How to avoid being fleeced when buying property in Costa Rica
I’m sometimes surprised how easily some people walk away from their hard-earned savings when buying property in Costa Rica. Would you give $100K of your life savings to your banker without receiving any documents that prove the deposit? I would not, and I wouldn’t give it to a real estate developer in Costa Rica without proof of ownership either.
Quite often, I receive requests from absent property owners to pay their property tax on land they own somewhere in Costa Rica. Just last week, a property owner (or he thinks he is), asked me to find out how much property tax he owed so he could send me the money.
In a return email, I asked him to send me either the property information or the property owner information, which might be a corporation or a sociedad anónima. The landowner immediately sent a brochure of a development in the Nicoya Peninsula plus a photo of the entrance of the development and one of a flat, unfenced piece of land.
When I asked the property owner if he didn’t have a title study, a deed, a property survey map or anything that could prove ownership, I didn’t hear back from the man. I don’t know if he is now looking all over his house for the paperwork or he is ashamed to say he just handed the developer a check without receiving anything in return.
Another landowner asked me what he could do when the real estate developer he purchased from did not deliver on the closing date. When I emailed the landowner to check his purchase-sale agreement to see what it says, he said no attorney was used and the money was paid directly to the developer.
The reason this happens is that the land is not owned by the real estate developer and the buyer was promised that he would receive the title as soon as the properties in the development were subdivided.
That means the developer didn’t have the money to buy the land or the infrastructure and has not even subdivided the properties yet. The development consists of nothing more than a shiny brochure, a billboard and an entrance, if that.
Here are 10 tips to avoid losing your money when buying property in Costa Rica through a real estate agent or a developer.
But first a warning: Don’t give anybody your money without proof of ownership when you are buying property in Costa Rica.
1. Do NOT give the developer any money, not even $500 for a reservation.
2. Brochures are only promises, empty words and beautiful pictures and renderings of a dream. Ask for reservation documents, an option to purchase/sale agreement, title documents, a survey map and anything else that should matter, so your lawyer can check it all.
3. Ask around in the area what is going on with the real estate project you’re buying into.
4. Ask your lawyer to check into building permits, water issues and ownership of the land. This will give you more information about the real future of the development.
5. Use your OWN lawyer and do NOT use the developer’s lawyer to save money. If you do, you will regret it later.
6. Do your due diligence on finding the right lawyer to look out for your own interest. Find one who speaks your language and has an escrow account.
7. Once you have found the lawyer you like, send him all the documents the developer gave you for revision.
8. ONLY send the developer reservation money after your lawyer’s approval.
9. Do NOT make any other payments directly to the real estate developer. Have them all held in escrow until the closing, when you will receive title.
10. If the real estate developer does not agree with your requirements, walk away — this is not a safe investment.
Sales brochures are usually no more than promises and a rendering of a real estate developer’s dream. I cannot insist enough that before you invest your money in any real estate project at all, when buying it from a real estate agent or from a real estate developer, do your due diligence before writing out a check for $100K. Only YOU can protect your own investment by making the right decisions when buying property in Costa Rica.
Ivo Henfling founded the American-European Real Estate Group, the first functioning MLS in Costa Rica with affiliate agents from coast to coast, which has been in operation since 1999. Read his blog at https://www.american-european.net/Costa-Rica-Real-Estate-Blog or contact Ivo at (506) 2289-5125 / 8834-4515 or at [email protected].
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