What Can Due Diligence Do For You?
You’ve found THE perfect place for you in Costa Rica. It’s gorgeous, and it will be the ideal spot to realize your tropical dreams!
The sooner you can take ownership, the sooner you can get down to whatever comes next, whether that is enjoying your retirement, writing your book, or growing picture-perfect avocados. You and the seller hammer out a deal you’re both happy with. You’re ready to pay, and they’re ready to be paid.
Hey, you love your real estate agent, everyone you have met in Costa Rica is so kind, they’ve introduced you to the magic of coconut water and the YouTube video of Johnny Cash singing Ring of Fire in Spanish, why WOULDN’T you trust that everything is how they say it is? Wouldn’t it be rude to actually check to make sure the seller owns the land they say they do and that there is water available?
THEN some wet blanket mentions the need for Due Diligence. What for? “Checking on some stuff,” they say. “It’s important,” they insist.
But there are other people telling you not to bother. “A waste of time,” they say. “And a waste of money,” they insist.
Take a look at some of what happens during Due Diligence – and decide for yourself.
The first thing we do at Pacific Coast Law is take a look at what the Public Registry can tell us based on the identification number for the property you are interested in. It will look something like this: 6-12345-000. Commonly called a “finca number” these digits are how property deeds/titles are identified, and they make it possible to track what happens with parcels of land in Costa Rica. The first number tells us in which province the property is located. Puntarenas – number 6 – is the province which stretches down most of the Pacific Coast of Costa Rica and includes the communities of Quepos, Manuel Antonio, Dominical, Uvita, Ojochal. The next set of numbers are specific to the parcel of land in question. The final three numbers tell you what kind of ownership rights are held by the current owner. Three zeroes in a row mean the current owner has full title, one-hundred percent ownership. If the last three digits end in a 1 or a 2 or higher, it means there are additional owners who share ownership, and it would be important to make sure they are willing to sell their ownership interest to you as well.
If the finca number looks like this: 6-123-Z-000, then the property is concession land in the Maritime Zone. This means that the current owner does not actually own the land itself, but instead has ownership of a long-term lease from the government. It would then be important to ask what the lease requires, when the lease expires, and what it would cost to renew it.
If the finca number has a different letter in the mix, perhaps like this: 6-123-F-000, then the property is part of a development project such as a condominium or home owner’s association. This means that the current owner does own title to the land, but that there are limitations in place on what can be done with it and what can be built on it, and there will be a need to ask what those restrictions are as well as find out about annual maintenance fees you will be required to pay. If a client is purchasing property in such a development, we of course obtain a copy of the current Covenants, Conditions and Restrictions document (CCRs) and make certain that the current owner is up-to-date on any dues.
The title/deed in the Public Registry will also list the following information about the property:
- the amount of square meters it contains
- the names of landowners with whom it shares a boundary
- its current declared value
- the identification number of the official plat map (plano catastrado or catastro registrado) that shows the property
- any easements associated with the property
- any registered mortgages associated with the property
- the current owner
- whether or not the property has been legally segregated from a “mother farm”
Plat maps / Planos catastrados
These numbers usually look like this: P- 1234567-2017. The letter at the beginning indicates the province in which the property is located. The next set of numbers are specific to the parcel of land in question. The final digits are the year in which the map was inscribed in the Public Registry. (Older maps do not indicate the year.)
We compare what the title to the property says to what the map shows. Is it the right size? To be sure, we often advise clients to have a topographer (surveyor) verify the property boundaries. Yes, it is often the case that the boundaries check out just fine. However – it is also often the case that there are issues to be resolved, and the best time to know this and to resolve them is BEFORE you own the property. Sometimes it’s a simple matter of a neighbor putting up a fence that’s a meter further your way than it should be. Sometimes it’s a more complex matter of the property not being where the map says it should be, or vice versa.
What it comes down to is either you get the peace of mind of knowing that your map is accurate – or you get the peace of mind of having the issue dealt with prior to purchase.
Water Sources, Land Use, and Other Utilities
If your goal is to build a home – you will want to know that there are no roadblocks to this happening before you buy property. Several items that could turn into roadblocks are listed as conditions of sale in the Sales and Purchase Agreement, which means that they will be investigated during Due Diligence.
In Costa Rica you cannot obtain a building permit unless the property you are going to build on has an acceptable source of potable water. Due Diligence will include verifying the legal status of any claimed source of water.
Land use permits involve checking with the local municipality for what is called an “Uso de Suelo,” more commonly known in English as a “zoning letter.” This document will specify any restrictions you will face regarding the use of your land.
Most buyers want to know that electricity is going to be available to them without having to pay thousands of dollars in infrastructure costs, so we take the time to verify whether or not electricity is already supplied to the property, or if a power line is at least in the near vicinity.
More and more buyers want to know that they will be able to have decent Internet service available to them, and for these buyers we make verifying this a part of the Due Diligence process.
Why ask for trouble? If there is an issue that could cause this real estate transfer to be rejected by the Public Registry, we want to know well ahead of time if at all possible. If there is an issue that could cause trouble for the buyer, we want to know well before their deposit becomes nonrefundable. Therefore, we check on all of the items of above and more.
That’s an overview of Due Diligence. What do you think?
The last thing anybody wants to discover after they have fallen in love with a piece of Costa Rican real estate and purchased it is that they were just hoodwinked.
Even worse would be finding out it was avoidable.
We are on your side.
We think of Due Diligence as our Problem Avoidance Plan – and we are ready to help you with yours.
If you would like Pacific Coast Law to help you with checking out a piece of property you’re interested in, simply contact us at our law firm email address of email@example.com or call our office at 2787.0446.
If you have more questions or would like specific clarifications for your situation, please contact us by email or phone for an appointment. firstname.lastname@example.org or 2787.0446
Written by Tammy Hansen Snell, a U.S.ican who used to trust EVERYBODY, and now, well, does not.