The Purchase Process in Costa Rica

SUMMERLAND REALTY, CONSTRUCTION & PROPERTY MANAGEMENT

 

What you can expect….

Once you have determined that you want to make an offer on a property and/or that it is likely you will proceed through a purchase, these are the steps you are likely to take in order to complete the process and become a registered property owner in Costa Rica;

1.   The first document that you should have is a current survey – call a  PLANO Catastrado. This will show the registered survey boundaries, and although it is legally in a secondary position to the Estudio Registro or recorded deed, it serves to verify your understanding of the property boundaries. It should be provided by the seller early in the process. It is also available from the Catastro division of the National Registry, using the Folio Number of the property. There may be more than one survey that applies to the property you are purchasing. It is important to physically clarify the boundaries of the property before you proceed to the SPA or SALE and PURCHASE AGREEMENT.

2.   Included with the PLANO should be a current copy of the property description from the National Registry – or Registro Nacional. The document is called an  Estudio Registro, and should have a current date on it. It should also be provided by the seller early in the process. This can be obtained on line using the Folio Real number of the property. This will verify the registered owner and all of the legally registered details of the property as it currently exists, including any and all registered liens and encumbrances.

3.   This is the most important step in the process. You should be involved in crafting, reviewing, and finally signing a Sale and Purchase Agreement – often called and SPA or, in Spanish, a Compra-Venta. Since it is the most important document in this process it should spell out in very great detail all aspects of the negotiations of the purchase of a property. It starts with a clear description of the parties involved including their respective ID (Passport for US/Canada other foreigners and Cedula for local residents). It also includes a clear description of the property including any and all buildings or possessions that may be included. It should include all timing, parties involved (ie escrow company), amounts and details of funds changing hands. The SPA will state the period of time that is to be allowed for the examination of any and all aspects of the property DUE DILIGENCE that the buyer wishes to investigate and the seller agrees to. It should also clarify all aspects of this DUE DILIGENCE required including, but not limited to, the title study, property inspection and re-surveying if required.  Some items that fall under DUE DILIGENCE will carry a fee. The SPA must clarify which party is to pay for what amount of each item that carries a fee. Generally the buyer pays for all investigations (hiring his own experts) and the buyer and seller share the closing costs equally. A sample (1) SPA is attached.

4.   Set up an Escrow Account, if you don’t already have a Costa Rican Bank account, or possibly even if you already do. Either entity will be governed by SUGEF and will require a KNOWLEDGE OF CLIENT form similar to the one attached. sample (2) The intention is that, whatever financial entity you are dealing with, they will need to verify, in their own way, that the funds you have earned and are depositing in Costa Rica are funds earned legally. They may ask for certified documents from your country of origin to verify this – for example a certified tax return, a certified copy of your pension or savings and/or the closing statement on the sale of a property – whatever the source of your funds may be. This will vary individually. The Escrow Agent should be given a copy of the SPA and often will be included in it. When you actually wire transfer funds into the country it will be necessary to state what the funds are being transferred for – for example purchase of property number XYZ, construction of a home on property XYZ, infrastructure development, renovations/remodeling etc. If this is not indicated on the wire transfer that arrives in the country it may be held for a long time awaiting proper documentation.

5.   You may want to set up the owner of your property under a CORPORATION. This is very simple, costs about
$500, serves to limit your personal liability and is also a way you can declare beneficiaries. There is a new (2012) legislation that will levy an annual fee on all corporations, this year, approximately xxx for an INACTIVE corporation (one which acts as a holding company for property) and 350.00 for an ACTIVE corporation (with income and expenses). It is not required that you own property under a corporation, but it has become a very common practice.

6.   Another consideration is if you will need to set up representative in your absence. This depends on your plan of residency (full time or partial) and how soon you will take up residence. You as representative of yourself or your Corporation, will be required to sign for many different things as time goes along – this may include, but is not limited to  all utilities, electricity, land line phones, cable or satellite TV, internet, municipal water, municipal declarations of any kind about the property, insurance, any contracts concerning the property – alarm system, maintenance, cleaning etc. If you will not be here full time or will not be here for awhile there are several ways to handle this. One is through your CORPORATION, if you choose to use one – you can set up a manager of the Corporation who has all abilities but no ownership. Another is through a formal Power of Attorney POA (General or Limited). In both cases the actual powers that you give can be general or can be made as specific as necessary. Currently, for instance, the INS (National Insurance Company) requires that a Power of Attorney clearly state that the holder is authorized to deal with the INS on the owners behalf. Another option is to hire a Property Management Company, who should also require a POA from you. If you do NOT have a legal representative hear you can arrange for documents to be signed and notarized in a Costa Rican consulate closest to your place of residence.

7.   After your closing date and confirmation from all parties that your transfer has taken place, you will be asked to declare your property value. This declaration will be the base of your taxable value. By law it should be equal to the priced that was paid. While it is still common practice to undervalue this declaration, it is something you should review carefully with your legal and financial advisers. The Municipalities are now authorized to reject declarations that they feel are too low and they will then send an appraiser to verify the value. The Municipalities will require a new declaration of value every 5 years. They may also send an appraiser, especially if there is any question of your property falling under the Luxury Tax guidelines (residences valued at about $200,000 USD or more). Normally property taxes are ¼ of 1% or 0.25% of the registered Fiscal Value. Luxury Residences are higher and there is a sliding scale based on the Fiscal Value.

8.   Within about 30 days of the property closing and transfer you should be able to pull an Estudio Registro based on your property’s Folio Real and it should show your name or your corporate name as the owner. If this does not happen you should immediately contact the closing lawyer and request both documentation that is proof that the transfer has been submitted to the Registro Nacional, and any documentation that would indicate what, if any, reason for delay there may be. Professional lawyers will take it upon themselves to track this and send it to you when as soon as it has cleared.
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Summerland Properties

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