This is the time to have a trusted surveyor second check to see if there are overlaying maps on any property owned in Costa Rica. If there are contradicting maps, the uncertainty could soon cause big trouble.

Around three years ago, the Registro Nacional and its Catastro or plat map department started a plan to crosscheck properties. Before this time, there was little or no checking done. Now Registro workers are using sophisticated equipment, including NASA photographs to check map overlays.

Here is a true story that happened recently.

There was a guard watching a property for some expat property owners. A little old man kept coming by saying to the guard, “You are living in my house.” The guard thought nothing of it until one day a lawyer showed up with the police and told the guard to get out. The guard was not easily intimidated, so he ran everyone off with his machete.

The old man stopped coming by, and the guard felt at ease. However, in the last few weeks the attorney showed up with the police and said he now owned the house and served the guard legal papers. The peon – a term used in Costa Rica to mean a manual laborer – could not read or write, so he called the lawyer of the expats who owned the property.

As it turns out, there is a map registered almost 30 years ago that covers 700 meters that was subdivided off the property. However, this map was never registered as a deed.

In Costa Rica, anyone could make a map, and up until now could probably get it registered at the plat department. This is the very reason the Registro Nacional and the Catastro department are merging their efforts to help legitimate property owners.

In the case of the guard, the legal papers called him a squatter and said he needed to get off the property in four days or be thrown off by force. Since he could not read or write, he did not notice the person that served him the papers did not sign or stamp them.

A week of hell broke out. First, the officer who served the papers had to be found to sign and stamp the legal documents. Second, the legal owners of the property had to be found to sign all the paperwork to prove the guard was really a worker, enrolled in the Caja social security system and had workmen’s compensation.

Lastly, a lawyer had to draw up the legal paperwork to prove that the expats really bought the property and had a legal certified map for the land.

This whole ordeal is just a ruse to get possession of the house in which the guard is living. If intruders do get possession, to remove them would be a long, drawn out, expensive court battle.

As it turns out, the very old map does not even involve property close to the house where the guard lives but somewhere else down a long country road.

In another case, in another area of the country, a map showed a walking bridge crossing a river to an expats property. The bridge was washed away years ago. The owner of the property on the other side of the river sued the expat to rebuild the bridge.

A long court battle ensued. In the first decision of the court, the expat was told to rebuild the bridge. The appeals court overturned the ruling, stating that mother nature destroyed the bridge many years ago and it was too late to complain about it now.

Expats can do something about this problem of maps overlaying each other, but it does take a surveyor in most cases. Workers in the plat department at the Registro Nacional do not like outsiders in their midst. However, with this said, it is not impossible for a person to take the map of their property to the catastro department and ask if there are any other maps registered on top of the document or anywhere else on their property.

Usually, the normal procedure is that surveyors – referred to as topographers in Costa Rica – have access to the computers and can actually go in the computer room and look for themselves.

If a problem is found, the Registro Nacional will do an investigation on any abnormalities – in most cases – and nowadays will cancel maps that are not correct. Actually, that is their goal, to purge old maps that never turned into true deeds and only keep the maps that have been registered properly and have a legal deed attached to them.

Expats need to be aware to be a jump ahead of the scammers and have a current copy of the plat map that represents property along with the deed of purchase.

Again, a trusted surveyor can check to see if there are any other maps that have been registered — even a little map — if it exists on an expat’s property. If one is found, owners should get it canceled.

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Expats and everyone else holding assets in Costa Rica should check the documents pertaining to their properties as soon as possible to be sure everything is in order. Asset thefts are on the rise because of the digitalization of documents throughout the country.

The problem is that as the government institutions digitalize the workers are omitting important information from the original documents. One could wake up one morning and find the house stolen.

The new service provided by the Registro Nacional is great.  It is a fast way to get all kinds of Costa Rican certifications and other types of documents without having to travel to the Registro Nacional.  The service is relatively inexpensive, and most institutions will take the printed certifications without questions.

