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Tips on Buying
Frequently-Asked
Questions about the Real Estate Buying Process in Costa
Rica
Buying real estate can be an intimidating process even in
your own culture. Throw another country’s customs and
language in and the idea can seem quite daunting.
Fortunately, Tico Realty has experts to help guide you
through the process. Here are the answers to some
commonly-asked questions about buying real estate in Costa
Rica.
What steps will I go through to purchase property in
Costa Rica?
After you’ve negotiated a sales price and the seller has
accepted the offer, you begin the process of title transfer.
Here in Costa Rica, property is transferred from seller to
buyer by executing a transfer deed, or escritura before a
Notary Public. In Costa Rica the notary public has extensive
powers to act on behalf of the state -- unlike in the United
States and Canada, where the notary simply authorizes
signatures. The notary public must be an attorney and may
draft and interpret legal documents as well as authenticate
and certify documents.
Later, to close on a property, the buyer and seller must
select a notary/attorney to draft the transfer deed and
register the sale in the Public Registry (Registro Nacional).
The local custom is that the buyer may select his or her
notary/attorney to draft the transfer deed if paying cash
for the property. If a purchase is financed, there are a few
options for selecting the notary/attorney:
1.
If a large percentage of the purchase price is being
financed by the seller and a mortgage needs to be drafted to
guarantee payment, the seller may request that her or his
notary/attorney draft the transfer deed.
2.
If a property is purchased with 50% cash and 50% 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.
3.
The last option allows the buyer to insist that his or her
notary/attorney draft the transfer deed and let the seller’s
notary/attorney draft a separate mortgage instrument. In
this case, because the mortgage is being drafted separately,
it carries a higher registration fee.
You have a choice of the property being purchased in an
individual’s name, jointly with other people, or in the name
of a corporation. This decision should be based upon your
situation and should be considered with an attorney.
Making sure you have a clear title to the property
Under Costa Rican law, all documents relating to an interest
and/or title to real property must be registered in the
property section of the Public Registry (Article 460 of the
Civil Code). Most properties have a titled registration
number known as the folio real, which you can use to search
the records database. The Public Registry report, or informe
registral, gives detailed information on the property,
including the name of the title holder, boundary lines, tax
appraisal, liens, mortgages, recorded easements, and other
recorded instruments that would affect title.
Recorded instruments presented to the Public Registry are
given priority according to the data and time in which they
are recorded. Every situation differs, and in some cases a
review of the Public registry record will not be enough to
uncover all encumbrances. It’s important for the buyer to
have his or her own attorney conduct an independent title
search rather than rely on the seller’s attorney.
How much does closing cost?
Generally, the buyer and seller share closing costs equally.
This can be modified by agreement and typically depends on
the particular transaction. Closing costs include government
taxes and fees, notary fees and mortgage costs.
Government transfer tax and registration fees include the
following:
1.
Real estate transfer tax. The government collects a
property transfer tax, or impuesto de traspaso, equal to
1.5% of the registered value of the property. The Public
Registry won’t transfer a deed unless the transfer taxes and
documentary stamps have been paid.
2.
Documentary stamps. The government also requires that
documentary stamps be affixed to the deed. These include the
Municipal stamp (timbre municipal), legal bar association
stamp (Timbre del Colegio de Abogados), Agricultural stamp
(Timbre Agrario), National Archives Stamp (Timbre del
Archivo Nacional), Fiscal Stamp (Especie Fiscal). The Public
Registry also places its own tax of .05% on documents
presented for recordation to the Public Registry (Derechos
de Registro).
Notary Fees
The Notary that drafts the contract for sale and carries out
the closing is entitled by law to a fee equal to 1.5% of the
first one million colones of the actual sales price and
1.25% on the balance.
Mortgage Costs
Normally, the person who is receiving financing pays the
costs of drafting and registering the mortgage instrument. 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
document pays registration fees of 1.00 colon for every
1,000 colones. The mortgage document also pays documentary
stamps. The notary public will also charge for drafting the
mortgage instrument, and that fee can range from
approximately .625 percent to 1.25 percent of the amount of
the mortgage, depending on the circumstances involved. The
buyer should be aware that Costa Rican real estate
transactions commonly operate on a two-tiered system, since
Costa Rican properties have 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 less 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. Buyers should consult their attorney about the
potential risks of this practice.
Registration of the transfer deed
Once all the fees have been paid, the notary who drafted the
transfer deed is obligated to ensure that the deed is
presented and registered in the Property Section of the
Public Registry. Presentation guarantees your priority, but
it does not automatically guarantee registration. The Public
Registry will not register transfer deeds unless all taxes
and registration fees are included, a certified copy from
the municipality where the property is located is provided
certifying that the seller’s property tax and municipal
assessments have been paid through the date of closing.
Likewise, any prior instruments that encumber the property
(i.e. mortgages, liens, judgments, etc) must be lifted
before your transfer deed will be registered.
Once a transfer deed is accepted for registration, the
Public Registry will return the original document with all
the documentary stamps affixed and properly sealed. Assuming
no defects in the transfer deed, it should be registered by
the Public Registry with 45 to 60 days after presentation.
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 and find
out your sale was not registered.
Beach Front Property
In
most cases, beach front property is untitled property. In
Costa Rica the ownership and possession of the shoreline is
governed by the Maritime Zone Law which restricts the
possession and ownership of beach front property. By law,
the first 200 meters of beach front starting at the high
tide markers is owned by the government. Of the 200 meters,
the first 50 are deemed public zones, and no one may possess
or control that area. On the remaining 150 meters, the local
municipal government will lease by way of concessions the
land to private individuals. The Maritime Zone Law creates
some restrictions on foreign ownership or possession of
beach front property, so a more thorough study is required
when considering beach front property in Costa Rica.
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