II. The Purchase Process

A. Basic Terminology

Feeling comfortable with the purchase process starts with understanding the most common terminology. While the purchase process may seem very simple, there are some keys ideas with which a buyer should be familiar. The following defines the most common vocabulary used in real estate transactions in Costa Rica.

a) Folio Real: This is the “social security” number of properties. It is the unique number assigned to each property to identify it and distinguish it from other properties. This number is comprised of three parts: the first number indicates the province, the second group of six numbers is the number of the property itself and the last group of numbers indicates how many co-owners the property has. All titled properties MUST have this number in order for clear title to be obtained.

b) Transfer or Conveyance Deed: (escritura de traspaso): This document contains all of the stipulations regarding the transfer of real estate including basic information about the buyer, seller, the property, and any special terms of sale, such as easements or mortgages. An attorney who is also a Public Notary must prepare this document and the deed must be recorded in his/her Notary Book as well as at the Public Registry of Property. Once the deed has been prepared and signed at the closing, it is the attorney’s responsibility to record the deed immediately at the Public Registry. The recording process consists of two phases. In the first phase, the notary presents the deed to the public registry for its annotation; from this moment the property is protected against any third party interest. After the registry verifies the deed is structurally correct, the second phase of registration begins and the property is recorded in the name of the new owner. Because Costa Rica operates on a “first in time, first in right” system, registering the deed immediately is critical to ensuring that the new buyer’s rights to the property are ahead of any other claims by third parties.

c) Public Registry of Properties

d) Notary Public: Attorney licensed by law to perform legal acts with public faith. All transactions performed by a notary are recorded in his/her notary book. A public notary is necessary in order to purchase a property. Most attorneys in Costa Rica are also public notaries.

e) Power of Attorney: (Poder)

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(1) This document authorizes a person to act on behalf of another to perform specific actions such as the purchase of a property. This tool is especially useful for clients that wish to close on their property without returning to Costa Rica. It is best to sign the power of attorney before leaving the country because the law requires that the power of attorney be signed in the presence of a Costa Rican notary. Thus, a visit to a Costa Rican consulate in the US is necessary. One exception to this rule, however, is if the property is being purchased through a corporation. In this case, a signed proxy letter will suffice and there is no need to visit a consulate.

(2) Powers of Attorney come in two forms, general and special. General power of attorney allows a representative to sign on behalf of an individual for multiple transactions and must be recorded at the Public Registry. A specific or special power of attorney allows the representative to sign ONLY for the item specified in the power of attorney contract and under the conditions specified there. It is highly recommended that only a specific power of attorney be granted for property purchases to limit the rights of the representative to sign only for the property in question and nothing else. Additionally, The specific power of attorney does not have to be recorded at the Public Registry, however it should be granted before a Notary Public.

f) Survey Plan (Cadastral Department): In addition to the Public Registry of Properties, which holds all property deeds, Costa Rica also has a Cadastral Office that holds all of the property surveys. In order to transfer, mortgage or acquire a property, a survey must be recorded at the Public Registry. When dealing with property segregations, a municipality authorization is also required on the survey. The official drawing of the property is validated through an approval process by the Public Registry of Properties as well as by the municipality in which the property is located. Because the Public Registry and Cadastral Office are separate entities, it is not uncommon for old property surveys to be on file at the Cadastral Office. If this is the case, it is recommended that a new survey plan be registered with the Cadastral Office so that there can be no dispute over boundary lines.

B. Purchasing Methodologies

1. Acquiring Properties through direct transfer: A purchase process whereby one or more physical individuals acquire a property in their personal name.

2. Acquiring Properties through corporations: A common practice in Costa Rica is 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 properly 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 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 (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 that there are other 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.

C. Step-By-Step Through The Purchase Process:

1. Once a buyer has seen a property of interest, the next step is to understand what the process of acquiring the property may entail. The following are the basic steps that a purchaser follows when buying a property.

  • Step 1: Sign an Option to Purchase/Sale with seller.

  • Step 2: Deposit funds into escrow (if available).

  • Step 3: Title research performed by the Notary Public / Lawyer (review if property is free and clear of defects)

  • Step 4: Closing – Execution of Transfer Deed, Endorsement of Shares and/or Mortgage Deed and disburse funds

  • Step 5: Register new owner with Public Registry

D. Fee Structure

1. Transfer taxes, stamps and other charges: In order to record the transfer of the property, the government charges 1.5% of the purchase price.  An additional 1% is charged for other stamps at the Public Registry.

2. Notary Fees: Notaries are required by law to charge 1.25% as their legal fees.

3. Survey fees: If you require or demand a new survey for your property, there are qualified surveyors available to perform this function. Pricing depends on the location and size of the property.

4. Mortgage registration fees: The government charges 0.6% of the mortgage value to register the mortgage deed on the property.

5. Escrow Fees: Fees are dependent on the escrow provider.

6. Incorporation: Fees for purchasing a corporation typically run between $500-$1000 or more.

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