The system has hit a small roadblock because the Sala IV constitutional court has prohibited the Registro from accepting money, and online delivery of documents is on hold. The temporary ruling involved an appeal from a lawyer who objects to paying the money.

But either online or when issued in person, the digitized documents in many cases are just wrong.  The information in them is not always accurate because in either case the documents come from the digitized data base.

Take for example a certification of ownership and powers of attorney.  The Registro Nacional document may show no limitations when in fact there are very specific limitations.

An old power of attorney may have given someone very limited rights, like the right to negotiate an easement with a water utility.  But because of Registro omissions, the individual could appear to have total control of the asset, an expensive property. That’s enough control to sell it.

This is dangerous because unscrupulous souls are using the incorrect information and transferring assets without owners even knowing about it.  Is the Registro Nacional responsible?  Of course, but one would probably be dead by the time the lawsuit ends to get the asset back.

What every expat should do today is get a current copy of their information at the Registro Nacional regarding the assets and check it with the actual records.  If it is wrong, they should immediately contact a legal professional — a trusted legal professional. The keyword here istrust — to fix the problem.

Believe it or not, the people at the Registro do not like to mingle with normal people, just with those in the legal profession.  There is one great department called reconstruction — this department fixes Registro mistakes — and they are all good people and will talk to human beings.

It is not just assets like property changing hands illegally.  Other things are disappearing too, like easements and trust agreements, to name a few.
A paperless world would be great.  Digitalization and cloud computing also are super. However, these wonderful innovations are giving the bad guys the tools they need to steal.

The Registro Nacional is trying to make a rojo,a thousand colón note, like everyone else.  Soon everyone will have to pay for most of the documents they provide.  However, in the institutional haste to make money, the Registro is hurting individuals by providing information in some cases that is just downright wrong, and there is no really good system to rectify problems.

Here is the situation:  Tomorrow, someone finds someone else has misused incorrect information to steal his or her house.  The Registro Nacional says go to the prosecutor’s office to file a complaint.

The prosecutor is busy with other matters of more importance, and one has to wait or beg to file the charge.  Once the paperwork is done at the prosecutor’s office, one goes back to the Registro and files the papers.  Since the Registro closes early, it will probably be closed.  Next day, one goes back and tries to find the correct person to handle the situation.

Well, once that person is found, he or she does not like these kinds of problems and to get them to move into action is like moving an elephant.   It is not their house.  Well, the story continues through tons of paperwork and talking to people that really do not want to hear about a Registro mistake.

The only way to go is to find a lawyer who knows his or her way around the Registro and moves fast.  If the mistake is not caught before theft advances into a resale, one gets caught up in the Costa Rican quandary of who has more rights:  The innocent third party – usually the crook in this case, or a friend of the same – or the victim.

Third party cases go to civil court and are full of years and years of legal mumbo jumbo.  Victim cases go to criminal court, which at this time is almost a complete meltdown.

The sad truth is if the crook gets to use inaccurate documents before one finds out, the honest soul will probably lose the asset or die in the process of trying to get it back.

In summary, expats should compare important documents that are published in the new digitized system with  the originals.  If the the new version is wrong, expats should get the error fixed by a trusted – again the key word here is trusted – legal professional.

The urgency of this matter to the Costa Rican community— and especially expats, because they often are singled out in swindles — is paramount.
There is another strange situation expats should understand when the Registro again begins issuing documents online.

Most online documents and certifications are issued printed in blue. But the Registro supplies a download that can be printed multiple times.

The original document is created in portable document format (PDF) in the color blue, and most institutions expect them to be printed in blue.  Unless they are in that color as prepared by the Registro Nacional, many clerks and aides think they are not valid.  If one is planning to use one of the documents created by the Registro Nacional Digital, the document should be printed in blue to avoid problems.

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The judge won. He said his decisions were not open to question. The Sala IV (Supreme Court) of Costa Rica agreed. A judge can decide anything they deem appropriate in a given case, and it is not up for discussion. The Office of Judicial Inspections have been ordered not to question the judges’ final word either — even in cases where there may be obvious bribery, curruption or fraud.

