A Guide to Buying Real Estate in Costa Rica

Learning the Ropes:

Introduction

The acquisition of real estate is one of the most significant investments a person makes during his or her lifetime. There are several issues involved that must be dealt with diligence, care and patience in order to avoid a negative consequence during this endeavor like the loss of money or real estate. Language barriers, unfamiliarity with local laws and procedures are two of the most important reasons why you should get proper and trustworthy counsel during your real estate transaction. In addition to this it is important to consider escrow and title services in order to minimize risk and unwanted situations regarding your property or your money. Being a foreigner you need somebody trustworthy and honest up close to your investment that protects your interests.

There are several issues you should be familiar with when investing in Real Estate in Costa Rica in order to understand the process and avoid getting hurt. You should always ask your attorney, realtor or seller about these and get clear answers:

Titled Property: The most comprehensive form of property ownership in Costa Rica is titled property.  Fortunately for foreigners, the conditions for this type of ownership are the same for Costa Rican nationals as they are for foreigners. The concept of titled property is very similar to the concept of fee simple title in the US.  Basically, titled property gives the owner of that property the absolute right to materially own the property, use it, enjoy it sell it, lease it, improve it, etc., subject only to conditions outlined in the Costa Rican Laws. Buyers who purchase fee simple title have the most rights under to law to enjoy and use the property as they see fit.

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 Rican 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 Estate 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:

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 governmental entities.

Restricted/Concession Area:  The next 150 meters. This area 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 perform other acts to the property.  However, appropriate permits from the local municipality must be obtained.

Property under Condominium Regime: 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 al conditions required in order to set up a condominium.  Each Condominium developments has its own bylaw containing all of the restrictions, limitations and privileges that can be enjoyed by individuals who purchase a property is such development."  Ownership of property "in condominium" is fee simple ownership but specifically restricted to secure the interest of the condominium community set initially by the Developer and later by the Home Owners Association. It is advised that you require the owner of the property to give you a copy of the by-laws to check for architectural guidelines, land use and others. 

The Sale/Purchase 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 must follows when buying a property.

Step 1: Sign a Purchase/Sale Contract with seller

Step 2: Contact the Escrow Agent to protect the funds.

Step 3: Title research performed and Title Commitment issued (review if property is free and clear of defects)

Step 4: Closing - Execution of Transfer Deed or Endorsement of Shares.

Step 5: Record new transfer deed with the Public Registry

Step 6: Receive official Title Guaranty

Basic Terminology - while the purchase process may seem very simple, there are some key words  which a buyer should be familiar with. The following are the most common terms used in real estate transactions in Costa Rica:

Folio Real: This is the property´s identification number. It is a unique number assigned to each recorded 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 is the number of the property itself and the last group of numbers indicates how many owners the property has or has had. Properties with folio real numbers are recorded at the Public Registry but should be checked for recorded and un recorded, liens, annotations, encumbrances and others, but most importantly hidden liens or vices in the chain of 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 and by a Public Notary in his or her´s official Notary Book and then submitted by the Notary to the Public Registry to record the transfser of ownership  of the property.

Power of Attorney: (Poder): This document authorizes a person to act on behalf of another to perform specific actions such as the purchase of property. This is especially useful for clients that wish to close on their property without returning to Costa Rica. There are several aspects involved and should ask Stewart Title and[/or your real estate attorney.

Survey Plan (Plano Catastro): Except for certain minor exceptions, each recorded and titled property has a survey plan outlining the property and showing boundaries, size and ownership of the property. This survey must be validated through an approval process at the Public Registry as well as by the municipality in which the property is located in order for it to be valid and binding.

Structuring your transaction

There are different ways to purchase property, but must take in consideration the following in order to make the most adequate decision possible for your particular scenario.

Acquiring Property directly: This is the normal and typical purchase process in which one or more individuals or entities acquire property directly and record the transfer deed at the Public Registry showing current and new ownership.

Acquiring Property through the purchase of a corporations: A common practice in Costa Rica is to acquire property through the purchase of an existing corporation that owns the property being purchased. This may There are several advantages as well as risks involved that you should go over with Stewart Title and/or your real estate attorney in order to understand the potential risk/reward this transfer has.

Purchasing Through a Corporation: There are certain advantages of purchasing properties with controlled corporations instead of purchasing in your personal behalf. Again, you should confirm with Stewart Title and/or your real estate attorney in order to put together the structure that better suits your needs.

Costs Associated with your investment

 
Transfer taxes and stamps: In order to record the transfer of the property a 1.5% shall be paid for transfer taxes and an extra 1% for other stamps at the Public Registry.

Notary Fees: Notaries are required by law to charge a 1.25% to draft the transfer deed.

Property Taxes: Property taxes in Costa Rica are a 0.25% of the declared purchase price and must be paid quarterly or yearly at the local Municipality.

Title Insurance & Escrow:  Ask Stewart Title or your real estate attorney about the service.

You should ask Stewart Title and/or your attorney about these fees. 

Protecting your real estate investment

It is important to take appropriate measures in order to secure your investment. You should always consider using knowledgeable and trustworthy counsel to avoid losing on your investment, always consider the following:

Adequate legal representation and experienced Notary. A notary is an impartial party at the closing looking to protect the transction and all the parties involved.

Title Guaranty. A contract by which a third party (Guaranty Company) commits to indemnify losses due to legal situations such as defects in the chain of titile, hidden liens or fraudulent registration of  the property´s title 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 he is aquiring property with clear title to his or her investment and its 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.

Escrow 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.

About Stewart Title

Stewart Title Latin America is a full service real estate information services company, providing title guaranty, escrow, closing/notary, and other critical real estate services to developers, corporations, banks and individual investors throughout Central America and the Caribbean. Founded in 1997 with headquarters in San Jose, Costa Rica, STLA has executed more than 4,000 transactions and has guarantied over $400MM to date. All guaranties are backed by Stewart Title Guaranty Company of Houston, TX, a triple AAA rated insurer with over 5,000 issuing offices around the world.