Realty

A Guide to Understanding the Real Estate System and Buying Process--Introduction The acquisition of real estate is
one of the most significant investments a person makes during his or her lifetime. It can also be one of the most stressful. In
foreign countries such as Costa Rica, the normal stress of the purchasing process can be compounded with other risk factors,
such as language barriers and unfamiliarity with local laws and procedures. That said, foreigners can and do legally and
successfully purchase property in Costa Rica. In fact, Costa Rica offers potential buyers many types of real estate products
including houses, condominiums, time-shares, farms, finished lots and beach front property. The following guide is designed to
help buyers navigate their way through the real estate buying process for all types of purchases. The guide is divided into three
main sections covering:I. Property Types and Property RightsII. Purchase Process: A. Legal vocabulary of property purchaseB.
Methods of Purchase, buying process step-by-step, and fees.III. Investment Protection: strategies and tools to protect property
investment I. Property Types and Property RightsJust like in the US, Canada, and Europe, there are different types of property
available to buyers. Understanding the various types that are available for purchase is critical in the evaluation process. This
section highlights the property types that can be purchased in Costa Rica and the implications of each type of ownership for the
buyer.A. Fee Simple:The most comprehensive form of property ownership in Costa Rica is fee simple ownership. Fortunately for
foreigners, the conditions for this type of ownership are the same for Costa Rican nationals as they are for foreigners. The
concept of fee simple ownership is the same in Costa Rica as in the US. Basically, fee simple ownership gives the owner of the
property the absolute right to materially own the property, use it, enjoy it (i.e. usufruct), sell it, lease it, improve it (i.e.
transformation), etc., subject only to conditions outlined in the Costa Rican Laws. Fee simple also means that if the owner is
obstructed from enjoying any of his/her rights to the property, he/she has the right to be made whole, in other words, have the
property restored in its original condition. Buyers who purchase fee simple title have the most rights under to law to enjoy and use
the property as they see fit.B. Concessions in the Maritime Zone:Concession property is more commonly known as beachfront
property. In Costa Rica, 95% of beach front property is considered concession property and is governed by the Maritime Zone
Law and other specific regulations including but not limited to special dispositions stated by municipalities and the ICT (Costa
Rican Institute of Tourism). These legal dispositions set forth the conditions under which foreigners and local residents can own
concession property. A concession in Costa Rica is defined as the right to use and enjoy a specific property located on the
maritime zone for a predetermined period of time. The state, through its respective municipality, grants this right. Note that the
first 200 meters measured horizontally from the high tide line defines the boundary of the maritime zone. This zone also includes
islands, pinnacles of rock, mangroves, estuaries, small islands and any small natural formation that overcome the level of the
ocean. This 200 meter zone is divided into two areas:1. Public Area: The first 50 meters measured horizontally from the high tide
line. This zone is not available for ownership of any kind. No kind of development is allowed except for constructions approved by
governmental entities. Further, this area is deemed a public area and any individual wishing to utilize this area for enjoyment has
the right to do so. In other words, there are no truly private beaches in the Maritime Zone.2. Restricted/Concession Area: The next
150 meters. This area is available for Concessions to be granted. A concession is in essence a lease on the property granted to
the lessee for a specific period of time. Normally the concession period is granted for 20 years. An owner of a concession may
build on that concession, subdivide the concession and perform other acts to the property. However, appropriate permits from the
local municipality must be obtained.3. Ownership Limitations: Unlike fee simple property, foreigners do not have the same rights
as citizens when it comes to purchasing concession property. The law establishes that foreigners cannot be majority owners of a
concession property. A foreigner can, however, enter into a partnership with a Costa Rican citizen where the ownership is divided
49% / 51% between the foreigner and Costa Rican respectively. One exception is if a foreigner has resided in Costa Rica for at
least five years, then they may be majority owners of a concession. Both foreigners and Costa Ricans alike are required to
purchase all Maritime Zone property through concession.C. Properties in Condominium:When US citizens think of
Condominiums, they normally think of large apartments or townhouses. In Costa Rica, however, there is a specific law called
Condominium Law that provides certain benefits to developers of many different types of properties, including single family
residence projects, finished lot projects, condos, etc. This set of laws allows a developer to restrict and regulate certain aspects
of the development. Each Condominium developments has its own by-laws containing all of the restrictions, limitations and
privileges that can be enjoyed by individuals who purchase a property in such a development. Ownership of property in
condominium is fee simple ownership, but usually carries with it a few additional restrictions set forth by the developer. It is
advised that you require the owner of the property to give you a copy of the by-laws to check for architectural guidelines, land use
restrictions, and other limitations that may be placed on your property. Most often, developers use the condominium laws to allow
them to build private roads in a development and set architectural guidelines. For the most part, condominium laws are designed
to protect the integrity of a development and maintain the look and feel of the project.D. Untitled propertyThere are properties in
Costa Rica that are not recorded at the Public Registry of Properties. Families have inhabited some properties of this type for
generations while others have never been occupied. In either case, it is possible that someone claims that they own the property
and may put it up for sale. They may even have fence lines or other boundary markers that separate their property from their
neighbors. Regardless of the time that an inhabitant has lived on the property or to what extent they have demonstrated
ownership, unless that property is registered at the Public Registry, there is no official owner. I.e. the title is unclear. It is strongly
recommended that this type of property be avoided at all costs because there is no way to prove that the owner has the right to
transfer the property, or even worse, what the dimensions of the property really are.E. Time Share: This option allows an owner
the right to use a property for certain weeks of the year. In most cases the time-share ownership grants similar rights as implied in
the condominium regulation except that in the time-share it is limited to certain weeks during the year. In this manner one single
unit is subdivided into parts and sold individually. Time-share resorts are not common in Costa Rica. II. The Purchase ProcessA.
