Post image for Some Real Estate Tricks Used Here Are At Least Fishy

Some Real Estate Tricks Used Here Are At Least Fishy

by Garland M Baker on October 31, 2006

There is very little regulation on real estate transactions in Costa Rica: No real estate disclosure act or similar rules exist. No licensing is required for real estate agencies or brokers.

There are two real estate broker associations in Costa Rica, but the organizations have limited power. The Web site for one association has no code of ethics or standards of practice listed.

This all means that real estate operators can use a lot of techniques that may be at least questionable if not unethical or dishonest.

Here are some examples:

Real estate scouts are everywhere looking for property deals. These people are usually Ticos working for real estate agencies and investors. They are searching for property where the owner may not have full understanding of its value.

These people sometimes recruit straw buyers, usually other Ticos, to buy the property and file it in the Registro Nacional so they can sell the property off at a much higher price.

Though not illegal, some legal professionals deem the practice unethical because the intent of the activity is to launder the transaction through another party so the original owner never knows the true selling price of the property.

A net listing accomplishes the same end. Net listings are illegal in many states of the United States and in other parts of the world. An owner of a property gets a fixed price while the broker sells the same parcel for an exorbitant amount making a large profit on the deal. This practice is not illegal in Costa Rica even though the broker can make more than the seller.

However, this type of listing violates the principles of agency. Agency is where one person represents the interests of another.

Unless written down clearly, most times, there is no true agency relationship between a seller and a broker in Costa Rica, and a seller just trusts someone is looking out for his or her best interests.

In addition, some so-called brokers are not even residents here and may be living in another country next week.

Double escrows or double closings are another example of suspicious activity. These are transactions where a property is bought and then immediately sold at the same closing. Double escrows enrage sellers because it shows someone sold their property for a lot more. In addition, many double escrows involve reselling property at phony inflated prices.

Many title and escrow companies now have policies refusing to handle double escrows or double closings. The practice is not illegal, but it is questionable unless there is full disclosure made to the seller.

Why are these real estate practices considered suspicious and in some parts of the world illegal and even fraudulent?

The problem is the ethical considerations of taking advantage of another for financial gain. What are a person’s disclosure duties and when does someone commit the sin of omission.

One of the most hotly debated questions in law is under what circumstances does an individual have a duty to disclose relevant information unknown to another person with whom he or she bargains.

This question is the subject of dozens of law review articles and treatises around the world. Thousands of court cases explore this vexing question of when and what a contracting party must disclose to his or her counterpart, even in the absence of explicit misleading statements.

Is there a law of fraudulent silence (also referred to as actionable nondisclosure or actionable silence) in Costa Rica? Yes and no.

Article 1049 of Costa Rica’s Civil Code states any agreement on thing and price is a “done deal.”

Book IV, Title III of the Civil Code refers to the sale of things in Costa Rica including real estate. The closest discussion of agency is in articles 1057, 1058, and 1061.

In theory, a real estate deal could be voided if a representative of a seller did not have true representation or acts in a fraudulent manner in presenting the facts to the parties involved in a real estate transaction.

The laws here are so unclear regarding real estate transactions, with no ethical guidelines by a real estate association to help out, that arguments about what is right and what is wrong are ignored by some. And that makes the job of the honest, ethical real estate broker that much harder.

Not all acts that are fair are legal, and not all acts that are legal are fair.

Most people have a pretty good sixth sense about things. In situations where one feels a deal is fishy, get professional assistance to wade through the muck and uncover the facts.

Leave a Comment

Previous post:

Next post: