). In Costa Rica this applies only to rural land, not houses or land in towns or cities. The US has similar laws, known as “adverse prescription.” Procedure: Putting up and maintaining fences and signs, having the property checked or patrolled on a regular basis, keeping the weeds down, and performing other signs of active ownership are all you need to protect you property from squatters; moreover, in the last five years or so, squatters have begun to lose consistently in litigation, as the courts increasingly recognize that valuable ocean view land should not be taken from a careless owner just so that someone can grow beans on it. Rural real estate throughout Costa Rica is often untitled. The land may have been settled, farmed and perhaps sold several times in the past with nothing more formal than a bill of sale (carta de venta). This is not necessarily an obstacle to purchase since the title may be acquired after purchase through a legal process known as Information Posesoria (Law Nº139 of July 14, 1941). Minimum requirements to qualify for a registered title to possession land are a registered survey and documentation of peaceful, public and undisputed possession of the land for a period of at least 10 years. This procedure involves verifying the history of the real estate, its boundaries and the declarations of owners of adjacent land. Private documentation such as bills of sale recording the history of ownership is very useful for this process. To accomplish title to possession land, a lawyer should guide the paperwork k through t he appropriate court, usually the agrarian court. He will present letters from all pertinent governmental agencies certifying that the property does not fall within the boundaries of National Parks, Indigenous Reserves, or other protected areas, and notarized statements from adjacent property owners attesting that the landholder is in fact in possession of the land and that they agree to the specified boundaries. A judge’s inspection of the land and review of all documentation are also part of the title process. It is a bureaucratic procedure that may take from six months to a year (possibly more) to Complete; however, untitled land is usually less expensive than registered property so the time factor may not be of concern to some buyers. In some cases, the title process s even stated as a condition of the sale or escrow.
