Costa Rica History in knife metaphorI’d say that about 1/10th of my time spent with people looking to buy property in Costa Rica’s Southern Pacific zone is spent in the actual buying/selling of property. The other 9/10ths is a mix of conversations regarding what’s involved with living here, as well as discussing the business of real estate in Costa Rica.

At its core, the lack of an actual MLS (Multiple Listing Service) colors all aspects of the business here, and I’ll go into that later on in this series. To really understand the business of real estate here, I have found it helpful to go back in time and see the progression of events up to the present. This helps to not only understand the current market but also, to project what is to come.

Early days:
I got into real estate in Dominical in 2004. It felt like the day I got into real estate was the day that someone threw the on-off switch on the market. Since then I’ve heard some tales indicating that the market was already simmering and poised to boil.

I made a sale on my first day in the business. A $60,000 gorgeous ocean view property sized at around 2 acres.  The property featured Uvita’s Whales Tail front and center. That property has gone on to have a lovely home, guest house and pool built on it. It has been re-sold and enjoys a stellar vacation rental history (link to rental page on HomeAway)

Quick overview of The Zone:
The Zone is made up of a string of 3 towns with Dominical at its northern end. The northern boundary is not a hard line but is decidedly fuzzy, easily extending up to Hatillo and at times, up to Portalon. (link to Hills of Portalon Development).

From Dominical heading south on the coastal highway you get to Uvita and then further south, to Ojochal. The area between Dominical and Uvita has a nicely laid out mountain range that runs very parallel to the ocean. Hence the handle “coastal mountain range” This means that you can travel inland from the beach just a short way and get to elevation where it is breezy and cool and offers expansive views of the ocean and coastline, attributes which make this area extremely desirable to investors, relocators and migrators (part-of-the-year residents).

More History:
Before the incoming press of foreign interest in The Zone, the Ticos (Costa Ricans) owned all the land, and their land holdings were always in the multi-hectares (1 hectare = 2.48 acres. Think 2.5 to make it easy).

There was a time in the not too distant past when land in Costa Rica was nearly value-less. There were land-grant programs whereby a man simply had to be willing to take responsibility for a property and the government would “grant” him the land, with conditions.

At that time it was not known that “nature” had a lucrative aspect to it. Instead nature was largely viewed as “in the way” and needed to be tamed, subdued or eliminated. So, one of the conditions to receiving a land grant was to cut the trees down and raise cattle.

I suspect that this era may have coincided with the “McDonalds” explosion. This is an arguable point, so let’s just say it coincided with an extreme demand in the U. S. (and world) for beef.

After some time of cutting down enormous canopy trees and attempting to raise cattle in former rain-forest environs, there was a shift in our world’s appetites; nature became an important commodity. Granted, beef has continued to be an active commodity, but it was also learned that former rain forest land doesn’t necessarily make for the best pasture land.

Raising cattle in Costa Rica was a daunting struggle. The farmers found themselves up against nature. Having to maintain former rain forest jungle land in “pasture” condition presented its trials, as well as the fact that the beef business (exporting meat, bureaucratic inefficiencies, and 3rd world infrastructure or lack thereof) made a guy scratch his head and wonder if having all this land was such a good idea.

The Tico culture was/is multi-generational. These large, granted tracts of land, would end up being populated by the man who acquired the land, his now grown sons & daughters and their families, and the grand kids (soon to also have families.)

So despite having lots of land, a condition that in first-world countries equates to being wealthy, these farmers were subsistence. They lived off of what their land produced. As a child would grow to adulthood, Abuelo (abuelo = grandfather) would simply build them a house and apportion off some land (or not) and they would continue on contributing to the sustenance of the family. The land itself was not thought of in lucrative terms.

Abuelo just happened to acquire a land grant on, let’s say, 60 hectares of land that reaches from the inland side of the maritime zone on the coast up to the highest point of the coastal mountain ridge. He’s not thinking “oh boy! I’ve got some ocean view land here.” No, he’s thinking: “man I hope this land is fertile.”

Enter foreigner:
One day Bob, a tourist, is exploring the area and decides that he’d like to buy Abuelo’s property. Bob offers Abuelo $60,000 for the land. Abuelo has never even considered the remote possibility of maybe someday having such a sum. In fact, he’s never even seen that much money. He talks it over with his family and they (very understandably) feel that this would be a wonderful thing for them to do. So, they sell their land.

Bos is a visionary. He sees what is likely coming and so he stakes his early claim. Now, keep in mind that there is no electricity to this property, the access is horseback and the water is from a nearby spring that is bubbling out of the ground. Abuelo has run a pipe from the spring to an elevated storage tank near the family homes. Bob’s a visionary in that – what foreigner in their right mind would possibly want such a remote and forbidding piece of land?

To understand this is to understand the element that is credited with making the world go round. We all have different likes and dislikes. I wonder at the likes of Steve Jobs, Bill Gates and Paul Allen’s level of focus on the personal home computing idea at the time that they had that focus. I’m not of this ilk and so my hat is off to such ones. I view the early investors here in The Zone as being made of the same stuff.

In looking back over the history of the first wave of investors here, I marvel at their foresight. My then wife and I looked at some Whales Tail view property in Uvita around 2002 and, despite its being gorgeous and nicely priced, I felt that it was simply too remote. This was in the same area where 2 years later I sold my first property.

Ok, so I said that to understand the real estate market here in Costa Rica, it helps one to know a bit of the history. Granted, we’ve gone back to what I call the first-wave of intrepid and visionary investors – the Mavericks. We’ll continue on in the next article with Bob’s next steps and incredible gains on his visionary act.