The Sala IV has said that a judge’s resolution could be overturned by a superior court but could not be voided by anyone other than him or herself. Their decision would reject any oversight of any other judicial considerations.

In one instance, the Sala IV ordered the Court’s Judicial Inspection Department to reinstate a judge — who had been suspended for making a suspicious decision — and pay him all his wages back because the office had suspended him wrongly. The inspectors had questioned one of his resolutions and suspended the judge because they felt there was some monkey business going on concerning a civil collection case.

Costa Rican law originated from Roman law, unlike the U.S. legal system, which originated from Anglo law. Roman law is based on rules, and Anglican law is based on jurisprudence. In Costa Rica, rules are written as laws and their interpretations are left up to the judges. Their rendition is their business, no one else’s, according to the Costa Rican Supreme Court.

Here is the story:
In a case where an asset was given as a guarantee, the creditor asked — as is his right under Costa Rican law — that a court-appointed trustee be in charge of the asset in question until a collection case was settled. A judge, overlooking the creditor’s right, said no to the request.

The creditor appealed the judge’s decision to a higher court. Superior courts are usually made up of three judges in Costa Rica, and they are referred to as tribunal courts. The appeal process took more than a year to resolve, but the creditor won. The higher court ordered the lower court – in very stern language – to grant the court-appointed trustee the asset in order to protect the creditor.

Here is where things get interesting. The creditor contacted the trustee, and they went to the court on a Friday to get the pickup order for the asset. They got the run around from the court clerks, but the clerks finally prepared the order for the judge to sign. As it turned out, the same judge who said no the first time and whose decision was overturned by the superior court was in charge that day.

However, at the time they needed the judge’s signature, they were told that the judge had some emergency come up and had to leave the court building early that day. None of his assistants told the creditor or the trustee that in reality, the judge had stayed there all day and did not leave the building until the court was about to close. The creditor and the trustee had waited all day for the order to be completed. The only thing they were told at the end was that they had to come back Monday to get the document signed.

Was the judge there on Monday? No. It just so happens that he went on vacation and a substitute judge was in his place. After a bit of pushing, they finally convinced one of the assistants to let them speak with the replacement judge. The creditor and the trustee explained the whole case to the man so he would sign the pickup order. After the judge listened to the story with little interest, they were told to wait outside.

Lo and behold, the debtors in the case were also sitting in the chairs outside the judge’s office waiting to see what would take place.

Any expats who have lived a reasonable time in Costa Rica can probably guess what happened. The replacement judge said he would not sign the order as it was written. He called in the assistant — the same one who prepared the order on Friday — and told her to redo the order to say exactly the opposite of what the creditor and the trustee needed.

The creditor, with nowhere else to go, filed a complaint with the court’s Judicial Inspection Office. They took the case immediately and went to the lower court in question to investigate. The original analysis stated that the investigators considered the judge’s decision as wrong by dismissing the higher court’s order. After further probing, they suspended the substitute judge. This judge immediately filed an amparo – a special injunction for relief and stay – with the Sala IV claiming that a judge’s decision cannot be questioned in Costa Rica.

The results are in. The creditor, trustee and the Judicial Inspections Office lost the case. The judge won. The Sala IV very clearly agreed with him. Decisions by judges — no matter how unreasonable, wrong, or suspicious — cannot be scrutinized by anyone, including the Judicial Inspections Office, who was also strongly reprimanded by the Sala IV for over-stepping their bounds.

The Sala IV, in its decree, told the inspectors’ office that they can only investigate a judge regarding their administrative protocol — such as showing up for work on time, remaining a certain amount of hours in their offices and completing their duties as expected by court — but never on the grounds of illegally obstructing justice or meddling with correct law procedures.

Recently, three lawyers who found out about this case were flabbergasted over the Sala IV’s ruling. They feel it makes it that much easier for judges in this country to be swayed in their judgment, especially when they cannot be held liable for corrupt, illegal or suspicious decisions.

