Buying property and constructing buildings or a home can be an intimidating process, even when you are at home in the culture and know what to expect and plan for.

You should invest some time in learning how things work and how to protect your investment in a foreign country

Fortunately, in Costa Rica there is a process through which an intelligent buyer and builder should proceed. There is a licensing body of architects and engineers, who also set standards for fees should you, decide to build.

Purchasing property in Costa Rica. What is required?

Once you've found, a piece of property that is perfect for you.  have negotiated a sales price and the seller has accepted your offer, then the legal procedures for transferring ownership of title begin.

How is title transferred?

In Costa Rica, property is transferred from seller to buyer by executing a transfer deed (escritura) before a Notary Public. Unlike common law countries, such as the United States and Canada, where the role of the notary is limited to authenticating signatures, in Costa Rica the notary public has extensive powers to act on behalf of the state.

The notary public must be an attorney and she or he may draft and interpret legal documents, as well as authenticate and certify the authenticity of documents.

In order to close on the property, the buyer and seller must select a notary/attorney who will draft the transfer deed and register the sale in the Public Registry (Registro Nacional).

The buyer may select his or her notary/attorney to draft the transfer deed if paying cash for the property. If the purchase price is financed, there are generally three alternatives 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, then the seller may request that her or his notary/attorney draft the transfer deed.

  2.       If 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. This is known as co-notariado.  

      3. Finally, the buyer may insist that his or her notary/attorney draft the transfer deed and let the seller's n            otary/attorney draft a separate mortgage instrument. In this case, because the mortgage is being drafted separately, it carries a higher registration fee. The registration fees are discussed below in the section on closing costs.

Property can be purchased in an individual's name, jointly with other persons, or in the name of a corporation. Decision as to ownership, should be based upon your particular situation and after consultation with your attorney.

How can I ensure that I have clear title to the property?

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 properties have a titled registration number known as the folio real, and the records database can be searched with this number or by name index. 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. The property database can be accessed via the Internet web page of the” National Registry”.

Since Costa Rica follows the doctrine of first in time, first in right, recorded instruments presented to the Public Registry are given priority according to the date and time in which they are recorded.

In some cases a review of the Public Registry record will not be enough to uncover all encumbrances. It is important that the buyer have her or his own attorney conduct an independent title search and investigation rather than rely on the seller's attorney.

It is also good practice to verify with the Municipal government where the property is located to verify any zoning use or restrictions and to ensure that the property is current with all property taxes.

Depending on the property and the intended use further due diligence may be required before other governmental agencies such as Environmental Department, Public Works, National Parks, Electrical and Water Departments etc..

Closing costs in Costa Rica?

The general custom is for the buyer and seller to share equally in the closing costs. this can be modified by agreement and usually depends upon the particular transaction. Closing costs involve three things: government taxes and fees, notary fee, and mortgage costs, if any.

[A] Government Transfer Tax and Registration Fees

(1) Real Estate Transfer Tax. - The government collects a property transfer tax (Impuesto de Traspaso) which is equal to 1.5% of the registered value of the property. The Public Registry will not record a transfer 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 stamps include the following: 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 imposes its own tax of .05% on documents presented for recordation to the Public Registry. (Derechos de Registro)

[B] Notary Fees.

The Notary that drafted the contract for sale and carried out the closing on the property transfer is entitled to a Statutory Fee. For many years that statutory fee has been 1.25% of the value of the transaction. However, in August of 2005 the Executive Branch approved Executive Decree No. 32493 which sets forth the new schedule of fees for Attorney's and Notaries in Costa Rica (Arancel de Honorarios por Servicios Profesionales de Abogacía y Notariado).

The statute mandates that Notaries abide by the miminum fees established by statute. The minimum for all acts and contracts that are authorized by a Costa Rican Notary Public the fee schedule is based upon the actual value of the transaction involved according to the following minimum schedule:

• Up to 10 million Colones = 2%
• On the excess of 10 million Colones and up to 15 Million Colones = 1.5%
• On the excess of 15 million Colones and up to 30 million Colones = 1.25%
• On the excess of 30 million Colones 1%

The law also states that for acts or contracts that are complex in nature may result in a 50% surcharge from the above.

[C] Mortgage costs. It is customary for the person who is receiving financing to pay 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 according to the same statutory Notary Fee schedule indicated above.

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 has been 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.

Prior to engaging in this practice your Attorney should advise you of the potential risks and consequences of doing so. Although there is currently no capital gains taxes in Costa Rica (unless your habitual business is real estate transactions) this could change in the future and then reporting a low sale could end up being the property basis for calculating the capital gains tax in the future.

Registration of the transfer deed.

Once all the fees have been paid, it is the obligation of the Notary who drafted the transfer deed to ensure that the deed is presented (anotado) and registered (inscrito) in the Property Section of the Public Registry.

I have stressed the words presented and registered to highlight the importance of following 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 will not register a transfer deed unless all taxes and registration fees are included. Any prior instruments that encumber the property (i.e., mortgages, liens, judgments, etc.) must be lifted before or simultaneously when 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.

It is 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 that your sale was not registered.