Escrow needed?

[alaware]

I am in the process of purchasing property from Costa Developers in their Costa Montana project. They are asking me to wire the funds directly to their bank account. Can I be sure they will set up  the corporation and transfer the property to me, as they say they will in their contract, without using an escrow to hold the funds?

Is this standard procedure in Costa  Rica?

[Russ]

This is not the standard procedure in Costa Rica.  If you wire funds to a develpors account, they will be able to do whatever they like and you have little or no protection or assurance that they will do what they have promised. 

The exact procedure can vary, depending on the amount of the total transaction, the amount of time contemplated until closing and the percentage of earnest money involved.  In the case of lots in a development that is to be subdivided any significant amount of earnest money should go into an escrow account at a local bank or escrow service.  If possible, for your best protection, you may place the money in escrow with your own attorney.

The escrow would normally outline at what point the developer may access all or part of the money.  It could be once the purchase option conditions are met, or often not until the actual closing. 

You should read our article on finding a reputable developer in Costa Rica

This includes a section about the proper way for a developer to subdivide lots from a mother farm and the correct way to protect yourself if you would like to purchase an option on a lot that has not yet received approval from INVU.

[LandCo]

I am in the process of purchasing property from Costa Developers in their Costa Montana project. They are asking me to wire the funds directly to their bank account. Can I be sure they will set up  the corporation and transfer the property to me, as they say they will in their contract, without using an escrow to hold the funds?

Is this standard procedure in Costa  Rica?

Dear User:

While it is a standard procedure to give the developer a down deposit using an Escrow Account, it is not convenient to use the same Escrow of that developer, however, we learned, they do not accept any other account to make the deposit.

Normal way to proceed: you have identified your lot, next question is: is it titled?, Segregated?, if not, when it is going to be segregated?, Does it have the "plano catastrado" (survey plan)?  Next step: you make a down deposit (usually 10%) into an third party Escrow Account and such funds to be finally disbursed to the developer until the property is ready to be delivered and transfered into your name or a corporation of yours.

All the closing procedure must be closely followed by your own attorney.  DO NOT let the developer to force use his own legal counsel and if so, use your own legal advice.

Best regards,

LandCo®
Real Estate Legal Services
Attorneys at Law
Costa Rica
Tel:   +(506) 232-4000
Lexincorp Menu Ext. 207
Fax:  +(506) 232-2589
E-mail:    info@landcolaw.com
Website: www.landcolaw.com

[Stan]

Please do yourself a favor. Go to Costa Rica yourself. Before you leave stop at your bank and get some cashier's checks made out to yourself and go down and meet these people and look over the properties. BEFORE you do contact a good attorney and a Costa Rican Realtor. They will take you anywhere you want to go and look after you best interests. It is like having F Lee Bailey with you. Believe me this is cheap insurance and it will be fun for you.
Stan Putra

[alaware]

Thank you for all the replies.

My funds are in escrow, waiting for the property to be transfered to me.

I have received (1) a certificate from the National Registry of Costa Rica, certifying that the lot holding company, the S. A., is the owner of the lot I purchased, (2) translation of the certificate, (3) a certified cadastral map of the lot.

The developer is setting up the S. A. for me, and I have given them the information for the three officers/directors.

Although this S. A. has been establised to hold the lot, I presume that it would need to be checked for debts or other problems, and I would need to receive the stock certificates and S. A. documentation, before I can say that I own the lot and release the funds from escrow. Is this correct?

[Russ]

It sounds like the developer has established an S.A. for each lot, which is not a bad way to do it.  In that case the S.A. books should be available for your inspection already. 

The ownership of properties can be verified online at the Costa Rica Registro Nacional Website.  The lot plan should be stamped "catastrado" from the National Registry before closing.  But in any case your own attorney should look at these documents verify them and also check out the company.  (This article "Buying a Business in Costa Rica" explains some things to have checked)

Also, just a point about cashier's checks from Stan's reply, you should be aware that they take up to 30 business days to clear.  The banks here treat them the same as a personal check from the U.S., so that could delay the purchase process.

[Ivo]

Even though the developer transfers the shares of the corporation created for you, always get your own attorney to check through the whole process, from option to purchase to closing. The developer's attorney is exactly that: the developer's attorney. You should always get your own attorney. Many developers will tell you the legal advice of their attorney is only $200 or $500, don't accept it. Get your own. Don't be cheap, protect yourself.

[michlele21]

Escrow is really important in the business of real estate.