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Expats in Costa Rica who rent to others need to know the law and the important exceptions. Property owners also need to know that the law is not the same for all kinds of property. Many expats prefer not to rent to Costa Ricans because they fear the local rental law due to their lack of knowledge or language ability.

On the coast, expats rent very short term — daily, weekly, and occasionally monthly — to vacationers coming to the country. Usually, they collect their rental fees in their home country or online over the Internet. Some do not declare the money they collect here nor elsewhere. This scenario is a nice source of income for many and for those who do not report the income, tax-free money — at least tax-free until they are caught.

Some expats who live here temporarily rent their homes to others when they travel for extended periods. Usually, they use a rental agent who takes care of the monthly bills and finds short-term renters for a commission. Today, that commission averages about 20 percent off the gross rental revenue. Many of the expats who fall in this group do not report the income they receive either.

Usually, the people who fall in these two categories do not mess around with contracts. Article 7 of the rental law excludes the short-term vacation rentals from the usual rules. Rental laws do apply to the second scenario, even though people rent short-term — less than three years — to other foreigners all the time and just trust the renters will honor agreements. However, it is important to note, a renter in this case can call foul and stay the legally mandated three years with the full support of the law.

Many foreigners build rental units for the exclusive purpose of renting to other foreigners and in rare cases to local people. They are concerned someone will get into their property and not leave. Here are the facts:

The “Banco Hipotecario de la Vivienda, the “housing mortgage bank,” each year determines the threshold for de interés social, so-called “social interest” property. This year the amount is 24,610,000 colons. At today’s ever decreasing exchange rate of 492 colons to a U.S. dollar this translates to a little over $50,000. Yes, any dwelling worth $50,000 or less is social interest property, and the law treats this kind of property differently than homes worth more than $50,000. Land value is included.

Here is a list of tenant rights for a house declared of social interest: 1.) A renter cannot be forced to pay any more than one month’s deposit and the deposit cannot be higher than one month’s rent. 2.) A tenant can always stop an eviction process by depositing the amount owed in court. 3.) When a rental contract ends, a property owner cannot force out a tenant unless the property owner or the property owner’s immediate family is going to move into the dwelling or the property owner intends to demolish the construction to build a new home worth at least five times more than the exisiting construction.

In the case where a tenant is evicted unjustly — for example a property owner lies about who moved into the home or does not build another one — a tenant can get the property back and get one year of rent as damages.

In the case of an eviction and the renter cannot pay, the person can always play sick or come up with other flakey excuses to postpone eviction. One older woman, some years back, delayed her eviction for several years.

Property of social interest only applies to houses, condominiums or apartments. The term does not apply to businesses or offices.

Renting property considered of social interest to anyone is full of pitfalls. And that is why many expats decline to rent to Costa Ricans. Article 74 of the rental law is another interesting exception, and one that really works for expats looking for an additional income. The article exempts up to two apartments or office units built on a property owner’s lot that share a common entrance or a common area from the normal three-year rental contract term. A property owner only needs to give a 30-day notice to a renter to leave. Social interest property does not apply in this case.

There are other exceptions to the rental law, all covered by Article 7 where the mandatory three-year rental term does not apply: short term rentals in tourist areas, temporary spaces rented for events, parking and vehicle storage areas, areas rented for outdoor advertising, dwellings rented to guards or people watching a property, and houses lent to someone where there is no remuneration.

There are two types of eviction processes in Costa Rica: a judicial process, meaning a case in court, and an administrative process.

In every judicial process, there are certain documents required to continue the case. The most important of which is an appraisal of the property by an engineer or architect to determine if the property is social interest property. If it is not, an eviction can move along quickly. In Costa Rica, this means it may take less than a year.

Sometimes a tenant can use the owner’s own estimate of value that has been filed with the municipality to have the property considered of social interest. Owners frequently low-ball values in order to reduce their municipal taxes. A fake statement of value filed when property is purchased also can come back and bite the owner.