Seller Financing Opens Door for Home Buyers in Costa Rica 2

The Downturn… (cue ominous music)

It would be easy to label the decline of the Costa Rica real estate market (since the peak in 2007) in a negative light. In truth, there is no such thing as “negative light” only the opportunity for change, and if our market has seen anything over the past three years, it is change. The shift from bank loans to seller financing is one of the primary changes that has (pardon the pun) opened the door to prospective home buyers, as well as, land and commercial buyers.

Seller Financing Open The Door in Costa Rica

Before defining the effects, basic models, and legal structure of seller financing, let me back up just a bit to clarify why we now find it present in about half of the Costa Rica real estate deals we facilitate.  Like most lending institutions around the world, Costa Rican banks are better described as “institutional holders”.  Banks are not lending for a few reasons— falling real property values, the recession, and they are not lending to each other (e.g., no credit to leverage).  In Costa Rica, the debt-to-income ratio required to obtain a loan is as ridiculous as the double-digit interest rates being charged (often twice the rates in the United States).  The banks’ parsimonious response has opened the door to seller financing, and Costa Rican property owners have embraced the new paradigm.

Sellers Get Creative

“What do I need to do to sell my property?”  We received this common question too many times to count over the past few years.  Our answer typically included these answers—

  • list your property with an aggressive price
  • keep the property or house clean and presentable
  • offer seller financing

We have had a couple of recent sales with seller financing that fit the basic model—

  1. Price, parties agree to a sale price.
  2. Down Payment, buyer agrees to make initial payment, out of which, the seller pays commissions and closing costs.
  3. Financing Term, the number of years the mortgage or trust runs, with or without a pre-payment penalty, and with or without a ballon payment.
  4. Interest Rate, the % added to the balance due.

The main question sellers have is “What recourse do I have in the event of buyer default on payments or terms of the mortgage contract?”  The answer is… it depends on whether the financing is set up with a mortgage or a trust.

“To Mortgage or To Trust… THAT is the Question”

As Eduardo Abarca Vargas, a reputable lawyer here in Uvita, explains, “Once the terms of the financing are agreed, there are two ways to set up the legal documents… in the form of a trust or a mortgage.”

About a year ago, he helped us clarify the basic differences between trusts and mortgages—

  • Mortgage— The Borrower agrees to an encumbrance against a real property to the Lender, (e.g., first degree mortgage).  A mortgage is filed to the Registry by the Notary Public in Costa Rica.  Once it is processed by the Registry Officer, it is registered on the property and shown as a lien.  In the event that the Borrower defaults, the Lender is entitled to enforce foreclosure.  Then, the property goes to auction and the Lender is the first lien holder to be paid.  If no person bids for the property, it is then returned to the Lender.  This is the most popular financing tool used in Costa Rica. As Eduardo explains, “The most important reason to choose a mortgage as a guarantee is that, in November of 2007, the Costa Rican Congress approved a specific Law (Ley de Cobro Judicial # 8624) to enforce the mortgages before the Courts.  This brought many advantages that the former law did not offer.”
  • Trust— The secured Trust concept is as safe as a mortgage contract, but more complex in terms of documentation and set up.  It can be more versatile and more economical than setting up a mortgage and with a simpler enforcement.  The Trust Agreement identifies the parties and terms— schedule for payments, interests, penalties and a default provision— and issues an irrevocable stock power of attorney to the Trustee.  The enforcement procedure of an eventual default scenario implies the simple sale of the property to a third buyer and the distribution of the proceeds. As Eduardo points out, There is not an specific law to regulate the foreclosing process based on a Trust, therefore there is neither a Judge involved on the process nor any specific rules to foreclose.” This is the main reason most lenders are encouraged to set up mortgages instead of trusts.

Mortgages, a safe option in Costa Rica real estate.

Eduardo summarized the two options, “For the seller who wants the property to be returned to them in a timely manner, a mortgage serves the best purpose.  It usually takes more time to execute a mortgage, but once the foreclosing process is done the lender will have a complete judicial file to support the transfer of the property.”

As recently as 2007, the majority of land and house deals completed in the southern Pacific zone of Costa Rica were done with cash.  Since that time, we have seen a global recession.    Most investors are not as liquid as they once were, and most banks are still not lending.  The good news is… Costa Rica property values appear to be at the bottom, and seller financing has opened the door for home and land buyers.

To contact Eduardo Abarca Vargas– please call 2743-8345 or email him at

About Tigre

My first visit to Costa Rica was in 2002. I immediately fell in love with the warmth of the climate and people. After spending two weeks in San Jose, Puerto Viejo on the Caribbean side, and Tamarindo in Guanacaste, I knew there was a good chance I would return sooner than later. Sooner came just 6 months later when my uncle mentioned he was flying down to Costa Rica to close on a piece of property in the Southern Pacific Zone. On that trip I found my own piece of paradise above the small town of San Buenaventura, home to the San Buenas Golf Resort. Two years and 8 trips later, I decided to move to Costa Rica full time. Every day I am thankful for that decision.

2 thoughts on “Seller Financing Opens Door for Home Buyers in Costa Rica

  • CuriousGinCR

    So one might see it a little odd if the “Lender” used the same lawyer to file foreclose on the property as the “Borrower” is using to protect the property? I am currently witnessing this in the high court of Costa Rica right now. The person foreclosing on the property is using the same lawyer as the owner of the property who took the loan in the first place. Should be interesting to see how this unfolds in the court of law when the lawyer has to represent the person taking the property and the person who wants to keep the property. Welcome to Costa Rica where anything is possible. 😉