Purchasing a Property in Costa Rica

If you are interested in investing in real estate in Costa Rica, you most know at least the basics of how the legality concerning land purchasing works. In Costa Rica, ownership of land is protected by the National Constitution and several laws, since it's considered to be a right of any person, whether they're citizens or not. Even though land or home ownership is a right in this country, you must keep in mind that there are several institutions that foreigners are recommended to contact before buying a home. First of all, there is the Costa Rican Chamber of Realtors (link) or AMCHA, which is an extremely honest and reputable institution. Additionally, you should also contact the Association of Residents in San Jose (link), as well as a trust-worthy lawyer, who can guide you all the way through the steps of buying property. A lawyer can check to see if the land has any legal claims as well as to obtain the proper documents for the sale of land or a house to be property registered. Your attorney will be in charge of going to the National Property Registry (Registro Nacional) in order to check the legality of the property and to record its sale.

The costs for housing diverge depending on the area and type of house you are interested in. Lower middle-class Costa Rican neighborhoods have small houses (100-125 square meters/300-400 square feet) that sell for $24,000 to $50,000USD. Upper middle-class homes cost anywhere from $100,000 to $300,000USD while luxury homes, like everywhere else in the world, don't really possess a price limit.

There is some advice that you should truly follow when thinking about buying property in Costa Rica. To begin with, learn to ask around the neighborhood or area that you're interested in; remember that some of the best buys aren't actually advertised in newspapers or other ways. Secondly, you should send a Costa Rican to ask about a house or property, since the owner might raise the price if he/she knows that you're a foreigner; keep in mind that Costa Rican are also more experienced bargainers. If possible, try setting a price in colones, not US dollars, since due to devaluation, dollars go a longer way than the national currency.

Many foreigners have chosen to buy real estate and live in Costa Rica because of its political and economic stability as well as its natural beauty. Purchasing a home here isn't a difficult affair if you seek help from the institutions and people that we mentioned above. You can find everything in this little country, from huts to mansions. Nonetheless, you should make your decision soon for the real estate market has been in boom in Costa Rica for some time now and others may purchase property first.

Before you buy property in Costa Rica, you should go through the following check list to make sure everything is going according to plan:
1. Make certain the property is registered correctly.
One of the most important things to remember when purchasing real estate in Costa Rica is that proper registration of the property and not the deed itself is of the greatest importance. What may apparently be a "legal" title to a property in a person’s name, does not necessarily mean that he/she is the legal owner. Before purchasing any property, a very methodical investigation is necessary. It is advised for you to leave the technical procedures to a trustworthy lawyer, however, we recommend that potential buyers should monitor and understand what is being done at all times. Most properties have a titled registration number known as the Folio Real and the records database can be searched with this number or by name index. The Public Registry report (‘informe registral’) gives detailed information about the property, including the name of the title holder, boundary lines, tax appraisal, legal claims, mortgages, recorded easements, etc.

All property is registered at a central depository called the ‘Registro Publico’. This is the place where you should begin your title search. The title needs to be checked for any liens or hindrances, some of which are often present. Since Costa Rica operates on a Civil Law system rather than a Common Law system like the United States, remember that procedure itself is more important than substance. So in the event that there are mistakes in the background check, a buyer could lose what was thought to be already owned property.

Additionally, you must bring together the two documents that “legally” identify a property:

• La Escritura: the document describing, in words, how the property is recorded in the ‘Registro Publico’.
• The Catastro Map: map of the property in question.
  
  *In the event of there being a discrepancy in the information and La Escritura does not correspond with the Catastro Map or a physical survey of the property, which is possible, it will be necessary to have an independent topographical study to confirm the property’s boundaries. Any discrepancies found must be resolved before purchasing that property in question.

Along with those documents mentioned above, you will also need the following before closing the deal:

• A copy of the tax receipt “Impuesto Territorial”: This proves that all taxes and registration fees have been paid by the date of purchase.
• A ‘Constancia Municipal’ certificate issued by the municipal under who’s jurisdiction the property is located.
• Sufficient funds to pay all necessary taxes and registration fees, including notary fees. Typically one half is paid by the seller and one half is paid by the purchaser (Carballo, 1993).
• Evidence that all prior mortgages, legal claims and judgments have been lifted (Puleo, 1995).

A notary must be present at the closing of the deal. In Costa Rica, notaries are attorneys accepted by the Supreme Court.

Large number single-home investors face the decision of whether to buy a pre-existing structure or a plot of land on which to build a house. While there are a myriad of minor impediments that must be scrupulously attended to, most of which are outside the scope of this paper, a few points are worth mentioning as they may alter a buyer's decision.
The law requires that all applications for construction permits be presented by an architect licensed by the Costa Rican Association of Engineers and Architects. Employing a certified architect can be extremely costly as well as burdensome (Puleo, 1995). Moreover, construction companies in Costa Rica are not bonded, thereby this greatly increases an investor's risk. Before building a house, we advice you to speak to numerous individuals who have previously built in Costa Rica so that you might gain a better understanding of the reality of the construction process, such as constant delays, necessary personal supervision and cost overruns.