Administrative processes apply to renters covered by one of the exceptions. For example, a tenant does not want to move out of an apartment considered Article 74 exception as explained above or even a hotel room. In this case, one must file a complaint at the security ministry in San José, and a department of this ministry decides if the police should toss out the renters.

When renting, it is important to know to whom one is renting. Despite the fears of renting to Costa Ricans, many times foreigners can be the worst renters because some of them are crooks elsewhere. Expats should check references and credit before renting to anyone.

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Remember the days of skyrocketing real estate prices in Costa Rica? People thought then there was no end in sight — no limit on how high a piece of dirt could go. Real estate in the United States was crazy, too. Doomsayers here and there were friendless. No one would listen to their tales of a looming crises.

Everyone knows now that the doomsayers were correct. The bubble burst. Some of those who bought properties in Costa Rica are now hurting back home. As predicted, they cannot pay their obligations there or here. Adjustable rate mortgages were the devil’s work fueling the subprime mess.

Many sellers carried back mortgages on real estate here so they could get the highest price possible from buyers. Smarter sellers made all cash deals. The smart ones knew many buyers were shopping overly hungry in a vast supermarket and ready to over spend.

Some of those sellers with mortgages now have to face foreclosing on the buyers just as some of the financial institutions in the United States have to foreclose on their subprime loans.

There is a relationship. People in the United States were borrowing too much money because borrowing money was too easy. Easy come, easy go. In other words, buyers who borrowed easy money came here and paid big bucks for overpriced real estate.

Many real estate agents are in denial and jump to say that real estate is still selling like gangbusters because Costa Rica’s market is the world and not the United States. This is correct. Costa Rica’s market is the world, and there is a huge market of wealthy buyers in the world. However, real estate is no longer skyrocketing uncontrollably. Buyers are fewer and more cautious. Many of them are smarter than the frenzied buyers of only a few years ago looking for a good deal.
Financial institutions calculate risk and have legal teams to go after deadbeats. A poor seller who carried back a mortgage for an over zealous buyer does not have a legal team. They’re lucky if they have a decent lawyer. Some of the sellers took their loot and mortgage back to the United States thinking there would never be a problem collecting the debt.

Sellers who have buyers defaulting on a mortgage now have to decide what to do and how to go about collecting.

For those sellers, there is a little silver lining in the crisis. Debt collection has become its own law in Costa Rica instead of being parts of other laws like the civil code, the civil procedures code and the law of the judicial power. The new law No. 8624, called “Ley de Cobro Judicial” is a replacement for many antiquated procedures that bogged down the process allowing debtors to prolong debt collection and sometimes avoiding it all together.

The new law, published in La Gaceta Nov. 20, will take effect this May 20. A new specialized court will handle all collections eliminating different courts for amounts less than $1,200 and others for amounts over $1,200. Only a fax number or an e-mail address will be valid for notifications.

Under the new law, once a debtor answers a demand on him or her to pay, a hearing is set. At the hearing, the judge will analyze the paperwork and listen to witnesses. With the information at hand, the judge will make a verbal decision. This is in deep contrast to what happens today where a judge can take months — even longer — to make a decision. Many roadblocks a debtor could throw into the collection action will be a thing of the past.

The spirit of the law is to turn the current long procedural process requiring loads of paperwork into a verbal and fast judicial action.

This new law is also an opportunity for investors. There is profit in buying foreclosure real estate at auction.

Some of the rules have changed too. Deposits to participate in an auction are going to increase to 50 percent under the new law from the current 30 percent. When an auction is ready for the docket, three dates are set instead of just one. Under the old law, only one date was set. If the auction failed, it took months to get a new date.

The new law is more efficient. Three auction dates are set to deal with auctions when there is no winner. The first starts at 100 percent of the asset value. The second starts at 75 percent, and the third starts at 25 percent. If it happens there is no successful auction after three tries, the creditor will be forced to take the asset as payment of the debt.