Basic TerminologyFeeling 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.1. 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.) 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. Stewart Title provides this service
through our underwriters who are also attorneys. Once the deed has been prepared and signed at the close, it is the attorneys
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.) Public Registry of Properties) Public Notary: 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)2. Power of Attorney: ( Poder )a. 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.b. 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 public notary.c. 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 segregation, a municipality authorization is also required to be inserted 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 Methodologies1. 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 that 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 (i.e. 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 (Using Title Guaranty & Escrow Services)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 sellerStep 2: Deposit funds into escrowStep 3: Title
research performed and Title Commitment issued (review if property is free and clear of defects)Step 4: Closing ö Execution of
Transfer Deed, Endorsement of Shares and/or Mortgage Deed and disburse fundsStep 5: Register new owner with Public
RegistryStep 6: Receive official Title GuarantyD. 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 and 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 .6% of the mortgage
value to register the mortgage deed on the property.5. Title Guaranty fees: Guaranty fees are typically based on a sliding scale
depending on the purchase price.6. Escrow Fees: Fees are dependant on the escrow provider.7. Incorporation: Fees for
purchasing a corporation typically run between $500-$1000. III. Protecting the real estate investmentOne of the greatest concerns
of foreigners purchasing real estate in a foreign country is to ensure that the transaction will be executed legally and if the system
can ensure a lifetime of enjoyment of the property. The Costa Rican legal system, if followed correctly, does give ample protection
to investors, but if the transaction is not executed properly, loss can and does occur. To guarantee the security of any real estate
investment, there are three tools that should be present in any real estate transaction.A. Adequate legal representation and
experienced Notary - While a notary has primary duty is to provide Public Faith to a transaction, his/her job is also to act as the
legal representative of the buyer, providing legal advice and representation throughout the process.B. Title Guaranty - As in the
US, the title guaranty serves as a contract by which a third party (Guaranty Company) commits to indemnify losses due to legal
situations that could affect the property, minus any exceptions or exclusions from the coverage. This legal document grants the
buyer the security and peace of mind that the property has free and clear title to and is protected in the event of defect. The
process of issuing a Title Guaranty includes the issuance of a Title Commitment before the closing to allow the buyer time to
examine the legal status of the property and evaluate if the property is in proper condition for purchase. The final title guaranty is
issued after the close and is based on the title commitment. The Title Guaranty is a new concept in Costa Rica and Latin America
in general, but it has already proven to add value to initial real estate purchases, re-sales and has encouraged transparency and
increased liquidity in the real estate process.C. Escrow - Most buyers from the US understand Escrow service to include not only
the managing of funds for a property purchase, but all of the administrative work required to execute a closing. In fact, in states
where an attorney is not required for a real estate purchase, the escrow agent becomes the central party responsible for ensuring
that all documentation is in order before the close. In Costa Rica, the escrow agent performs many of the same duties. The
primary function is the financial service to prevent manipulation or mishandling of funds prior to closing. The escrow agent is a
neutral third party with responsibility for issuing checks and executing payments. This system gives confidence to all interested
parties (e.g. attorneys, brokers, seller, buyer) that funds are protected during the buying process and that all funds will be
disbursed appropriately to all parties at closing. ConclusionThe real estate buying process in Costa Rica need not be intimidating
or confusing. By understanding the steps in the process and pitfalls to avoid, a buyer can confidently invest in and enjoy their
property for years to come.

Please write marcos@surfnosara.com for any of your questions!! Adios!!