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Legal Information

Feb 03, 2007 at 08:12 PM
Written by Nicholas Aron

How is the property title transferred?

In Costa Rica, property is transferred from seller to buyer by executing a transfer deed (escritura) before a Notary Public. Unlike common law countries, such as the United States and Canada, where the role of the notary is limited to authenticating signatures, in Costa Rica the notary public has extensive powers to act on behalf of the state. The notary public must be an attorney and she or he may draft and interpret legal documents, as well as authenticate and certify the 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 Public Registry (Registro Nacional). The local custom is that the buyer may select his or her notary/attorney to draft the transfer deed if paying cash for the property. If the purchase price is financed, there are generally three alternatives for selecting the notary/attorney.

1. If a large percentage of the purchase price is being financed by the seller and a mortgage needs to be drafted to guarantee payment, then the seller may request that her or his notary/attorney draft the transfer deed.

2. If a property is purchased 50 percent cash and 50 percent financed, it is common for the buyer's attorney and seller's attorney to jointly draft the transfer deed and mortgage in a single document. This is known as co-notariado.

3. Finally, the buyer nay insist that his or her notary/attorney draft the transfer deed and let the seller's notary/attorney draft a separate mortgage instrument. In this case, because the mortgage is being drafted separately, it carries 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 an individual's name, jointly with other persons, or in the name of a corporation. the decision as to ownership should be based upon your particular situation and after consultation with your attorney.

Closing Costs?

The general custom is for the buyer and seller to share equally in the closing costs. this can be modified by agreement and usually depends upon the particular transaction. Closing costs involve three things: government taxes and fees, notary fee, and mortgage costs, if any.

[A] Government Transfer Tax and Registration Fees

(1) Real Estate Transfer Tax - The government collects 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. (The transfer tax was reduced from 3% to 1.5% by Law No. 7764 effective May 22, 1998)

(2) Documentary Stamps - The government also requires that documentary stamps be affixed to the deed. These stamps include the following: Municipal Stamp: (Timbre Municipal) ;Legal Bar Association Stamp (Timbre del Colegio de Abogados); Agricultural Stamp (Timbre Agrario); National Archives Stamp (Timbre del Archivo Nacional); Fiscal Stamp:(Especie Fiscal). The Public Registry also imposes its own tax of .05% on documents presented for recordation to the Public Registry. (Derechos de Registro)

[B] Notary Fees

The Notary that drafted the contract for sale and carried out the closing is entitled by law (Decree 2307-J) to a fee equal to 1.5% of the first one million Colones of the actual sales price and 1.25% on the balance. The Attorney and Notary fee schedule which was established by Executive Decree No. 2307-J on April 4, 1991 was repealed on February 9, 1999 (Decree No. 27624-J). However, in October of 1999, the Supreme Court of Costa Rica ruled that the Decree which repealed the Fee schedule was unconstitutional and reinstated the original fee schedule.

[C] Mortgage costs

It is customary for the person who is 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. A mortgage document paysregistration fees of 1.00 Colon for every 1,000 Colones. The mortgage document also pays documentary stamps. The Notary Public will also charge for drafting the mortgage instrument and that fee can range from approximately 0.625 percent to 1.25 percent of the amount of the mortgage, depending on the circumstances involved.

The buyer should be aware that Costa Rican real estate transactions commonly operate on a two-tiered system. since Costa Rican properties have a low property tax appraisal base in relation to market value, it is a customary practice to run property sales through at the registered value, which may be substantially less than the actual sales price of the property. In such a case, all transfer taxes and fees discussed above would apply to the registered value as opposed to its sales price, with the exception of the notary fee. Buyers should consult their attorney about the potential risks of this practice.

Registration of the transfer deed

Once all the fees have been paid, it is the obligation of the notary who drafted the transfer deed to ensure that the deed is presented (anotado) and registered (inscrito) in the Property Section of the Public Registry. I have stressed the words presented and registered to highlight the importance of following up with the notary to ensure registration. Although presentation guarantees your priority (i.e., first in time, first in right), it does not automatically guarantee registration. The Public Registry will not register a transfer deed unless all taxes and registration fees are included; a certified copy from the Municipality where the property is located is provided certifying that the seller's property tax (bienes inmuebles) and municipal assesments (impuestos municipales) have been paid through the date of closing. Likewise, any prior instruments that encumber the property(i.e., mortgages, liens, judgments, etc.) must be lifted before your transfer deed will be registered.

Once a transfer deed is accepted for registration, the Public Registry will return the original document with all the documentary stamps affixed to it and properly sealed. Assuming no defects in the transfer deed, it should be registered by the Public Registry with 45 to 60 days after presentation. It is therefore important to follow up with the notary to ensure registration, otherwise you will run into problems in the future when you decide to resell the property and find out that your sale was not registered.


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Last Updated ( Apr 21, 2007 at 03:21 PM )