Sellers who sold and gave buyers mortgages when Costa Rica boomed are not doomed. The new “Ley de Cobro Judicial” can help collect those mortgages and maybe even get the property back if the debtor does not pay. The new law is also a serious new resource for savvy investors.

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Powers of attorney are one of the leading causes of property and other kinds of fraud in Costa Rica. The cases surrounding stealing by means of a power of attorney also are the hardest ones to fight and win. Judges rulings abound where they tell plaintiffs they are out of luck because they gave someone else permission to steal from them. Expats can lose everything to a power of attorney.

Everyone living or doing business in Costa Rica should know the five basic powers of attorney and know when to use them and, most importantly, when not to use them. Many expats give the right to steal to others without even knowing they have done so.

The rules that govern powers of attorney are found in the country’s civil code, Articles 1251 thru 1294. Mandato is the Spanish word for a power of attorney meaning “mandate.” In English, mandate means a document giving an official instruction or command. It basically means the same thing in Spanish. El mandato is a legal act where a principal or grantor authorizes an agent or attorney-in-fact to give, grant, do or perform different kinds of acts.

A mandato is also referred to as un poder, or a power. It is a contract between adults. In Costa Rica that means individuals over the age of 18 years, including foreigners. Organizations like sociedad anónimas and S.R.L.s can also give a power to people within and outside of the organizational structure. Powers can be substituted and delegated to others. They can be given to one or more persons, acting separately or jointly. A mandate can be given to someone even without their knowledge.

Powers of attorney are general, special or judicial. General means they can be used more than once, and special means they expire upon use. Judicial powers are given only to attorneys to fight legal actions in court. Special powers can be written down on anything unless they have to do with an act that requires filing at some institution like the Registro Civil, Registro Nacional or Registro de Marcas, to name a few. Foreigners can give anyone in Costa Rica a power of attorney by going to a Costa Rican consulate anywhere in the world.

The crux of a power of attorney is under what article of the civil code it is created. There are only five articles that assign rights.

One. The most dangerous, misused and abused: Article 1253 assigns a full power of attorney, called here a poder generalísimo.

Two. Article 1254 assigns a power the same as one given under Article 1253 but limited to certain kinds of business or affairs. For example, it can be limited to doing business but not to the transfer of assets.

Three. Article 1255 assigns a general power of attorney limited to conducting business affairs only. It authorizes an agent to: a.) sign contracts and agreements necessary for the conservation or normal use of different goods and property, b.) defend the possession of goods and property in court, c.) rent personal property (not real estate), d.) negotiate trade transactions in the administration of goods, e.) start credit collections, and f.) other acts necessary for the administration of goods and property.

Four. Article 1256 assigns a power but the power is limited to specific matters, for example sending an employee to change a cell phone from one unit to another or to sell a car. However, it can also be used in very special, in Spanish especialismo, affairs like assigning someone else to stand in for oneself in a marriage.

Five. Article 1289 assigns a power to an attorney — and only to an attorney — to represent a party in a legal dispute in court.

The most widely used type is the one under Article 1253. It is the most powerful one. It is the one that gets most people into trouble. This is the reason why. Article 1253 states the following, translated into English from Spanish by the legal reviewer of this article:

By virtue of an unlimited and universal power of attorney for all the business and affairs of an individual, the attorney-in-fact is authorized to sell, mortgage and otherwise transfer or create liens and encumbrances on any kind of property whatsoever; to accept or refuse inheritances, act in court, make any agreement and do and perform any legal acts which the principal might do and perform, except those which, under the law, must be done and performed by the principal in person, and those acts for which the law expressly requires a very special power of attorney.

If someone steals a property using a power of attorney created under Article 1253 and given to them by the owner of the property, no judge in Costa Rica is going to convict the thief. Some expats have gone bankrupt or died trying.

The problem is that many powers are hidden. They are buried in the constitution of a sociedad anónima or S.R.L.

