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Property Purchase in Costa Rica


1)  -  How is Title Transferred ?

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

3)  -  How about closing costs ?


4)  -  Detailed Closing Cost Estimate

5)  -  Buying Coastal Properties

6)  -  Government Transfer Tax and Registration Fees

7)  -  Notary Fee

8)  -  Mortgage costs

9)  -  Registration of the transfer deed



1)  -  How is Title Transferred ?

In Costa Rica, property is transferred from seller to buyer by executing property  transfer deed (escritura) before a Notary Public. Unlike common law countries, like U.S. or Canada, where the role of the Notary Public is  limited to authenticating signatures, in Costa Rica the Notary Public has much more extensive powers to act on behalf of  the state. The Notary Public must be an Attorney and he/she may draft and interpret legal papers, as well as authenticate
or certify 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 centralized office known as the Public Registry (Registro Nacional). All documents are centralized at this location and all deeds executed must be  filed in the Public Registry.    
 
The custom is that the buyer may select his or her Notary/Attorney to draft the property transfer deed if the buyer is paying cash for the property. If any portion of the purchase price is financed by the seller it is common that buyer and Seller's attorney jointly draft the transfer deed and mortgage into a single document. This is a higher registration fee. The registration fees are discussed below in the section on closing costs.

At your option, the property can be purchased in your individual name, jointly with other persons, or in the name of  your corporation. The decision as to ownership should be based upon your particular situation and only after your consultation with your Attorney. - We at La Tigra Properties recommend purchase through a separate Costa Rica Corporacion because of the liability and the re-sale advantages and we also recommend separate corporacions for
any separate properties.

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2) - 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 of all 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 property, including name of the title holder, boundary lines, tax appraisal, liens, mortgages, recorded easements,  other recorded instruments that would affect title.

Since Costa Rica follows a 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. Obviously, every situation differs and in some cases a review of the Public Registry record will not be enough to uncover all encumbrances. That is why it is important that buyer have her or his attorney conduct independent title search and investigation rather than rely on seller's attorney.

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3) - How about closing costs ?                                   

The general custom is for the buyer and seller to share equally in closing costs. This custom can be modified by agreement and usually depends upon specific transaction. Closing costs involve 3 things:

a - Government transfer taxes and registration fees

b - Notary Legal fee

c - Mortgage costs, if any

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4) - Detailed Closing Cost Estimate           

a) Government Transfer Tax and Registration Fees
(1) Real Estate Transfer Tax. - 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 deed.  These stamps include: Municipal Stamp(Timbre Municipal); Legal Bar Association(Timbre del Colegio de Abogados); Agricultural Stamp(Timbre Agrario); National Archives Stamp(Timbre del Archivo Nacional) and a Fiscal Stamp:(Especie Fiscal).
The Public Registry also imposes it's own special tax of 0.05% on documents for recordation to the Public Registry. (Derechos   de Registro) 

b) Notary Fee
The Notary that drafted the contract for sale, carries out the real estate closing and records the property title . transfer 
is entitled by law  to a fee which is based upon a percentage of the actual value of the  transaction. The original decree established a fee which was equal to  1.5% of the first one million Colones of actual sales price and 1.25% on the remaining balance.

c) Mortgage costs
It is customary for the person 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.

The Notary Public will charge separately for drafting and recording the mortgage instrument and a fee is applied according to the same schedule as above. Mortgage documents pay registration fees and documentary stamps the same as transfer documents

The buyer should be aware that  Costa Rican real estate transactions commonly operate on two-tiered system. Since many Costa Rican properties still have a realatively low property tax appraisal base in relation to market value, it has become local practice to run property sales through at registered value, which may be substantially less than the actual sales price of the property.  In such a case, all transfer taxes and fees above would apply to the registered value as opposed to its sales price, with exception of the notary fee.  

d) Registration of the transfer deed
Once all fees have been paid, it is the obligation of Notary Public drafting the transfer deed to ensure that the deed is presented (anotado) and registered (inscrito) in the Property Section of Public Registry. The important thing is following up with the notary to ensure registration.

Although presentation guarantees your priority (i.e., first in time, first in right), it may not however automatically guarantee registration -  Once a deed is accepted for registration, the Public Registry will return the original document with all the documentary stamps affixed and properly sealed. Assuming no defects in transfer deed, it should be registered  by the Public Registry within 45 to 60 days after presentation. It is therefore important to follow up with your Notary Public to verify each  registration, otherwise you will run into problems in the future if you decide to sell
the property, and find out that your sale was not properly registered.

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5) - Buying Coastal Properties
             

You need a truly special Notary - Attorney who knows the 50/100/200 meter setback laws and how to protect you in entering into a long term lease arrangement because no-one is allowed to outright "own" property in the "Maritime Zone" which is true for every Country signatory to the Hague Convention

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6) Government Transfer Tax and Registration Fees                        

(a) Real Estate Transfer Tax. - 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

(b) Documentary Stamps - The government also requires that documentary stamps be affixed to deed.  These stamps include: Municipal Stamp(Timbre Municipal); Legal Bar Association(Timbre del Colegio de Abogados); Agricultural Stamp (Timbre Agrario); National Archives Stamp (Timbre del Archivo Nacional) and a Fiscal Stamp:(Especie Fiscal). The Public Registry also imposes it's own special tax of 0.05% on documents recorded to the Public Registry (Derechos de Registro)


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7) - Notary Fee                                         

The Notary that drafted the contract for sale, carries out the real estate closing and records the property title . transfer is entitled by law  to a fee which is based upon a percentage of the actual value of the  transaction. The decree established a fee which was equal to 1.5% of the first one million Colones of actual sales price and 1.25% on the remaining balance.

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8) - Mortgage costs                                                  

It is customary for the person 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.

The Notary Public will charge separately for drafting and recording the mortgage instrument and a fee is applied according to the same schedule as above. Mortgage documents pay registration fees and documentary stamps the same as transfer documents

The buyer should be aware that  Costa Rican real estate transactions commonly operate on two-tiered system. Since many Costa Rican properties still have a realatively low property tax appraisal base in relation to market value, it has become local practice to run property sales through at registered value, which may be substantially less than the actual sales price of the property. In such a case, all transfer taxes and fees above would apply to the registered value as opposed to its sales price, with exception of the notary fee.  


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9) - Registration of the transfer deed        

Once all fees have been paid, it is the obligation of Notary Public drafting the transfer deed to ensure that the deed is presented (anotado) and registered (inscrito) in the Property Section of Public Registry. The important thing is following up with the notary to ensure registration.

Although presentation guarantees your priority (i.e., first in time, first in right), it may not however automatically guarantee registration -  Once a deed is accepted for registration, the Public Registry will return the original document with all the documentary stamps affixed and properly sealed. Assuming no defects in transfer deed, it should be registered  by the Public Registry within 45 to 60 days after presentation. It is therefore important to follow up with your Notary Public to verify each  registration, otherwise you will run into problems in the future if you decide to sell the property, and find out that your sale was not properly registered.


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