Real estate law in Costa Rica

The first and foremost thing to do when purchasing property in Costa Rica is the proper registration of the property and not the deed itself. Simply because an individual may have a seemingly "legal" title to a property in his/her name, does not necessarily mean that he/she is the legal owner.

It is, therefore, necessary to conduct a thorough investigation of a prospective piece of property as outlined below.

Costa Rica has a Civil Law system rather than a Common Law system. Every property is registered at a central depository called the Registro Puiblico, and it is there that one should begin the title search for a parcel of land. The title must be checked for any liens or encumbrances. If the initial background check is flawed and a problem later arises, one could lose possession of property thought to be legally owned.

To buy property in Costa Rica, you have to reconcile the actual property with the two documents that legally define a property. The first is the escritura, which is the title document that describes how the property is recorded in the Registro in words. The second is the catastro map, which is the plat map of the property that is on file. The problem with defining a property arises from the fact that the escritura may not correspond with either the catastro or a physical survey of the property. Such a discrepancy is due to the fact that when a transfer of property takes place, the transaction may not have been recorded on the catastro, since a change in one does not automatically require a change in the other. It should also not be assumed that the catastro map accurately depicts the property itself. It is, therefore, necessary to conduct an independent topographical study in order to verify the property boundaries. Any discrepancies within the two legal documents and the land itself must be resolved before purchasing.

A reputable and diligent attorney should be hired to take care of the technical procedures involved with a title transfer, but such attentiveness must not be taken for granted. Prospective buyers must monitor and understand what is being done, as well as what is not being done.

Many single-home investors will be faced with the choice of whether to buy a pre-existing structure or a plot of land on which to build a house. The law requires that all applications for construction permits to be presented by an architect licensed by the Costa Rican Association of Engineers and Architects.

There are two ways to acquire property in Costa Rica. One is to Acquire through direct transfer. It is a purchase process whereby one or more physical individuals acquire a property in their personal name.

The other process of acquiring properties is through corporations. It is a common practice in Costa Rica to acquire properties through a new corporation or through an existing corporation that currently owns the property of interest. The process of setting up a corporation is not complicated, but does require a knowledgeable attorney who understands the exact protocols and procedures necessary to set up the corporation. The advantage of this system is that it allows a buyer to protect their asset anonymously. Further, if a purchaser acquires a property through an existing corporation that already owns the property, there are no government transfer taxes and stamps to pay. The reason is that transfer taxes and stamps must be paid anytime that there is a change in the ownership of the property. If a buyer acquires the shares of an existing corporation, technically there is no change in the recorded owner of the property (i.e. the corporation still owns the property). However, if a property is acquired through forming a new corporation to buy the property, the transfer taxes and stamps must be paid because the name of the property owner has changed. The risk for the buyer in acquiring an existing corporation is that the corporation might have other liabilities and there is no way to verify 100% that the corporation is clean. When buying a Costa Rican corporation, it is important to keep in mind the obligations and responsibilities that must be addressed. Examples include yearly tax declarations (even if the corporation is inactive), payment of income taxes if any, and keeping the legal books of the corporation up to date and in order.

One of the greatest concerns of foreigners purchasing real estate in a foreign country is to ensure that the transaction will be executed legally and if the system can ensure a lifetime of enjoyment of the property. The Costa Rican legal system, if followed correctly, does give ample protection to investors, but if the transaction is not executed properly, loss can and does occur.

To guarantee the security of any real estate investment, three tools should be present in any real estate transaction:

Adequate legal representation and experienced Notary - While a notary’s primary duty is to provide Public Faith to a transaction, his/her job is also to act as the legal representative of the buyer, providing legal advice and representation throughout the process.

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 closing. 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 documentation is in order before the close. In Costa Rica, the escrow agent performs many of the same duties. The primary function is the financial service to prevent 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, buyer) that funds are protected during the buying process and that all funds will be disbursed appropriately to all parties at closing.

Title guaranty - When you decide to buy a property, you must be certain that after the sale has been completed you will be the true owner of the property. You need to be confident that no liens, encumbrances or other impediments will prevent your free use and enjoyment of the property.

Guaranty for the property owner - A Title Guaranty should be purchased to protect your property title interests. Your real estate investment will probably be the biggest investment you will ever make and loss of this investment can be financially devastating. You need to be certain that you are financially protected from potential losses. 

(Source: http://sanjose.usembassy.gov/proprigh.html http://www.propertiesincostarica.com/buying_real_estate.htm)

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