Second step: Title search
The most basic – and essential – part of any property due diligence is the title search. The goals of a title search are to establish the seller’s legal right to sell the property; and to find out if the property has any legal entanglements, like mortgages or rights-of-way. Remember, however, that Costa Rica operates under a Napoleonic system of law, not a common law system. So whereas title searches in common law places like the United States and Canada can be complicated – involving banks, credit companies, local government, state government, and everything in between – all the information you’ll need for a title search in Costa Rica can be found in the Registro Nacional, or National Registry. (For a detailed explanation of the differences between Napoleonic and common law systems, see Chapter 11 on legal matters).
Even so, title searches are complicated, especially when dealing with farmland that hasn’t changed hands in decades. The title search starts online, on the National Registry’s Web site (www.registronacional.go.cr). Anyone can review the status of any property in the country simply by entering the finca, or property, number (as explained in the previous chapter). If there are no obvious deal breakers found in that initial search, your lawyer will then visit the National Registry to dig into the stacks and stacks of documents there that trace the property’s history back to the early part of the 20th century. If the property is held by a sociedad anónima, or corporation – which is fairly common – your lawyer will also need to get documents that establish the property seller’s ownership or authority to dispose of the corporation’s assets. All of these are, of course, areas in which your attorney should take the reins. But following is an overview of the process and what your attorney will be looking for.
Online: Searching for a property by finca number on the Registro Nacional’s Web site is something you can do from anywhere. Once you do the search, you’ll get a screen-full of information. Here’s what it means.
Naturaleza: This section simply describes the property and its use (e.g.: uso habitacional means it’s a residential property or structure). At the end of the property description is its location.
Linderos: This section describes what the property borders, usually with the name of the person who owns the property next door.
Mide: This section contains the property measurements, given in square meters and written out in words rather than numerals.
Antecedentes de la finca: This, in a nutshell, is the history of the property: When it changed hands, past court cases, resizing, etc. Unfortunately, the history is only partial, as the Registry’s online database only goes back to the 90s.
Valor fiscal: The registered value of the property – that is, the value on which the owner pays property taxes. It will not be less than any mortgage liens the property may have.
Propietario: The name of the property owner. Often it is a corporation rather than a physical person, in which case the owner will be listed as the name of the corporation (something like Brisas del Este, S.A.) followed by a cédula jurídica or corporate ID number, that can be used to look up the makeup of the corporation.
Anotaciones: Technically, annotations to alert the viewer to the existence of an ongoing process. This could mean a court case where the property hasn’t been embargoed, but in which the property’s ownership is in the balance. Anotaciones can also indicate encumbrances – like easements – or processes to change some part of the property’s registry information. If this category comes up “NO HAY,” then you’re in good shape. If it says “SÍ HAY,” with a list of annotations, your attorney is up to bat.
Gravámenes: Liens. This includes mortgages (hipotecas), tax liens, and embargos placed on the property pending the resolution of a legal battle. Once again, this category should say “NO HAY.” If it says “SÍ HAY,” your attorney will start asking questions.
Again, you’ll want to have your attorney take charge of these results, even if you do speak Spanish. At this point in the title search, he or she will basically be looking for deal-breakers and points of negotiation. The most common deal breaker that would show up here is any sort of embargo, lien, or encumbrance involving a court case. Court cases in Costa Rica can last years, sometimes decades, and the last thing you want to do is buy a property that’s tied up with one. Another possible deal breaker would be if the seller’s name doesn’t match the owner’s name listed in the registry, although if the property is owned through a corporation your lawyer will have to dig deeper. A tax lien means another complication, but it’s not insurmountable (depending, of course, on the amount of taxes owed), and it gives you a point of negotiation. Easements (servidumbres) and right-of-ways are also possible points of negotiation. Annotations to the property regarding ongoing actions taking place in its registry (re-sizing, etc.) could also be points of negotiation, although again, be careful to stay away if they’re connected to a legal dispute.
At the National Registry: If everything goes well with the online search and you still want the property, your attorney’s next step will be to drop by the National Registry. Every property in the country is registered in two places in the National Registry: The registry, which is a written description of the property, its history, and its ownership; and the cadastre, which includes a map of the property, its limits, and how it fits together with neighboring properties.
In the registry, your attorney will be researching the property’s ownership history. He or she will be making sure that there are no unresolved claims or property line disputes. Possession claims are a problem that pops up quite a bit, especially in rural land that hasn’t been in great demand until recently. Essentially, this is land that is perhaps owned by someone by possession, but the person has never formally registered ownership. This is not uncommon, as lawyers are expensive for humble farmers, and until now it hasn’t really been necessary. This is just one reason why your lawyer will have to research the entire history of the property, not just recent ownership, and the recent owners may have acquired the land illegally, voiding their titles.
Your lawyer will also be looking up the background of any court cases associated with the property, as well as checking to see if the property has any history with special regimens, like IDA, the maritime zone, or the national park system.
In the cadastre, the first thing you attorney will do is check the size of the property as registered there with the size in the registry. Since the two systems have evolved independent of one another, some discrepancies are practically inevitable, but any large differences should raise a red flag. Your attorney will also check property lines and how they compare with the property lines of the properties registered around this one. Much of the land in Costa Rica that people today are buying for residential developments and home has in the past never been anything but farmland. Hence, it never needed precise property lines, and much of the property found in the National Registry overlaps substantially. Large overlaps discovered by your attorney could mean a lengthy court battle, while smaller overlaps can often be negotiated with neighbors.
The end goal of this part of the process is to figure out exactly what it is the seller is trying to sell you. How big is it in the registry? Will there be disputes with neighbors? Are there already disputes that have yet to be resolved? What are the chances that a lawsuit from 10 years ago comes back to haunt you? Take this part of due diligence seriously and it will make your life a lot easier in the future.
One final note: If the property is owned by a corporation, your lawyer will need to look into that corporation’s makeup and ownership at the National Registry. Specifically, he or she will be looking into whether the person you are negotiating with has the authority to sell the property. Try to avoid buying the property through buying shares of the corporation that owns it. Especially with older corporations, you have no way of guaranteeing that forgotten debts or obligations won’t come back to haunt you after the transfer.
