By Allan Garro

Attorney at Law & Notary Public

In Costa Rica, the main asset is still real estate property. Productive farms, raw land suitable for development, lots, houses, buildings, tourist buildings and similar are negotiated, developed, transferred, mortgaged, and given in trust on a daily basis. One point of concern for many foreigners is the possibility of squatters or illegal occupants invading their property, as well as the possibility of becoming victims of property fraud. The existence of organized gangs dedicated to property fraud, with the help of some crooked lawyers- notaries, is no secret.

Those above mentioned scenarios generate Court claims requesting Evictions and Nullity of title transfers, normally involving expensive processes either in Civil or Criminal Courts, taking sometimes several years to be finalized. The expression "Possession is nine-tenths of the law" applies when a person can argue having exercised possession for more than one year, which that person has supposedly exercised publicly, peacefully, uninterruptedly, and having sufficient reasons to feel like a legitimate possessor. Being a tenant or living on the property as a worker are clearly not sufficient reasons for this.

Property fraud happens normally when a property is transferred illegally by forging the owner’s signature; this with help of some crooked persons who might have been helped by dishonest notaries-lawyers in order to achieve the illegal transfer of the titles using that method. The good news is that the legal system offers a little-known and underutilized tool, that can be of great help called Cedulas Hipotecarias or Mortgage Certificates. This is a special type of mortgage that allows a property owner to mortgage the property in his or her own favor. 

When it is registered, the National Registry will issue the certificate on special security paper similar to bank investment certificates, and it becomes a first lien on the property. The owner becomes proprietor and debtor at the same time. Once registered it cannot be deleted by any lawyer- notary unless the original certificate is returned to the Registry, so it is secure as long as this document is under the legitimate owner’s control. This makes property fraud virtually impossible, as it will require deleting that first lien first and the crooks will not have the original certificate at hand.

Now the question is: how can this help in cases of squatters or illegal occupants? In such cases, the owner can take the necessary steps to put the property up for auction by executing the certificate. In a foreclosure, once approved, the judge orders the eviction of any occupants. There are details to consider, such as the importance of using a value close to the market value in the certificates to avoid other potential bidders being attracted. Although this type of execution involves expenses and legal procedures, these take less time than a standard lawsuit.

The cost of registering a mortgage certificate is approximately 1.5% of the assigned value, and the protection period is 10 years which can be renewed. Another advantage of a mortgage certificate is that they can be legally transferred by endorsement, so a few banks and creditors generally accept them as guaranty for a loan. This can also save money in legal fees, as a new mortgage is not necessary. The only extra costs would be a property appraisal and preparing a private contract with the credit conditions.  

----------