Costa Rica Real Estate FAQ | Tips on Buying | Tips on Selling | Tips on Building | Financing

Tips on Buying Real Estate in Costa Rica

These tips on buying Real Estate in Costa Rica will help you understand the property buying process in Costa Rica. We have created this set of Frequently Asked Questions about the Real Estate Buying Process in Costa Rica because 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. If you need more information, please feel free to contact us by clicking here

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 Real Estate closing cost in Costa Rica?

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 in Costa Rica

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 in Costa Rica

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 in Costa Rica

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.

Costa Rica Real Estate FAQ | Tips on Buying | Tips on Selling | Tips on Building | Financing

 

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