Here is a very common scenario. An expat buys a company — either one that is off-the-shelf or custom made — from attorney X and transfers a property into it, not knowing that attorney X set up the company using boiler plate text giving a poder generalísimo to anyone in the post of president, secretary or treasurer. The expat makes himself president but tells the attorney to put anyone he or she wants in the other posts. The attorney puts an employee as secretary. Years pass. The property skyrockets in value. The employee, perhaps acting with the attorney, transfers the expat’s property to another company and then to another and another. The poor expat could spend the rest of his or her life and an entire retirement and never get the property back.

Powers of attorney can be canceled, resigned and even die. A power given by one person to another can be canceled by the giver anytime he or she wants. A person given a power can resign it anytime. This is not true if the mandate was given to a person by means of a stock or shareholders meeting in a general assembly. In this case, a new general assembly needs to revoke the power given or accept the resignation from the person not wanting the charge. Any power of attorney dies with the giver.

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Mortgages are becoming more and more available in the local market for expats who want to borrow money to buy property. There is a lot of money available for financing from local financial institutions. Private parties also have money to lend, but usually the interest rates are higher.

What most foreigners do not know about borrowing money in Costa Rica is how the foreclosure process works if one should default on a loan. Unscrupulous private lenders, attorneys and real estate people take advantage of the ignorance of homebuyers and, in some cases, use this knowledge to steal back properties they have sold.

On the other hand, deadbeat debtors can betray honest creditors with Costa Rican legal magic and procedural sleight-of-hand tricks.

In Costa Rica, a mortgage is a hipoteca. In English, there is a similar word, hypothecate. In Roman law it meant the most advanced form of a pledge. Today in civil law it means a lien or a mortgage. A mortgage applies to real property whereas a lien applies to movable property or chattel. In the foreclosure process, the procedures are very similar. However, it is easier to hide chattel, and some debtors do so.

A mortgage in this country is a right granted over a piece of real estate to guarantee payment of an obligation. Mortgages are most common in the purchase of property but can be a source for financial capital for other uses. When the maker of a mortgage cannot pay, the creditor forecloses and goes to public auction, called a remate.

First mortgages are supreme. Any mortgage after the first are usually worthless here. In the case of an auction based on a first mortgage, the judge will erase anything behind it when turning over the property to the winner of the auction.

This is what happens in a foreclosure:

A lawyer files a petition with the court attaching a national registry certification of the mortgage along with providing other requirements based on the country’s civil code. If the court does its job correctly, it should set an auction date and request the lawyer in charge of the case to publish the designated date in the local judicial newspaper.

The court should send a notice to the national registry annotating the property about the foreclosure. Smart lawyers request the court to prepare the documents for publication and the annotation for them to pick up, and they deliver them to their destinations. Otherwise the court will use its snail mail system. In Costa Rica, these snails are really slow.

When the auction date arrives, the creditor can suspend the act up to five minutes before the judge starts the auction process. This usually happens when the parties reconcile or otherwise agree to an out-of-court settlement.

If only the creditor shows up, he or she can take
the property back in payment of the debt. The creditor can attach other property of the debtor for interest, legal expenses and court costs. If the creditor does not want the property, he or she can request the court to hold other auctions until there is a successful one.

The starting bid at an auction is the amount due. Each subsequent auction reduces the opening bid amount by 25 percent until the starting bid is zero.

If bidders show up, they must deposit in cash or by certified check 30 percent of the auction base to bid. Creditors cannot bid but can raise the base of the auction upwards to cover interest and costs.

The winner of the auction must pay the balance of a winning bid to the court in three business days after the auction. Shill bidders sometimes show up at the auction, deposit the required 30 percent deposit and then never pay the balance causing the judge to call a void auction. Debtors can use this ploy as a delaying tactic so they can gain more time to look for funds to pay a creditor.

If everyone plays fair — it does happen on occasions — the highest bidder pays the court, the judge approves the event and prepares the court documents necessary to turn over the property to the new owner. If there are any tenants living in or on the auctioned property, the judge also prepares the paperwork to evict them.

