By Garland M. Baker
Special to A.M. Costa Rica
Some foreigners from the boom days are having to play a shell game
today to prove ownership of properties they purchased during those
times. The reason is that attorneys before Sept. 28, 2012, loved
putting real estate purchases in guarantee trusts.
Most lay people have no clue what a guarantee trust is and why it was
used so much in the past and why a property they purchase may be in
In simple terms, they were used so lenders, especially developers,
could circumvent using a mortgage to sell property on credit.
The sure tale sign a property is in a guarantee trust is to look up the
folio real number of
a property and see if the text EN
CALIDAD DE FIDUCIARIO is next to the name. If it is, it is a
Trusts can be a perfect vehicle for
getting deals done. They can also be a good way to insure trustworthiness.
However, they can be abused and be a vehicle to hoodwink expats out of
their valuable property.
A trust is called a fideicomiso
in Spanish. There are five basic parts to them: 1.) trustor or fideicomitente; 2.) trustee or fiduciario; 3.) beneficiary or fideicomisario; 4.) trust property
or bienes fideicometidos;
and, 5.) the trust contract or contrato
The fourth item, trust property, is the thing administered by the
trust. To be valid, a trust must hold some property.
Property may be any real or personal property like stocks, real estate,
even cash, to name a few examples.
In the past, before Sept. 28, 2012, a seller and a buyer would be
trustors or fideicomitentes and they would put a property in question
in a trust or fideicomiso held by a trustee or fiduciario for the term
of time that it would take the buyer to pay the seller. In this
case, both the seller and the buyer would be beneficiaries or
fideicomisarios of the trust. The purpose and result of the trust
would be that the seller would get paid in full and the buyer would get
the property free and clear of any encumbrance. This replaced a
This structure was extremely convenient for sellers because a notary
transferred assets into the special trust and registered it at the
Registro Nacional. There was no transfer tax on this kind of a
transaction until laws 9068 and 9069, law for the enforcement of fiscal
transparency and law for strengthening tax enforcement, made some major
changes to Costa Rica’s code of commerce. Article 662 eliminated the
tax exemption of property transfer taxes when transferring property
between trustor and trustee. Hence the date Sept. 28, 2012.
However, there are some exceptions. Entities registered with the
Superintendencia General de Entidades Financieras, the organization
that supervises the stability of the country’s financial system, can
still use trusts without paying transfer taxes on property.
This all sounds great, so how do foreigners get flimflammed?
Here is a scenario. Joe and Jane Expat bought a property in 2007, a
condominium overlooking the beach, from a developer who put all the
properties he built in guarantee trusts. To buy, the couple were
required to form an empty company
of their own to hold the property when it was paid for in full. They
decided to and called it Expats in Paradise, S.A. The developer’s
attorney created the company and made up a trust contract that stated,
in essence, “when the condominium is paid for, it will be automatically
transfered to Expats in Paradise, S.A.”
Now it is 2014, Joe and Jane paid off the condo. They try to contact
the developer’s attorney to have their property transferred to them.
They get no answer to their calls. After figuring they are being
ignored, they start looking for the legal books of
their company Expats in Paradise, S.A. so they can seek legal counsel
elsewhere. Come to find out, they were never given the books to the
company. They do not even have a copy of the trust.
What are the Expats to do? Who owns their property? What would their
heirs have if Joe and Jane were no longer around? All good questions!
Whoever has the books of the company is the owner because it is very
easy to forge signatures. It happens all the time in this country.
Property fraud is rampant, and the courts are overburdened with cases.
Some criminal attorneys say it is in a state of total collapse. The
local media lately is full of cases where foreigners have been
bamboozled out of everything they own. It seems of late, the only
cases getting any attention are the high profile ones.
Guarantee trusts in their heyday – before September 2012 – were great
financing vehicles. They still work for the people who can afford them
and can navigate the legal maze surrounding them. Not so much now for
They were also abused during Costa Rica’s boom period and everyone with
property in one should have it checked thoroughly. It is very
important to have a copy of the document and understand its terms.
Garland M. Baker, a
certified international property specialist, is a
44-year resident and naturalized citizen of Costa Rica. His firm’s team
provides multidisciplinary professional services to the country’s
international community. Reach him at firstname.lastname@example.org. Baker has
undertaken the research leading to these series of articles in
conjunction with A.M. Costa Rica. Find the collection at http://crexpertise.info, a free reprint is available at the end of
article. Copyright 2014. Use without permission prohibited