Wednesday, June 23, 2010
Dear Reader,
An attendee at a conference raised an issue that has played on my mind for the last couple of months...and I think I should bring it to your attention. He told me that he'd bought a condo on concession land. He thought he was fine, because the title to his condo was freehold. In fact, it doesn't matter what type of title the condo had...the land the condo was built on was concession. He didn't quite understand what he was buying.
He's not alone. With a different buying process overseas and different terminology, it's easy to get confused...
This letter gives you the real skinny on property title. It's critical that you understand these terms and concepts if you're considering buying a property in Latin America.
Freehold title (also called Fee Simple)
This is when the property is in your name (or that of a corporation you own), and it's yours until you sell it. There are no timeframes or restrictions on ownership. This is frankly the only type of property I'd buy in Latin America.
Check the title chain carefully, though. If the chain includes a confiscation, ejido or co-operativa land (both of which are commonly (or government) owned land, rather than privately owned), your attorney should carry out additional checks to make sure the transfer was clean and doesn't affect the freehold title.
Most Latin countries don't allow foreigners to own land within a certain distance of their borders or coast either, so check that your new property doesn't fall within those boundaries if they apply.
Some countries don't allow foreign ownership...period. Make sure your dream destination isn't one of them.
Rights of Possession (ROP)
The name says it all. You have the right to live on the property and use it...until someone with a better claim shows up. You'll find this type of property mostly along coastlines (Bocas del Toro in Panama immediately springs to mind). Some countries have a registration system for ROP properties. You might think that gives you more security. Not so. I have heard of corrupt local officials registering two or three claims on the same property, even though they should only register one.
If the owner says that he can get a freehold title for an ROP property, get him to do that as a condition of purchase.
Remember too, that you can't normally get bank financing on an ROP property.
Concession
Most Latin countries have a maritime zone where the government owns the property. In Costa Rica for example, the maritime zone is 200 meters. Here, the first 50 meters closest to the ocean is a "public zone", allowing the general public to have beach access. The law prohibits private ownership of property in the public zone. The next 150 meters is a "restricted zone". The Costa Rican government grants concessions (leases) in this zone. The concessions average 5-20 years. Foreign ownership of concession land is restricted.
Most concessions in Latin countries are for tourist developments--hotels, cafes, or restaurants. Developers sometimes ignore this basic requirement, and build residential condos in violation of the law. Buyers in Panama for example paid up to $1.5 million for condos on concession land with so-called "interval ownership" for 40 years.
With concession property, you're paying for a 20, 25 or 40-year lease, with no idea if the developer will be able to renew the lease, or at what cost. This is not the same as buying leasehold property in the US or UK (where it's usually highly regulated), with laws governing renewal and cost of renewal.
I've bought leasehold property in the UK. I knew that I could extend the lease for a reasonable sum after two years of ownership. I didn't have the worry that a change in government in the UK would mean a change to those laws. That's not the case in Latin America. New administrations frequently shift the goalposts here. For that reason, I regard buying residential property in a concession zone as a gamble.
If goes without saying that you should always buy title insurance when you purchase property overseas, as it gives you peace of mind, and guarantees your title.
It's an automated part of the process when you buy back home, but not so in Latin America. Your seller and your attorney will not remind you to buy title insurance (or even recommend it), so it's something you need to add to your own checklist.
If you'd like more information on title insurance in Latin America, contact Tuey Murdock here: (JavaScript must be enabled to view this email address). Tuey's a great resource, with years of experience in this field, in Latin America.
Margaret Summerfield
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