Buying Property in Costa Rica

Property Ownership Just like in the U.S, Canada, and Europe, there are different types of property available to buyers. Understanding the various types that are available for purchase is critical in the evaluation process. This section highlights the property types that can be purchased in Costa Rica and the implications of that type of ownership for the buyer:
Fee Simple: The most comprehensive form of property ownership in Costa Rica is fee simple ownership. Fortunately for foreigners, the conditions for this type of ownership are the same for Costa Rica nationals as they are for foreigners. The concept of fee simple ownership gives the owner of the property the absolute right to materially own the property, use it, enjoy it, sell it, lease it, improve it (i.e. transformation), etc; subject only to conditions outlined in the Costa Rica Laws. Fee Simple also means that if the owner is obstructed from enjoying any of his/her rights to the property, he/she has the right to be made whole, in other words, have the property restored to its original condition. Buyers who purchase fee simple title have the most rights under the law to enjoy and use the property as they see fit.
Properties in Condominiums: In Costa Rica, there is a specific condominium law that in combination with other legal dispositions regulates all conditions required. In order to set up a condominium development it has its own bylaws containing all of the restrictions, limitations and privileges that can be enjoyed by individuals who purchase a condominium unit. Ownership of property “in a condominium” is fee simple ownership. It is advised that you require the owner of the property to give you a copy of the condominium’s bylaws, for the most part, a condominium’s bylaws are designed to protect the integrity of a development.
The Purchasing Process Once a buyer has seen a property of interest, the next step is to understand what the process of acquiring the property may entail. The following are the basic steps that a purchaser follows when buying a property. Step 1: Sign a Purchase/Sale Contract with seller Step 2: Deposit funds into escrow account Step 3: Title research performed and Title Commitment issued (review if property is fee and clear of title defects) Step 4: Closing-Execution of Transfer Deed, Endorsement of Shares and/or Mortgage Step 5: Register new owner with Public Registry Step 6: Receive official Title Insurance Policy
Basic Terminology: While the purchase process may seem very simple, there are some key concepts with which a buyer should be familiar. The following will help in acquainting you with the most common vocabulary used in real estate transactions in Costa Rica. Folio Real: This is the identification number for properties in Costa Rica. It is the unique number assigned to each property to identify it and distinguish it from others. This number is comprised of three part where the first number indicates the province, the second group of number is the number of the property itself and the last group number 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. 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 José. We guarantee 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 before you. Power of Attorney: This document authorizes a person to act on behalf of another to perform specific action such as the purchase of property. This is especially useful for clients that wish to close on their property without returning to Costa Rica for the closing. Survey Plan (Cadastral Plan): In order to transfer or acquire a property, the respective survey must be recorded at the Public Registry with the municipality authorization. The official drawing of the property is validated through an approval process by the Public Registry of properties as well as by the municipality in which the property is located. Public Notary: Attorney licensed by law to perform legal acts with public faith. A Public Notary is necessary in order to purchase a property. The Public Notary will be responsible for drafting the transfer deed. Representatives: If buyer or seller will not attend the closing personally, an individual with power of attorney to represent either or both parties will be required the day of closing. Whenever buyer, seller or both are corporations, the legal representative shall appear to sign the deed and the legal document to justify his/her appearance. This document must be executed before a Public Notary.
Recording of the transfer deed: Upon the signature on the transfer deed, the Public Notary shall take the transfer deed to the Public Registry for its recording. The first phase is where the notary presents the deed to the public registry for its annotation. From this moment the property is protected against any third party interest. After the registry verifies that the deed has been prepared correctly, the second phase of registration begins and the property will be registered in the name of the new owner. Purchasing Methodologies Acquiring Properties through direct transfer: This is the typical purchase process in which one or more individuals acquire a property in their personal name through the execution of a transfer deed of purchase executed before a Notary Public and then registered at the Costa Rica Public Registry. Fees and Expenses Structure: Notary Fees: Notaries are required by law to charge 1.5% of the purchase price as their legal fees. Title Insurance: Title Insurance offered by Stewart Title. Escrow Agent Fees: 0.08% minimum $300. Protecting your real estate purchase One of the greatest concerns in purchasing real estate in a foreign country is ensuring that the transaction will be executed legally and that the system will insure a lifetime of enjoyment of the property. The Costa Rica legal system, when properly followed, provides ample protection to purchasers; but if the transaction is not executed properly, loss can and does occur. To guarantee the security of a sound real estate purchase there are three tools that should be utilized in any real estate transaction. Notarial Service: A notary must execute the transfer deed. His/her job is to ensure that the will of the parties is met while ensuring that the process is done in accordance with the requirements of local legislation. Moreover, it is his/her duty to register the public deed at the Public Registry and ensure that said registration is completed at the earliest time possible. Title Insurance: Obtain a title insurance policy by which a third party (Title Insurance Company) commits to indemnify losses due to any legal situation that could affect the property and that are not excepted or excluded from coverage of the Title Insurance Policy. The Title Insurance Policy is a legal document that grants the buyer the security and peace of mind that the buyer has clear title to the property purchased and that the purchase is protected in the event of a title defect. The process of issuing a Title Insurance Policy includes the issuance of the Title Commitment that allows the buyer to examine the legal status of the property and provide the buyer with a tool to evaluate whether the property has any legal encumbrances that would affect its intended use and marketability. The final Title Insurance Policy is issued after the closing and is based on the Title Commitment. Title Insurance is a relatively new concept in Costa Rica, but it has already proven to add to initial real estate purchases and re-sales and has encouraged transparency and increased liquidity in the real estate process. Conclusion The real estate buying process in Costa Rica need not be intimidating or confusing. By understanding the steps in the process and the pitfalls to avoid, a buyer can confidently purchase and enjoy property.