Guys In The Zone: Costa Rica Real Estate

The deal that Ruth got involved in with respect to the Michael property is an interesting one that I think will be helpful to detail out just a bit here, before moving on to the next property that we nearly had a deposit on prior to it too unraveling.

The property needed to be segregated from the main, large piece that it was, at that time, part of. This is like taking a whole pie and cutting a slice out of it. For the purpose of the National Registry in Costa Rica, which attempts to register all property, and is where the change of owners of that property are changed, subject to a notarized transaction that we call a land deal, this slice of pie, must be measured and drawn by a certified topographer. The first draft of the drawing is called a croquis, which is an accurate drawing of the new property, but it has not yet passed through the various governmental departments charged with approving such drawings. There are ecological concerns that need to be satisfied with every drawing. Now, instead of one big property, you have two smaller ones. Both need to be drawn, and if put together, will look identical to the original property before it was divided into two. This is the same process, but on a smaller scale, that takes place with a large parcel that is bought and then subdivided.

So, with Ruth’s property, the concept was there, but the croquis had not yet been generated. It was generated by the seller, in that he hired the topographer to measure and draw the lines. The croquis was then submitted to the governmental department called Minae, and they said “no”. Here’s why.

The Costa Rican government has been working towards developing, or merely applying, laws that protect Costa Rica’s nature. There are many laws on the books that already do this, but that aren’t applied. One of the laws has to do with easements around ground water that are used as sources for drinking water. This is a variable measurement that goes from 10 meters, to 50 meters, depending on the size of the waterway. It seems to me that there is an increase of application of this rule lately. Aside from Ruth’s deal, I know of another developer that was about to close on a 7 lot deal, that all of the sudden, was a 4 lot deal, since 3 of the lots were now rendered un-developable.

This is what happened to this perfect piece of land that we found for Ruthie to purchase and then put her house on.

In both of the above stated cases, one being Ruthie’s property, and the other being the 7 to 4 lot deal, the ground water that affected the deal may not, in fact, be year round, and may not be used as a source for water by anybody. In the past they were useful as watering holes for cattle, and so they show up on the radar. But for the purpose of the law, well, these were not scenarios that the law was trying to negate. There would be no adverse affect of these properties being developed within the distance that they were from the water.

To deal with this conundrum, the seller must wait until the dry part of the year, and see of the water dries up. If it does, he will take an inspector from Minae out with him to note the fact, and he will then be able to get his plans surveyed. It is also possible that the property has an approved survey that doesn’t show the water way on it. It may be older or whatever, but this can be used to get the building permits which then gives the land owner the right to build on the property.

Now, here is the buyer beware aspect of this scenario that I’m going to share with you. Lets say that the developer that had the 7 lots under contract wants to go ahead and purchase the lots and sell them as lots. He can do this. There is no law that says he can’t sell the 3 that are inside of the ecological easement surrounding the water source. The law applies to whoever it is that decides to build on that lot. So, the developer can go ahead and make his money, but the end user will be sitting on a piece of property that they can’t build on, rendering it valueless.

This is not a scandalous scary thing though. It’s simply good to be informed.

The problem presented by this law will be discovered in the due diligence phaseof the land buying process Costa Rica, as it was in Ruthie’s case.

Lets say that you have decided on a piece of land. You should put your 10% down, into the escrow account of your lawyer. This deposit is protected by an Offer To Purchase document (OTP) that outlines the deal and is used to put the buyer and seller in agreement. With this document, the seller is re-assured that the buyer is serious and isn’t frivolously shopping around and putting lots of properties under such an agreement so that they can later on decide which one they actually want. The document also assures the buyer that if someone comes along with a better offer prior to closing, that the seller is still bound to sell to the buyer.

The document is binding, and in most cases, non-refundable. The trick of the deal in this case, is the contingency part of the document. These outline any concern that the buyer may have. This is a bit of a side note since I would venture that most of us realtors don’t have this water source easement law in mind when we draft these OTP docs up. I mention the contingencies mainly because this is really helpful to know about for when buying land in Costa Rica. If you find a property that you like, but you are unsure about something about it, say, the road access, or maybe there is a concern over an easement running through the land, or whatever. But you want the land. Tie it up with a deposit, and with a well written OTP that has as a contingency the concern in question which, if it remains un-remedied by closing, or by some time period defined in the OTP, will render the deposit refundable. In this way, you can secure your land here with the full intention of buying it, even if you are aware of a problem that needs solving.

But what about this little problem of the water source easement issue. This is a problem that you, nor your real estate agent are likely to be aware of.

Starting from the time that you put your deposit down, there is a due diligence period, where your legal counsel will work your property in a legal sense, making sure that you are not buying a piece that has a lien or some other encumbrance. Your lawyer will also make sure that you can use the property for the purpose which you intend to use it. It is in this process that the ecological easement can be discovered. I have seen it work, so no worries, but now you know and can be that much more secure as you move through the process of buying land in Costa Rica )