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Smart money checking out those failed projects

by Garland M Baker on April 26, 2010

There are international developers currently looking for deals in Costa Rica. The past boom in the country created some opportunities because many projects were left unfinished when the market fizzled in late 2008. They are looking for the money trees of the next boom.

However, some opportunities that look good are not what they appear after some digging into their fundaments. The most common problems are that the original founders borrowed too much money to get the projects moving because they believed they would sell fast to pay off the debts.

There are other problems too. Many of the original promoters did not do their due diligence and bought land that in some cases is not developable at all. In other cases, only a small portion of the land is dividable and buildable. Other problems range from water issues, slope of the land, offsets from springs and rivers, and forestry restrictions, to name a few.

Real estate agents tend to emphasize the good and paint a pretty picture to prospective buyers. In many cases, they to not disclose the bad — and to be fair — many of them do not know the true state of the property they are trying to sell.
The only way to get a feel of the reality of a property — especially big properties and developments — is to dig and to dig deep. The first clue is to look at the record at the Costa Rican national registry of properties, the Registro Nacional.

If there are legal problems associated with a property, those facts are usually — but not always — annotated in the property record. This information usually includes a court case file number if the property has legal problems. It is imperative to get a copy of the case filed against the property to know the true story and the nature of the legal problems.

These legal cases can be very long and involve volumes of court material. Most of them are somewhat complex as well, and a good lawyer is needed to decipher the legal mumbo jumbo. However, with this said, usually if there is lots of paperwork involved in the cases, the summary is usually pretty simple. In most cases, someone borrowed too much money or made too many promises to creditors and prospective buyers, and they did not meet their obligations. So the project ended up in court.

The good news in some cases is that the parties involved in the court battle want out and are just waiting for someone to come along and save them from the drawn out court battle that is common in this country.

A smart developer who finds a project of interest needs to contract a small professional team to study the details of the case. The team in turn needs to summarize the history of the project, determine how and why it ran into trouble and determine the players.

The players would be the people who started the project, the people from whom the developer borrowed money and anyone who bought into the project along the way. Usually, most of this information can be found in the court material if the property is the object of a legal case.

Once a brief is put together and the history is known, it is time to have an independent professional get on the phone and start asking
questions as to whether a settlement is possible to close the legal mess and make a deal. Today, many people who were involved in large projects just want out and to get as much cash as they can to put their lives back together.

The last boom of Costa Rica has broken emotionally and financially many individuals and companies alike.

It is interesting to point out that in some cases, the mortgage holders of many properties are lawyers. They loaned money to investors at high interest rates, and they do not want to make any deals. They just want to foreclose and get the properties they sold back so someday they can sell it again during a new boom time to new, hungry prospective buyers.

What some developers are finding when looking into property deals is that the properties they are studying have already gone through a public auction, but they are being told there is a chance to get the property back by the way of some legal maneuvers. In most cases, this information is just hopeful thinking on the part of the people who have lost the property, and there is really no legal magic.

There are property deals to be had in Costa Rica today. From single properties where the owners are broke and need cash and are willing to accept in some cases ridiculous offers to large developments that were never finished.

In the case of the large projects, some have real big problems and expensive ones to fix from a legal point of view, but there are others that do not have legal problems or at least only little ones that are easy to fix.

There are people in the world with money because they held onto it during the financial craziness and are now ready to buy. Generally, these types of investors know that people make money when they buy, not when they sell. Another word for them might be bottom feeders. Whatever one wants to call them is unimportant. The fact is some of them are coming to Costa Rica now and are looking for deals.

This information is important for those in Costa Rica who want to sell. They need to look at their own financial picture, their legal problems if they have any and try to put together a package that would interest a prospective buyer. These buyers are here, and they are looking around now.

{ 1 comment… read it below or add one }

steph May 4, 2010 at 3:33 pm

Really good article Mr Baker, I love your articles. Keep writing!!

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