Many auctions happen in Costa Rica on business days. Some of them are real bargains. Others turn into nightmares because there are hidden problems just waiting to show their ugly heads.

When a piece of property is going to foreclosure, it is common that the debtor’s attorney will start a litigious nightmare for the creditor. The first thing a debtor’s attorney tries to do is to look for a trumped up way to file a criminal case against the creditor to suspend the auction. This simple legal ploy can hold up a legitimate foreclosure for years. In other cases, crooked notaries just cancel the mortgage with a bit of flashy paperwork.

There are other financial instruments to borrow against property like mortgage certificates and trusts. Financial institutions prefer a first-degree mortgage. To borrow money, it is best to use a reputable bank. To lend money to others, it is better to use financial experts that know the ins and outs of the game.

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In more and more cases, buying property in Costa Rica can hold an innocent property buyer hostage for years, bankrupt them and even kill them with stress and strain.

Only a few years ago, it was rare to read about property fraud in the local press. Nowadays, it is probably one of the most important topics of the news. Sometimes even a legally perfect property can carry hidden problems. Costa Ricans and savvy expats can use these complications to sour even the best and honest real estate transaction.

Some years back an American moved his family to Costa Rica. They thought living here would be full of excitement and a new and fruitful life. They got more than they bargained for. Buying a couple of parcels of land on the Pacific coast, they divided the property into a couple of other lots as many expats do and sold off one of the lots to another expat. The buyer of the segregated lot requested financing, and the seller agreed, securing the deal with a first mortgage.

Much to the surprise of the American, the Registro Nacional put administrative alerts on his properties along with those of everyone who bought lots in the area. Someone with contacts complained to a representative of the legislature that some of the lots sold were in the maritime zone.

The Registro Nacional will not put an alert on an obviously stolen property, but in this case, they added the warning without question. In Costa Rica, it is who you know not what you know that counts and, obviously, the person who sent in the complaint knew the right people. They may have had ulterior motives too.

The buyer of the American’s lot used the Registro Nacional’s annotation as an excuse not to pay the mortgage even though the parcel is not even close to the zona marítimo terrestre. The mortgage holder went to court to collect the mortgage, as any normal person would do in this situation.

This fact miffed the debtor who filed a criminal case against the seller and holder of the mortgage alleging he knew all along of the national registry’s action.

It is sure interesting that the debtor did not file anything with any authority before the court went forward with collection proceedings. In Costa Rica, the rule of thumb is to fight as dirty as possible in court and to use this strategy whenever it is convenient. This scheme bogs down the court system and wears down opponents. Almost every lawyer who litigates states the judicial system is in complete disarray and is disintegrating.

The Registro didn’t help either. Last year the land registration department of the Registro Nacional requested the Catrastro Nacional –— the property map or plat section — to go to the Pacific coast and clear up the dilemma regarding the properties to clarify once and for all whether they werein the maritime zone or not so the landowners could get on with their lives.

One year later the administrative file shows that the Catrastro Nacional has done nothing. Two weeks ago, the Registro responded to a letter of complaint sent to it by the property owner held hostage by these events. The Registro officials said they cannot dictate to the catrastro office and that everyone will just have to wait until that office gets around to the job.

Amazing but true. A property that looked clean as a whistle harbored unforeseen difficulties that are now allowing others to pounce on an honest property deal, using the lethargic Registro Nacional and broken down court system to do so.

There is probably nothing this American could have done to protect himself and his family from these events. He did his homework and paid others to do due diligence on the properties before he bought them. Everything checked out to the letter.

Neither title insurance nor the new fangled company advertising everywhere that they protect a property would have helped this expat. Title insurance is not insurance for these kinds of cases, and the property protection company  reports property movements after the fact.

The American moved back to the United States with his family. He visits less and less often. However, he is still hostage to the country and will be for some time to come.

Complimentary Article in PDF Fomat