Costa Rica Expertise LLC

You mortgage your own property!

By Garland M. Baker
Special to A.M. Costa Rica

Behind every palm tree there is someone lingering to steal a property one calls home. Costa Rica is a win-lose society. This means to win, someone else must lose. Surely, this is the reason there is so much corruption in every level of the government. Two ex-presidents jailed is a prime example of the current state of affairs.

A common practice among savvy Ticos when investing in real estate is to self-mortgage a purchased property. Usually this is done by creating another company other than the one holding the property and using it to hold a mortgage over the other.

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This practice provides a fail-safe measure over real estate because should some crook illicitly transfer a property to him or herself, the company holding the mortgage executes the document against the crook to regain possession and ownership.

This custom is well known, commonly practiced, but totally illegal, and this method does not guarantee full protection.

There is a way to have the same protection legally. It involves taking out cédulas hipotecárias or mortgage certificates over real estate. These cédulas are like stock certificates and represent the value of the property for which they are issued. Unlike a normal mortgage, the same person owning a property can own them perfectly within the law.

They work better than a standard mortgage because they can be used to borrow money based on their face value, or otherwise negotiated in normal business transactions much like stock certificates.

The key here is precaution, holding them as a security blanket over fraudulent property transfers.

There are new investors and potential homeowners arriving in Costa Rica each day. Property values are exploding as many come to this country to find and own a piece of paradise.

However, many others have found Costa Rica is no Garden of Eden. Some return from a vacation out of the country to find someone else living in their house or on their land because it has been stolen.

There are so many ways to rip off assets in Costa Rica. The list is too long to outline them all. Forged signatures on legal documents is one of the most common methods used to steal something here. Crooked notaries (all notaries in Costa Rica are also attorneys, but not all attorneys are notaries) and legal magic takes second place on the long list of thieves tricks.

Mortgage certificates are created over real estate by requesting the national registry (Régistro Nacional) to draw up the certificates. The documents are made on special paper with special stamps and other security features.

The only way to release a mortgage based on mortgage certificates is with a special public legal instrument made by a notary. The original certificates must be attached to this document.

Property owners making mortgage certificates have the freedom to decide the number of certificates created. For example, one can make a mortgage for $100,000 represented by one certificate, or 10 certificates representing $10,000 each.

Mortgage certificates can be transferred with an endorsement. Most banks accept them as guaranty for a loan. A property owner can save thousands of dollars in attorney’s fees when borrowing money since bank lawyers do not need to create a new mortgage just verify the endorsement in the name of the bank.

Here is a checklist to create mortgage certificates for real estate:

1. Hire an experienced notary with the knowledge to register mortgage certificates. They are called cédulas hipotecárias in Spanish. Many attorneys do not know about them, so find one that really does.
2. A property needs to be free of encumbrances or other mortgages, since these titles represent a priority lien. Normal mortgages can be replaced by certificates.
3. The legal costs are comparable to the cost of a normal mortgage, less than 1.3 percent of the property value with most of the expense being the lawyer’s fee.

In summary, cédulas hipotecárias represent a great legal tool when investing and buying real estate in Costa Rica. They can be time and money savers too.

Most importantly, they are like having a Colt .45 in one’s back pocket against the bad guys.

Garland M. Baker has been a resident of Costa Rica since 1972 and is now a naturalized citizen. He provides multidisciplinary professional services to the international community. Lic. Allan Garro provides the legal review. Reach them at [email protected] Baker has undertaken the research leading to these series of articles in conjunction with A.M. Costa Rica. Copyright 2004, use without permission prohibited.

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