The most common means of getting the initial deposit and the balance of the money into Costa Rica to purchase a property is by wire transfer. Typically, the Buyer through the advice of their real estate professional will use the services of an Escrow Agent and Escrow Account.
Standard Closing Procedures
There are three standard procedures for closing on a property being purchased in Costa Rica.
(1) Buyer and Seller Present:
The most common procedure for closing on a property is that both the Buyer and Seller are in the country and have decided on an agreeable location to meet and close. Typically, the Buyer’s lawyer will have prepared the transfer deed and it will have been reviewed by the Seller’s lawyer. The deed will be read to and explained to the Buyer in their language of choice. Both Buyer and Seller will sign the deed. The Buyer will make payment via wire transfer performed by the Escrow Company. The notary will then register the changes to the property ownership in the National Registry.
(2) Power of Attorney:
If a person is to leave Costa Rica for some reason and has investments or interests of any kind in the country, it is recommend leaving a person of trust in charge of those interests for as long as he/she is away. The legal procedure to do so is by granting a Power of Attorney. The Power of Attorney is a legal instrument by which a person (the principal) gives another (the agent) the legal capacity to act on his/her behalf according to the extension that the Power itself allows him/her. There are different kinds of Powers of Attorney:
Full Power of Attorney: This Power allows buying and selling any goods, accepting mortgages on properties, acquiring debts, giving any good as warranty, signing checks, etc. It is a Power of Attorney in which the agent can appear before almost any authority on behalf of the principal and act in almost any kind of situation in his name.
General Power of Attorney: This Power of Attorney is to be used for administrative purposes. It’s the power given usually when you have a business and you need someone to manage that business on your behalf, allows hiring help, signing invoices and, if not limited to the contrary, performing any activity considered normal for the business or company.
Special Power of Attorney: It allows the agent to perform only a specific act or sequence of acts, each one specifically described in the Power. Any other act that is not enclosed in the Power itself cannot be performed legally.
As a general note to powers of attorney it is important to emphasize that when a principal gives the power, he/she can state any limitations he/she will consider appropriate, depending on the needs and trust he/she has in the agent.
(3) Out of Costa Rica:
Though not a very common practice it is possible to close on a Costa Rican property outside of Costa Rica. If either the Buyer or Seller is unable to be in Costa Rica to close, and have not left a Power of Attorney, they can have a Costa Rican notary come to where they are and sign the transfer deed in the notary’s protocol book in the presence of the notary. The cost to have the notary perform this service is born 100% by the party that requires this service.
As briefly mentioned above, the closing costs to purchase a property in Costa Rica varies depending if you are purchasing a property by way of purchasing a Costa Rican S.A. with the property as an asset of the company, or a straight transfer of ownership from the Seller to the Buyer as an individual.
Standard closing cost for the transfer of ownership from the Seller to the Buyer as an individual or corporation will be approximately 4.2% of the actual purchase price of the property. This fee is a combination of legal and notary service fees, as well as land transfer taxes and government stamp fees.
Who Pays for the Closing Costs?
The property buyer pays closing costs while the seller looks after real estate fees and taxes.
Additional Observations Related to the Closing
Sometimes the property you are purchasing has been mortgaged previously by the Seller. This situation usually doesn’t represent any problem and your lawyer will inform you of it at the time he does the Due Diligence. Sometimes, when there’s a mortgage on the property, it is cleared prior to the Closing; in some cases it is paid/removed at the same time and even in the same Deed as the Transfer Deed. Either scenario represents no problem because your lawyer will insure against any complications. The cost to remove the mortgage is paid by the Seller, and the Purchaser has the right to choose the lawyer.