Costa Rica is nowhere different than any other country when it comes to real estate. In the early 2000s the hype of the countries cheap property, relaxing and eco-friendly environments sparked a real estate boom. And like the U.S, when the market busted several year ago, it threw many investors and home buyers into a world of financial ruin. Investments vanished when buyers gave huge sum’s to real estate developers for their dream home, and when the project failed, many realized they had no claim to the property, because they were never any titles or deeds of trust recorded listing them as owners.
Costa Rican civil law being what it is, has little recourse to the unsuspecting. In other words, it has always be a “Buyer Beware,” type of system. The judicial systems of Costa Rica is very costly, time consuming and still based on Napoleonic Law. “No Blood Drawn, No Cause for Action.” However, they do have a consumer law that has helped many.
Recently AM Costa Rica (a very respected newspaper) listed many failed developments, where in some cases purchasers and buyers were forced to take personal action where some has to reinvest into the project to get it built and hire attorneys for deeds of trusts. In once case, the developer told the buyers to move into their condos and claim squatters rights.
In the case of the Playas del Coco project, around $3 million was given to the developer by buyers who made deals to purchase condos. Some buyers paid up to 90 percent of the purchase price. The contract called for an escrow agent to release the money to the developer as specific stages in construction were reached, like when the foundation was installed, the developer got X percent of the escrowed amount. In other words the developer was constructing the project with the buyers’ money although they did not have an ownership interest in the condos yet.
So as the buyers tell it, when the developer defaulted on a loan with a state bank, the bank foreclosed, leaving buyers out in the cold. Some said they were unaware of the bank action for months.
Unfortunately, when bad press goes out, it hurts the honest and hard working developer. There are many good real estate agents and developers in Costa Rica. Many of these failed projects are caused by flawed business plans, scam artists, and lack of basic research, like hiring an attorney to do the due-diligent. A 400-$500 investment can save you a lifetime of headaches.
Recently, Leo Plumley who is the Owner/Developer of the Tres Regalos Beach Club and Condominiums in Jacó Beach wrote to AM Costa Rica, and listed some buyer and investment tips when it comes to real estate.
- Is the property that you are building on paid for in full and do you own it?
- Do you have at least 50 percent of the capital needed to build the project? And please provide me with proof that it is in the country and set aside for the project.
- If you have a bank construction loan, is the property held in trust with a reputable trustee? Can I please have a copy of the trust agreement? Does the trust agreement provide for the release of title for each condominium with the pay down of a portion of the construction loan? This will protect the title of the buyers who have closed on their condominiums if the developer defaults on the balance of the construction loan. This is one of the most important questions buyers can ask a developer. If they don’t get the answers to these questions, I suggest they run out of the office with their hands firmly on their wallets.
- Is the developer/real estate person making promises regarding future rental occupancy? Is he showing you pro form a cash flow projections that predict that all of your mortgage payments, HOA fees, electric cost, cable cost, insurance cost and property taxes are going to be funded by your rental stream? Sound too good to be true? Well it is.
I mention this because there are slick developers where they made just such promises to trick innocent folks into purchasing their condominiums. What do you think are the chances of these promises coming true? How about 10,000 to 1 against it.
Yes, there are unscrupulous business people all over the world, and there seems to be no shortage of trusting investors willing to part with their hard-earned money without doing their homework. This problem is not isolated to Costa Rica.
Your article makes it sound like there are no honest developers here on the beach. There are developers who are delivering on their promises and completing their contractual obligations. Developers who consider the monies advanced to them as a scared trust. Developers who long ago abandoned the idea of lofty profits and are now concentrating on repaying their loans, finishing their projects as promised, and delivering the best product possible.
These developers will be easy to find, they are on the property, willing to answer any and all questions, and they are more than happy to provide the legal documents and proof to back up their statements and promises.
We are looking for long-term buyers, discouraging the speculators, open to the folks who have worked hard all of their lives, and as they approach retirement are looking for the same thing that brought us here to Costa Rica in the first place: A chance to enjoy this fabulous country and special people, the clear skies, the warm deep blue ocean waters, the scarlet macaws, parrots, toucans, monkeys, the emerald green rain forest, and the fabulous climate.
Yes there are many honest and respected developers here, and we are easy to find.
Leo Plumley
Owner/Developer
Tres Regalos Beach Club and Condominiums, Jacó Beach
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There is a lot of good information here in this article Real Estate Investing Tips in Costa Rica – HMO, Deeds of Trusts, Taxes… I am one who is considering moving to Costa Rica and or Thailand and these tips are serious points that one must consider for their own protection.