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I have recently posted on this site a few statements regarding CR escrow accounts. I just want to verify my understanding.
As I understand from real estate school an escrow account is a “bonded third party neutral depository.”
To be concise, if you send money to anyone in Costa Rica, attorney, broker, agent, escrow or title guaranty company, monkey or sloth that says they put it in an escrow account – it is not a bonded neutral third party depository. The money you sent is held in “good faith” only. It is a matter of trust – and theoretically, you have recourse. Practically, well you should know that there can be a big difference in practice versus theory in Costa Rica.
“Bonded,” means that the company has purchased a bond that insures their clients are protected from theft, forgery, counterfeiting etc. Independent escrow companies are required to be members of Escrow Agents Fidelity Corporation. EAFC pools money from independent escrow companies to purchase an insurance policy that protects money deposited in escrow.
There is no such agency in Costa Rica to provide such a bond. The bonds in the US are 3 million per transaction. The only bond I know of is a pittance provided by the infamous Collegio de Abogados for a mere amount of about $600.
Can anybody dispute the above? I hope so.
How about you Alvaro? You are an attorney and must know about these things…
Wow, now I’m an attorney!!! Thanks Diego!
I’m into real estate and a business manager, not an attorney. Perhaps a representative from Stewart Title could answer your questions about escrow accounts, insurance policies and the EAFC.
If they did they would only prove that the Emperor has no clothes. I doubt they want their clientele to see them naked.
Edited on Jul 10, 2007 16:33
Sorry Alvaro, I thought there was an attorney who frequents this site by that name(?). But I doubt he would want to touch this subject with a 10 foot churro. Pura vida sometimes can be pura mentida. Be careful to whom you send money.
In Costa Rica, the more likely party to hold completion funds for such legal transactions, such as purchasing real estate, and similar such transactions, requiring the notarizing (protocolizing) of documentation, and registration in the National Registry, would be a Notary Public (Note: All Notaries in Costa Rica are Attorneys, but not all Attorneys are Notaries). Article 9 of the Notary Code, requires all Notaries to contribute annually to a Guaranty Fund, which would reimburse victims of acts of negligence, or fraud committed by a Notary. The amount of compensation which can be paid from the fund for any given proven claim for negligence or fraud by a Notary, is the equivalent of 200 times the monthlly salary of a level 1 office worker, which amount is adjusted annually in the month of January, by the Government, and is currently the sum of 173,087 colones. Multiplying this sum by 200 and using a coversion rate of 518 colones to the US Dollar, the current amount available from the fund for a proven claim would be approximately $67,000.00US. This does not absolve the Notary from satisfying any shortfall in the claim, from his or her net worth, or being sanctioned with a criminal penalty, should the facts support.
Watchdog,
Outstanding answer, thank you. In the US, real estate sales contracts have liquidated damages clauses. Could you enlighten us regarding if they exist in Costa Rica and to what extent one can be liable for not completing a transaction? Do attorneys/notarys have a right to recive liquidated damages?
Yes, liquidated damage clauses exist, and are valid in Costa Rica, in real estate sales contracts. Damages in a real estate transaction where the contract is silent as to liquidated damages, would be those damages which naturally flow from the breach. Lawyers are not entitled to liquidated damages, but are entitled to claim for their sevices rendered to the date of the breach, on a “quantum meruit” basis, being a reasonble fee for service, based on the fee tariff published by the Colegio de Abogados (Lawyers College).
Essentially, Private Contract Law in Costa Rica is based on the Constitutional Premise (Constitucion Politica Article 28), that competent parties are free to convene any contract between themselves, which does not contain clauses or stipulations which are immoral, illegal, or contravene recognized good social customs and the public order, and don’t prejudice third parties.
Wow thanks WD for the great response.
Would 25% of the negotiated fee be a resonable amunt to charge a client who chooses not to proceed with the purchase through no fault of the notary.
Is it true that the notary is not responsible for registration in the Public Registry until all needed documents are provided and signed, monies are available and government fees paid in full
and
most notaries will not provide the deed until their fees have been paid, because once both parties have signed it, the notary is obligated to register the deed at the Public Registry.
WD,
The second part of your answer is very interesting to me.
Do you consider the practice of foreign minority ownership of a costa rica entity that holds title to concession property to be legal (while the majority domestic ownership has no power in the entity). Does this type of contract disobey recognized good social customs, public order and does it prejudice a third party.
Is this common practice not intended to circumvent the law and therefore void the contract? I am assuming that any Costa Rica contract designed to circumvent the intent of the law is illegal therefore null and void.
Normally, real estate purchase agreements are written to include a 10% deposit of the property purchase value, with a due diligence period, where the purchaser can make their stated inquiries, and rescind the agreement with the deposit returned to them, should they have legitimate concerns with proceeding. If the purchaser doesn’t rescind the agreement at the conclusion of the due diligence period, then the agreement becomes binding, and the deposit funds non-refundable. Should the purchaser then not complete the transaction, the deposit monies are usually forfeited to the seller, as liquidated damages. As a Realtor, your listing agreement with the seller, should provide for your reimbursement for srvices rendered, from this forfeited deposit amount. If you are a purchaser’s agent, you should likewise have a written agreement with your Client. at the out-set, stating how you will be compensated for your services.
As to the Notary’s responsibility to attend on the execution and registration of a deed, Articles 36 and 40 of the Notary Code, provide that a Notary must be satisfied with the capacity of the parties to undertake the transaction, the identity of the parties (ie. documentary proof of identity by passport or cedula), the legitimacy of the transaction, and that it conform with all statutory requirements (ie. provision of required supporting documentation), or notarial services must be refused by the Notary.
The practise as you outline for foreign nationals holding concession property, indirectly, through a trust agreement with a Costa Rican, is, of course, the common practise. The problem is the law does not address the issue of beneficial ownership of the concession, only the structure of the legally registered concession holder, which will, of course, be a corporation with 51% of the shares held by the Costa Rican and 49% by the foreign national (Note: The foreign national can become the 100% interest holder in the corporate entity holding the concession after five years of Residency status in Costa Rica.). This trust arrangement is legal under Costa Rica law. I agree that it probably circumvents the intention of the legislators, but so does Costa Ricans marrying foreigners by Power of Attorney, so that the foreigner can acquire Residency status, or citizenship in Costa Rica (Note: This practise is currently under review in the Legislative Assembly). Many examples can be given where poorly worded legislation allows for practises to emerge, which were never intended by the legislators.
WD,
Again stellar replies, thank you.
I think you missed the gist of one of my questions, is the notary obligated to register the deed if all the parties have signed and he has satisfied your above mentioned requisites. In other words, even if he has not been paid or partially paid, is he obligated to register the escritura? Or can he withhold registration until his fees have been satisfied in full?
WD,
Do you not find that there is trouble getting real estate deposits returned in Costa Rica; and that Tico sellers do not want to give a due diligence period in which they feel that they tie up their property without compensation for a month or so.
The Notary would be obligated to register the Deed after it has been executed, regardles of his or her fees being paid. The Notary Code provides for disciplinary action against the Notary, if the Deed is not registered by the Notary within six months of the date of its execution. It’s incumbant upon the Notary to make his or her fee arrangements prior to the Deed’s execution.
Yes, a due diligence period where the purchase deposit is completely refundable at the end, should the property not “checkout” for the purchaser, is a much more difficult scenario to negotiate with a Tico seller. Normally, a Tico seller will want some non-refundable deposit cash up-front, regardless of what happens with the due diligence.
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