For many foreigners, the scariest part of buying property in Costa Rica is taking on an unknown process. How will the contracts work? What are the closing costs? Attorney’s fees? Property taxes? Should I use a Costa Rica corporation to carry out the transaction? Below, we have given you a brief introduction to familiarize you with the process of buying property in Costa Rica. Be sure to consult with your realtor and attorney throughout the process to ensure you are taking the right steps.
How to Buy Costa Rica Real Estate
Getting Started
Once you have decided WHERE to invest you must decide WHAT to invest in. Is it a home, a condo, or even a boutique hotel? If you would like to purchase land to build on be prepared that it may take time due to the permitting and construction processes.
Enlist a Realtor
To buy Costa Rica real estate, you must find a competent Costa Rica real estate Broker as it is the key to finding your dream property. A good broker not only knows the market and provides you access to the listings, they will be able to help you navigate the entire process of purchasing a home in Costa Rica..
Enlist an Attorney
Once you have found your property, it is recommended that you hire a Costa Rica attorney to assist in uncovering any potential issues with the property. The attorney will execute diligence on the property to determine if it is free and clear of any liens, encumbrances, or annotations and that all taxes are up to date as well as review the survey and property boundaries.
Ensuring Clear Title
All documents relating to an interest and/or title to real property must be registered in the property section of the Public Registry. Each property has a registration number referred to as the folio real, and the records database can be searched with this number. The Public Registry report (informe registral) provides 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.
Use of Corporations
To buy Costa Rica real estate, transactions can be carried out in the name of an individual or, in the name of a company. Generally, it is advised to purchase property through a Costa Rican corporation as this allows a higher level of flexibility in a variety of fields such as the eventual sale of the property, tax benefits, and representation of the property. When purchasing property through a Costa Rican corporation, there are two ways for this transaction to take place. A common practice is to simply transfer the shares of the existing corporation that owns the property in negotiation, thus creating a more efficient and more cost effective closing for all parties (by closing in this manner, the costly transfer tax is avoided). The risk involved in carrying out a transaction in this manner, is that not only do you assume the assets of the corporation, but also any liabilities. Although the risk is low, an existing corporation could have liabilities that are not able to be found in an initial search, or that could appear in the future.The second method is to transfer the property to a third party (individual or corporation) by means of a notarized deed, and register the transfer at the Public Registry. This is the safest route to take, although certainly carries higher costs and at times, can be more time consuming.The attorney that you select to handle the transaction can make specific recommendations based on the circumstances of the specific transaction in order for you to make the decision.
Purchase and Sale Agreement
Once you have found your property it is important to sign a Purchase and Sale Agreement. The purpose of this contract is to create an agreement in which the seller will hold the property for you and will not be able to offer it to anyone else during the term of the contract. A 30-day term is most common, but can be negotiated if necessary. To create this agreement, the buyer is expected to provide a down payment (usually 10% of purchase price) to be held until the purchase is complete. This down payment may be held by the Seller or possibly an escrow account.
Property Registration
You have the option to register your property in Costa Rica as follows:
- Your Name: Your name appears in the registry of the property.
- Costa Rican Company Name: Your name does not appear in the registry of the property. If
you sell the property you may company with assets as opposed to transferring the property and you will not incur transfer taxes.
Under both options you have legal ownership of the land with all rights and obligations.More information on the pros and cons of each option can be provided to you by your Attorney.
Transfer of Title
As mentioned above real property must be registered in the property section of the Public Registry. When transferring property from a seller to a buyer it is transferred by means of a transfer deed (escritura) before a Costa Rican Notary Public. At closing, the notary will draft the transfer deed and register the sale in the Public Registry.
Registration of the Transfer Deed
The Public Registry will not register a transfer deed 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 (bienes inmuebles) and municipal assessments (impuestos municipales) 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 to it 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.
Title Guarantee
Due to the Costa Rica National Registry, which catalogues all registered properties, Title of Ownership is not necessary. The National Registry does not guaranty errors that may have occurred during the registration process therefore a Title Guarantee is highly recommended. A Title Guarantee provides you security against questionable title issues. This cost is typically a one-time fee of 0.5% of the property value. Your Realtor and/or Attorney can provide more information regarding the benefits of Title Guarantees.
The Closing
In order to close on your property purchase the Buyer and the Seller will sign a “Deed of Transfer” before a Notary. The Notary will document in the Deed, the transaction that is being performed plus costs as well as the information of the property and of the Seller and the Buyer. The document will be signed in Spanish and the Costa Rican attorney will translate it to you under oath that everything read is an accurate translation of the Deed. The original document will remain in the Notary’s Protocol. A certified copy of the document will be sent to the National Registry in Costa Rica to be recorded. You may request a copy of the document. Once this document is signed by all parties, the transaction is closed and once the monies are presented to the Seller, the property in Costa Rica will now be yours. Once the Costa Rican Notary Public has presented the Deed to the National Registry and they have completed registration, your attorney will provide you with your certificate of new ownership. Be aware that this process may take several months.
Closing Costs
In regards to closing costs there are no set rules as to who pays. This can be an item of negotiation during the buying process between Seller and Buyer. The following percentages are set by the Costa Rican Government regarding closing costs:
- Property Transfer Taxes: 1.5% of the contract price
- Notary Fees: 1.25% of the total real price (may be negotiable)
- Legal Stamps: 1% of the contract price