2. Make certain you sign a written agreement between buyer and seller.
In some format (there is not a common form) the initial contract/agreement between both parties is written. It should identify the basic terms and conditions of the sale. Your real estate agent can write this agreement for you however, your lawyer should review it before it is delivered to the seller. There will be a final written document (in Spanish) written only by a notary/attorney which cannot be substituted by the initial written agreement between buyer and seller (refer to section below "escritura"). The escritura may incorporate the major terms/conditions of the initial agreement.

Your lawyer may advise immediate written acknowledgment of this written agreement in his protocal book. Depending on the terms stated in the agreement, a good faith deposit may be involved and the buyer and seller will need to agree on where the deposit should be held (Stewart Title Costa Rica Escrow Account, buyer or seller's trust account, etc).

3. Make sure your lawyer is also a notary.
If you do this, you will save time and money. A notary can complete all legal functions and research; however, an attorney who is not a notary will not be able to write the final "escritura" or document of the transaction in the legal protocol book. If you are paying all cash for the property, it is common practice for the buyer to select the notary/attorney and both parties share the fees. If the seller is personally financing the property (property used for collateral), the seller will select the notary/attorney and both parties share the cost; nonetheless, the buyer will have to pay for the fees relating to the drafting and registering of the mortgage document "hipoteca".

Of course both parties may elect to have their own attorneys represent them and each would pay for their own respective fees, except relating to the mortgage as stated above. In this case, the seller's attorney would draft the mortgage document.
4. Ascertain that your attorney researches the property information.
A title search must be conducted. Like we’ve mentioned before, all properties are registered at the "Registro Publico". In accordance with Costa Rican law (Civil Code Article 460), all documents relating to title or an interest in real property, must be registered in the property section of the Public Registry. Properties have a title registration number referred to as the "Folio Real Number".

Utilizing this number in your database search (or by name index), you will receive a report called the "informe Registral"; this gives you basic information about the property: owner/ title holder, tax appraisal, liens, mortgages, boundary lines, recorded easements, and other records that may affect the title. There is also other information you should look for: encumbrances, escrituras, restrictions, judgments, etc.

You should also verify that the property taxes have been paid and any separate services provided by the municipality (assessed separately), utilities (water, electric, telephone, cable, direct T.V.) have been paid as well. It is highly recommended to obtain copies of receipts. You should also request certified receipts from the municipality and from the utility companies, you should ask for letters confirming the balance and current status of the accounts.

Another document that should be included in the search is the catastro map, commonly known as the "plot map". This map will define the property (size, location, boundaries). There may be discrepancies between the informe Registral and the catastro because updated transfer information in one document does not automatically require a change in the other. Discuss any discrepancies which may only be due to delayed updates with your lawyer. If your attorney thinks otherwise, he/she may recommend that you obtain an independent topography survey/report to accurately define the boundaries. Any problems should be resolved before a final purchase.

In addition to your attorney's search, title guarantee services are now available through Stewart Title Costa Rica, located in San Jose. The cost for the policy is between 1-1.5% of the purchase price. They also offer escrow services. These services are offered to protect the consumer during the process of acquiring property and to indemnify them for losses that may be incurred.

5. Document and register the sale/transfer
A transfer deed must be written by a notary. This deed, signed by both the buyer and seller in the presence of a notary, is known as the "escritura". This document describes in words, how the property is recorded in the Registro and the "will" between the buyer and the seller. The "will" between the buyer and seller may have already been identified in the written initial contract which may then be included in the escritura. The notary transcribes how the property is recorded in the Registry and the "will" between the parties, directly in the Protocol book (carried only by notaries). The total information that has been "transcribed" is known as the "escritura".
The escritura (transfer deed), must then be registered at the Registro Publico. The registration should appear in the Registro Publico 45 to 60 days after the submission. It is important to verify through the notary/attorney that the deed was properly filed. If a mortgage is involved, the seller's attorney will draft a mortgage instrument which will be included in the escritura to be registered.
6. Before the sale is final…
You should verify, through your broker or attorney, that the property was properly registered in the National Registry and receive original or copies of the documents showing all the proper stamps for the entire process.

Remember to change the name on the account the utilities are under. The utility companies require a copy of your escritura (to confirm the change of ownership). If you have purchased the property under a Costa Rican company name, you should obtain a certified letter from your attorney, authenticating the validity and current status of the corporation; this will identify you as having legal authority to act on behalf of the company. If you received a telephone line as part of the purchase, you should secure a special transfer form from the telephone company "I.C.E." (sole telecommunications company in Costa Rica and government owned). There are separate forms for transfers to corporations. This form must be completed during the sale process and signed by the seller and certified by the attorney.

Interested in reading some more?
Buyowner Costa Rica offers you some more articles that can help you out when it comes to purchasing real estate in our country. Click on the following links for further reading:

• Beach Building
• Tips and advice
• Squatter conflicts