When buying real estate in Costa Rica it is important to have a good lawyer and good real estate agent working with you, but it is also important to be familiar with the process of purchasing property in Costa Rica yourself so that you can understand and manage the transaction well and make sure your real estate investment is secure.
It is worth quickly addressing the significance of property rights, to understand why it is so imperative that the transfer process be completed properly. A great deal of the wealth in any economy comes from real estate, and the ability to own, buy or sell real estate, while guaranteeing the buyer’s right to the value of that real estate. Costa Rica has the stability, organizational structure, and legal structure to be able to guarantee that right of ownership, however disputes can occasionally arise due to badly documented land, or undocumented changes from times not so long ago when systems were not so well implemented to manage the ownership of land. For this reason the transfer registration process must be followed carefully to ensure the legal system will stand behind you in case of a dispute.
There is still some property which is not yet titled in Costa Rica, though it may be tempting if you’re offered a good deal, it is extremely risky to purchase un-titled land as there is no definite way to prove ownership if a dispute ever arises.
In Costa Rica registration of the property is in fact more important than the actual deed to the property. All property is registered at a central office called the Registro Publico, so the first thing to do is a title search with them, and obtain the escritura which is a literal certification, a written title document that details how the property is recorded in the Registro Pubilco. The escritura outlines the nature of the property, including whether it’s commercial or residential, the location, land size, etc. It also lists the owner, and the catastro number which will be discussed in a moment. But most importantly it details all legal liens, mortgages, or other encumbrances (if any) against the property. Any issues found during this initial background check must be addressed before you proceed further, as these are the sorts of things which could cause disputes later regarding the ownership of the property.
The catastro is the graphical plan, or drawings of the land. It is filed separately from the escritura which is why the escriture contains the cadastro number. Note that while filing any changes to the property in the escritura is legally necessary, updating the catastro is not. And because of this the catastro and escritura may not match due to transactions which took place but were not properly recorded on the catastro. Therefore, one of the most important things to watch for when buying real estate in Costa Rica, is consistency between the escritura and catastro, the 2 documents which officially define the property. For this reason it is important to verify both of these documents by doing a topographical study of the property and defining the property boundaries clearly. Any inconsistencies between these two documents must be resolved before proceeding with the purchase of a property.
Once you have verified the title, and checked for any encumbrances, the seller should provide the buyer with two tax documents. The first is a copy of the tax receipt, or impuesto territorial, attesting that all taxes and registration fees are paid as of the date of purchase, and the second is a tax clearance certificate, a constancia municipal, issued by the Municipality where the property is located.
Finally you are ready to have a notary draft the sale agreement as a public deed, or testimonio. In Costa Rica all notaries are lawyers. The notary legally works for both the buyer and seller and should not be biased but instead look out for the best interest of both parties. If you are financing your purchase with a bank or other lending institution, the institution may reserve the right to designate the notary as a condition of the financing agreement. The notary responsible for the closing must draft the purchase contract, and also be present at the closing.
At the closing you must present proof of payment (proof of sufficient funds may be accepted) to cover several taxes and fees involved in the transaction. Here is the standard list of expenses:
- Transfer Tax: 1.5% of property price
- National Property Register Stamp: 0.5% of the property value
- Municipal Stamp: 0.2% of property value
- Fiscal Stamp Tax: CRC 625
- Agrarian Stamp: 0.1% of property value
- Costa Rican Bar Association: 3000 CRC for deeds over 10 million CRC
- National Archive: CRC 20
These taxes and fees are calculated based on the highest stated purchase price and the property value appearing on the Registry, which is updated whenever the property is sold or mortgaged. The notary will certify an affidavit that the payment was made and it will be included in his documentation.
The purchase contract will then be incorporated into the notary's register, under a specific deed number. Once signed, it is the notary’s responsibility to register the purchase in the Registry as soon as possible.
Once filed, the affidavit of the transfer deed is reviewed by the Registry and if the document complies with all requirements, it is recorded and the buyer is declared the formal owner. If there are any problems with the document it will be returned to the notary for correction and re-filing.
Once your deed is registered, you can verify it by requesting an original copy of the deed, or testimonio, or a copy of the closing document with the seals showing the registration. In addition, your property will have a folio real number, which can be verified at the Registry, showing you as the owner.
Jennifer Cross, April 2008
