We are in high season here in the southern pacific zone. The months of November through April are typically when there are more tourists here than during the rainy months.

There is another type of “high season” happening right now as well. This has more to do with world conditions. I know, those from the States are going to think that Mr. Trump is pushing many to look elsewhere. And I suspect that this is true to some extent. I think that Mr. Trump has been good for my Costa Rica real estate business. I think Mrs. Clinton would have been as well. Such is the world that we live in.

However, our property buyers here are not just from the States. We’ve got buyers from Canada, despite their currently weak currency. These people are buying property and essentially paying 30% – 40% more due to the exchange rate on their currency. One has got to wonder – why?

France, Germany, Great Britain – all are providing us here with buyers. Again: why? There are economic, political and security issues happening in various areas of the world. I suppose that greater analytical minds would come up with the cause and effect links in trying to answer the question. But I find that there is one common thread when I talk with these people.

The Reason:
is pushing, and the promise of less stress, is pulling people to consider a life in Costa Rica. Simpler living is highly attractive. Costa Rica offers this and it (simple living) seems to be the antidote to whatever may be happening in one’s home country.

Uvita, Dominical, Ojochal and the surrounding areas that make up Costa Rica’s southern pacific zone are all seeing an influx of buyers. But there is more. There are some big-money players who are making some moves here that are notable. There are condominium complexes being constructed, and sold at a good clip. There are town homes, urbanization projects and upgrades to some of the antiquated infrastructure in some of these areas.

There is some talk of giving Uvita a facelift. This is much needed. With both Dominical and Ojochal, you turn off the coastal highway and drive into the town. In Uvita, the highway passes right through the town. Up till now its growth has happened with hardly any attention to the aesthetic and it is essentially a strip-mall, Costa Rican style.

This is a pity since Uvita could really have been (or be made to be) one of the most beautiful towns on the planet. So if these well funded entities see the beautifying of the town as in their best interests, great! Although it’s hard to imagine what can be done, short of tearing the whole thing down and starting over again.

The Envision Festival is going on currently. This has become one of the largest events of the year. Kudos to the organizers. I’ve heard that 7,000 people attended last year, but that about half that number are here now.

Uvita Costa Rica's Crunchy Envision Festival

2017 Envision Festival Uvita Costa Rica

Some of the Ticos complain a bit about Envision, claiming that the drugs, nudity and general licentiousness is disrespectful to their culture. I suspect that there is some truth to these allegations, but for me, I’ve never met an Envisioner I didn’t like and the festival provides a time of some fascinating people watching.

I’ve not  personally ever attended. I can hear the music from my home well, the bass notes anyway, and I routinely provide rides to those thumbing to the grocery store and back. There is also the complaint of them being a bit odoriferous, but I can’t speak to this having lost my olfactory sense some years back. So I get along fine with them in my car and always enjoy their upbeat spirit.

So between the time of year and world conditions, sales are good here in the Zone’s real estate market.

About Property Prices:
During the recession, there was not much of a market here. It hit hard and us realtors languished waiting for the anomalous inquiry that might result in a sale. I actually got into brokering hard money loans during this time in an effort to not only make a little commission, but to also help some land owners to not lose their properties.

Prices plummeted during the recession. This was an interesting time. The pre-recession time was a “boom”. The biggest challenge for a buyer then was being able to find an available real estate agent. I felt like I should put a Baskin Robbins “take a number” device at the door. Some of these buyers were our good-old bread and butter retirees, looking to retire to Costa Rica. However, there were lots of folks who refinanced their homes and then found themselves cash-rich and wondering what to do with it. The causes of the recession helped to fuel some of that heady boom and resulted in pushing prices up to a rather silly level.

So the fall of pricing some 40% – 50% during the recession could appropriately be called a correction.

Much of our land here is still at recession pricing. There hasn’t been a big upward push on prices since then. The demand for houses is strong and so we’re starting to see some upward movement there – all very rational though. This is no heady boom. Its simply that the inventory which was glutted post-recession, is finally starting to get mopped up. This was inconceivable in the years following the recession due to the glut.

I still get asked sometimes why it seems that everything is for sale. I find this interesting since I have to really work to find properties for some of the criteria lists I build for my clients.

Yes, I suppose everything is, in fact, for sale, at some price. However, finding what you want, finding that screaming ocean view with good access and amenities nearby, and all this in your budget, can sometimes be a bit daunting.

And then there is that wonderful amenity “simplicity”. I wonder if this could be put at the top of the list. Right up there with “ocean view”. I’m thinking that this one amenity is the primary mover of the current strong market we’re seeing here in The Zone.

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 edabarca@racsa.co.cr

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. 😉