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Due Diligence: Real Estate Title Information

If you have ever owned land, or if you are interested in buying property, you might be familiar with the idea of the “title” and “acquiring a clean title."  A title is a legal official document

If you have ever owned land, or if you are interested in buying property, you might be familiar with the idea of the “title” and “acquiring a clean title.” 

A title is a legal official document that includes the specifics of a property. Among the information contained you will find its location, ID number, owner, and measurements. In Costa Rica, this document is usually found with the deed of transfer that is signed at the closing.

But, what is a “clean title” anyway?

Sometimes issues with a property are not easily found either in the offer or in the information provided by the seller. That is why it is important to dive into the official information provided by the National Registry so as to review and understand the title of the real estate you are looking to buy.

The final and more important objective of a real estate buyer is to make sure that the property that is to be bought is what the seller promised: a place where you can build or a place with a building in compliance.

A clean title means you are getting a piece of land that has no surprises in store. 

Reviewing the title becomes the first “line of defense,” and maybe the most critical step within a Due Diligence process. It ensures the seller’s legal right to sell, discard hidden vices, and make visible for the buyer any legal entanglements that may not be apparent at first glance and could affect the purchase.

What should you be looking for in a title review?

The very first thing you should do when reviewing a property is carry out a study with the National Registry. The information you will find, item by item, is the following:

  • Nature: a brief description of the property use. It is very common to find outdated information under this item as it is not mandatory for the owner to update it. The nature of the property can also show if it is part of a special regime such as the Maritime Terrestrial Zone, agricultural land, or National Parks.
  • Location: specific location of the property in accordance with the plan provided when it was first registered.
  • Boundaries: shows who owns the bordering properties.
  • Measurements: a description of the registered area measured in square meters.
  • Land background: a brief history of the property in list form.
  • Fiscal value: this is the registered value of the property. It is common for this item to be outdated as well.
  • Owner: it could be a natural person (an individual) or a legal person (like a corporation or trust). This is useful information that helps verify that the person who is selling is the actual owner.
  • Annotations: This one is key. The annotations will show a breakdown of any ongoing situations such as lawsuits, court cases, ongoing changes to the property, encumbrances, easements, etc.
  • Liens: could include mortgages, tax liens, or embargoes due to a legal dispute.

The technical language paired with the significant implications of these items makes it important for an expert to review the information and produce a Due Diligence report with the necessary explanations.

A second step in reviewing a title is checking the corporation if the owner is a legal person. Such a review must include a review of Corporate Taxes, Registry of Transparency and Final Beneficiaries, their Status with Hacienda (forms D-140 and Simplified D-101), VAT and Income Tax Status, and, most importantly, debts acquired by the corporation if the seller wants to buy the corporation’s shares.

Not all issues that might be found are necessarily deal-breakers. There are issues that can be easily solved and negotiated (such as non-compliance of the corporation or easements), while others can be serious red flags that should lead the buyer to move away from what might have initially looked like a good deal (like an ongoing court case).

Depending on the initial findings a third step might be required, namely visiting the National Registry in order to check: The official plan of the registered land to check the accuracy of the measurements, boundary lines as they relate to the neighbors, possession claims, and disputes. By detecting these issues in a timely manner you can avoid a legal dispute in court.

As previously mentioned, reviewing the title is a core part of the Due Diligence process that must be undertaken responsibly by an expert.

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salvarado@outlierlegal.com

Senior manager with more than ten years’ experience in regional roles coordination, global immigration, taxes, and corporate law. Has established two start-ups in the region while effectively leading teams to high success standards.

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