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When selling to a local buyer, there is a good chance that the seller will purchase with bank financing. If you want a smooth process and do not get stuck with unknown procedures, follow the recommendations in this article.
If only one real estate agent is involved, especially a Godutch agent, it is much easier for both buyer and seller. Bank loan officers must constantly be reminded to keep working on the necessary documents. And receiving the list of required documents in bits and pieces is pretty common. The reason is that only the loan officer can communicate with the bank’s legal department. So, all communications go from lawyer to loan officer to buyer to realtor to seller. Therefore, dealing with a buyer who uses private financing is much easier, so the chain becomes much shorter. Of course, if you’re going FSBO, it’ll all fall in your lap.
Because most buyers will use bank financing for their home purchase, and financing is not available for non-residents here, there is a good chance you’ll be dealing with a local buyer. So, everything will be in Spanish, and the process is sometimes difficult to understand. Planning is usually not their forte.
I have done many real estate closings involving bank mortgages, and in many, the sellers freak out unnecessarily, which is the reason for this blog. Prepare for a buyer with the assistance of your real estate agent, and you’ll see how well it all goes.
First of all
Most Costa Rican banks require a three-month sale agreement signed by the buyer and seller. Banks require that amount of time to process the documents. Some banks will close once the due diligence process is completed; others will use the entire three months. Ask your real estate agent to keep you updated during the process. This helps calm the nerves, and the agent will need your help.
Overprice
Local buyers might ask you to agree to sign the agreement on a price higher than the appraisal or the sales price you have agreed on. They do this to have extra money to remodel or pay for the closing cost. Do NOT agree to this because it will get you into trouble.
Earnest Money
The buyer must deposit the earnest money at the signature of the option to purchase–sale agreement. Some sellers request 10%, but this amount is negotiable. I do not like to tie up more money than necessary. The main reason for a good earnest money deposit is that we want a seller to think twice about losing this deposit if there is a change of mind.
Ticos still gives the earnest money deposit to the seller. I’ve had some problems with this several times in the past, so I prefer the deposit to be made to a legal third party, which is an escrow company. With his/her attorney in escrow, we want to ensure the suggested escrow company is registered with SUGEF.
The seller’s advantage of using escrow is that:
- The buyer has to prove the origin of the funds, so there is no money laundering involved
- The escrow company will disburse the funds to wherever the seller wants to have the funds sent to
Due diligence process
The next step is to start the due diligence process. Most attorneys prefer 30 days for this. This means that the option to purchase-sale agreement is not formalized until the due diligence process is completed and approved.
Free and clear title
When you put your Costa Rica property on the market, ensure it is free and clear of liens and encumbrances. By rule, our GoDutch Realty agents and AE network must do a title search of the property first, though I have seen some secretly not doing so. Our office checks the titles on all new listings before the properties are published on our websites.
So please give your agent the name of ownership and property information so the agent can pull a title check and get all the information on the property, like the size and whose name it is. If there are any easements, mortgages, or other liens and encumbrances, the information must be available. The bank’s loan officer will also request a copy of this document.
The survey
Give your real estate agent a copy of the property survey map. If you don’t have one, get one from your attorney or ask your agent to get one against payment. The bank’s loan officer will request a legible copy of this document, and though most closing attorneys forget about this document, the buyer should receive his/her own copy.
Condominium
If your property is in a condominium, get ready to request the following legal or financial documents of the condominium:
- Statement from the HOA administration that you are paid up to date on the HOA fees.
- A set of bylaws of the condominium
- Construction regulations by the HOA
- Annual financial statements
- Statements about extraordinary HOA fees
Certified Property Taxes
As soon as the buyer presents the documents to request the mortgage, you will be asked to deliver your property taxes paid up to date and certified by the municipality. You can pay the pending property tax as soon as you have an agreed offer and request the certification that it’s up to date at the city. This tax is paid quarterly, so in case you paid for the whole year, don’t forget to ask for a refund from the buyer for the difference.
Corporation tax and Luxury home tax
These taxes must be paid if your property is a corporation or in the luxury home tax bracket.
The corporate books and shares
Suppose the property is owned by your S.A. (Corporation). In that case, the bank also wants a copy of the Shareholder’s (Accionistas) book’s pages with text, the Assembly’s (Asamblea) book’s pages with text, a copy of the shares, a copy of the corporate ID, and a copy of the company constitution. And they will want to see the original books at closing.
So when you list the property with our agent, ensure you have all these documents (no need to give the agent a copy until the due diligence period starts) so you don’t have to start looking like crazy when you have a buyer ready to close.
Article 32Ter
Bank attorneys leave the formal authorization that the corporation’s general power of attorney is authorized in her/his capacity as Manager with powers of General Power of Attorney Without Limit of Sum of the company and in compliance with the provisions of Article Thirty-two Ter of the Code of Commerce, to sell the property on behalf of the company. You can start working on this as soon as you decide to put your property on the market.
Identification
Here, you might be hitting on a problem. But when you prepare for a buyer who requires a mortgage in time, you’ll see how well you’ll do. The bank will need a copy of your cédula de residencia (local residency card) or a copy of your passport. Be aware that the Tico passports, though expiring, keep the same passport number after renewal. Most foreign passports change numbers when renewed.
So, when you purchase a Costa Rica property, make a photocopy of your passport and keep it with the property documents. Also, when your passport expires, keep your passport. If you don’t have one, a public notary can give you a sworn declaration that you are the same person who bought the property. Often, bank attorneys will require you to change the old passport number in the national property register into your current ID. That might be a new passport, a cedula, or a Dimex card.
The appraiser
The last thing you need to do is be ready for the appraiser. Most bank appraisers in Costa Rica do just that: appraise. However, some banks have appraisers who also do home inspections. Before approving the buyer’s loan, they will request that you fix any problems in the appraiser’s report.
It is important that your real estate agent is available when the appraiser arrives. Do not get involved yourself. Appraisers in Costa Rica sometimes have different
More Due Diligence
Often, attorneys do NOT request additional documents, especially if they’re bank attorneys, but they SHOULD be included anyway. These can be specific documents related to the condominium, setbacks from a river that runs over the property, zoning of the property, a water letter from the water company in case of raw land, or others.
Happy Ending
Now that you know how to prepare for a buyer who will use bank financing for the purchase, you’ll see how easy it is. The closing attorney and the escrow company will ensure you receive the necessary documents to prove the sale proceeds arriving at your bank account. Your real estate agent is in charge of asking you for all the keys, remote controls, and anything else needed for the buyer to move into your former property.
The good news is that when you get this far, you just managed to sell your property, went through the process painlessly, and are ready for your next adventure. Maybe we can assist?
