How to buy Costa Rica property for sale and what to watch out for. To buy Costa Rica property is a great investment: prices are reasonable, the laws are clear and many areas have great potential for growth in the near future.
However, you should know what the law in Costa Rica is and how to protect yourself. The most basic protection you can have is to work with a reputable realtor. A real estate agent can assist and help you avoid an inappropriate purchase. An agent can negotiate a fair bargain. Also, it is important to know how to buy Costa Rica property suitable to your needs, lifestyle, and budget. Your American-European real estate agent will guide you through the process of how to buy Costa Rica property as described below.
The title transfer process
When you buy Costa Rica property, the seller transfers land to the buyer by executing a transfer deed before a notary public. The transfer deed is called escritura. Unlike common law countries, such as the United States and Canada, in Costa Rica, the notary public has extensive powers. The attorney must be a notary public and may draft and interpret legal documents. The notary public can authenticate or certify the authenticity of documents as well.
Selection of the closing attorney
Locally it is customary for the buyer to select the notary/attorney who will draft the transfer deed if paying cash for the property.
Only if the purchase price is financed, there are 3 options for selecting the notary/attorney:
- If the seller is financing a large percentage of the purchase price. Then a mortgage needs to be drafted to guarantee payment. The seller may request that her or his notary/attorney draft the transfer deed.
- When a property is purchased 50 percent cash and 50 percent financed, it is common for the buyer’s attorney and seller’s attorney to jointly draft the transfer deed and mortgage in a single document.
- Finally, the buyer may insist that his or her notary/attorney draft the transfer deed. Then the seller’s notary/attorney can draft a separate mortgage instrument. In this case, because the mortgage is being drafted separately, it carries a higher registration fee.
How to own Costa Rica property
Buyers have different options on how to buy Costa Rica property:
- In one person’s name,
- or in the name of a corporation.
It is very common in Costa Rica for individuals to put a property in the name of a corporation. In such case, they can own all the shares or decide who the shareholders are.
Particularly Costa Rica developers like to create corporations for the properties they develop and then transfer the corporation to the buyer. The new corporation tax has slowed down this practice a bit. If you want to know how to buy Costa Rica property and protect your assets, you should discuss this with your accountant and attorney. That way you will be informed of the tax implications in your individual situation.
Checking for Clear Title
Costa Rican law requires that all documents relating to an interest and/or title to real property be registered in the property section of the Public Registry (Article 460 of the Civil Code). Most Costa Rica properties have a titled registration number known as the Folio Real. The records database can be searched with this number or by the name index. You can check property titles yourself on the National Registry website. if you don’t know how, see this article.
The registry report (informe registral) provides detailed information on the property. This includes:
- the name of the title holder,
- boundary lines,
- tax appraisal,
- recorded easements,
- and other recorded instruments that would affect title.
Since Costa Rica follows the doctrine of first in time, first in right, recorded instruments regarding land for sale presented to the Public Registry are given priority according to the date and time in which they are recorded.
For purposes of the transfer of real estate, this means that any mortgages or liens, which are not recorded at the time that title is transferred, are invalid. Since the certificate of title issued by the Public Registry is prima facie evidence of the condition of title on the date issued, any instrument not recorded at the time the certificate is issued is invalid. This eliminates the need for title insurance since any instrument omitted from the report is deemed invalid.
Obviously, every situation differs. In some cases, a review of the Public Registry record will not be enough to uncover all encumbrances. That is why it is important that the buyer has their own attorney conduct an independent title search and investigation. Rather than rely on the seller’s attorney. Some buyers feel more comfortable purchasing title insurance, in which case the title guaranty company will take care of the search.
Closing Cost Traditions
It is customary for the buyer and seller to share equally in the closing costs. Buyer and seller can negotiate this.
There are three closing costs:
- government taxes and fees,
- notary fee,
- and mortgage costs.
See below for details, click here for an example of Costa Rica transfer taxes and closing costs on a $100,000 transaction.
Government taxes and fees
These include a real estate transfer tax of 3 percent; a registration fee of 0.5 percent; and documentary stamps (agrarian, hospital, municipal, bar association, national archive and fiscal stamps) totaling approximately 0.55 percent.
The notary can charge by law 1.50 percent of the first one million colones of the sales price, and 1.25 percent on the balance. However, many attorneys will accept much less since a property with a high value involves the same work as a lower priced property.
How to buy Costa Rica property and get a mortgage? You should know that Costa Rican real estate transactions commonly operate on a two-tiered system. Since Costa Rican land has a low property tax appraisal base in relation to market value, it is a customary practice to run property sales through at the registered value, which may be substantially lower than the actual sales price of the property. In such a case, all transfer taxes and fees discussed above would apply to the registered value as opposed to its sales price, with the exception of the notary fee. Ask your attorney about the potential risks of this practice.
It is customary for the person who is receiving financing to pay the mortgage costs. A mortgage can be created simultaneously at the time of sale by adding a mortgage clause in the transfer deed or a separate mortgage instrument can be drafted. A mortgage within a transfer deed pays registration fees of 0.25 percent in registration fees. Also, approximately 0.53 percent in documentary stamps. The notary will also charge for drafting the mortgage instrument. This fee can range from approximately 0.525 percent to 1.25 percent of the amount of the mortgage, depending on the circumstances involved.
Registration of the transfer deed
The notary ensures that the deed is presented (anotado) and registered (inscrito) in the Property Section of the Public Registry. You should be very sure to follow up with the notary to ensure registration!
- Although presentation guarantees your priority (i.e., first in time, first in right), it does not automatically guarantee registration.
- The Public Registry does not register a transfer deed unless the notary includes all taxes and registration fees.
- A certified copy from the Finance Ministry is provided certifying that the seller’s property tax (impuesto territorial) payments are current.
- The municipality provides a certification. This certifies seller is current on municipal tax payments.
- Likewise, the notary must lift any prior instruments that encumber the property before the registry registers the transfer deed.
The Public Registry then returns the original document with all the documentary stamps affixed to it. The Registry should have the deed registered within 45 to 60 days of registrations when there are no defects in the transfer deed. It is therefore important to follow up with the notary to ensure registration. Otherwise, you will run into problems in the future when you decide to resell the property. The buyer might find out that the purchase was not registered.
Costa Rica beachfront property
When you plan to buy Costa Rica property that is beachfront property, you need to read up on some of the articles we have on our website about this. There are restrictions that you need to know, especially when you are a foreign buyer and you need to take your precautions. Our affiliate Realtor Daveed Hollander has also written the First Time Buyer Tips that are very interesting to read.
Do you want to know more about how to buy Costa Rica property? Contact us now.