Your real estate agent will usually recommend you hire an escrow company when you make a deposit for a real estate purchase in Costa Rica. Escrow is a procedure to facilitate a safe and secure transfer of assets from one person or entity to another. The word escrow comes from the Latin word of escro, which means “to watch or observe.” In real estate, escrow involves three parties: the buyer, seller, and an independent third party. Escrow companies are legal financial entities authorized and licensed to hold funds as a neutral third-party real estate and other dealings.
This article will explain what an escrow account is. We will talk about how it works and why it is important to use it in a Costa Rica real estate transaction.
Escrow accounts in Costa Rica
Escrow is “fideicomiso” in Spanish. The legal and banking systems of Costa Rica do not operate in the same way as in other nations. Unlike the United States, the Costa Rican government does not have escrow laws. It is a common misconception of foreign buyers that escrow in their home country is the same in Costa Rica.
Local Costa Rican real estate buyers often do not use escrow. After the buyer and the seller agree on the sales price, the buyer has the option to pay the earnest money deposit. The seller then can take it off the market during the due diligence process. During this time, the lawyer confirms that the property is free of any encumbrances and can be transferred. At the closing of the sale, the earnest money deposit is deducted from the total sale price. This is the usual process among locals.
If locals don’t use an escrow company, why should you?
Escrow companies provide foreign real estate buyers with more security during the purchase process. It can help buyers and sellers avoid all the issues that may arise during the duration of the entire transaction. The truth is, a lot of things can happen between the initial payment and the closing of the sale.
An escrow company protects buyers and sellers
Escrow lets an interested buyer place an earnest money deposit to show intention to buy the property. This also shows the capacity of the buyer to buy the property. Escrow allows the seller to take the property off the market with the security that the purchase will be made. There is a neutral third party involved. So instead of handing over the money directly to the seller, the third-party secures the money. The third-party holds it for a set amount of time.
The escrow agreement establishes additional security measures. The buyer and the seller can set conditions that should be met through an escrow. The agent, often an attorney, carries out the escrow agreement. They are responsible for making sure the conditions are met first before releasing the earnest money deposit and the remaining balance due.
It is often your real estate attorney that handles the escrow process for you
In other countries, an escrow agent is usually someone who works for the bank. He/she is a third party that has nothing to gain from the transaction and takes no side at all. It is slightly different in Costa Rica. The escrow agent is usually selected by the buyer’s real estate attorney. Occasionally, the escrow agent is an associate of the attorney’s firm. Although the lawyer isn’t exactly a disinterested party, this norm works in Costa Rica. The process of purchasing a property and all legal documents involved assure that real estate deals are carried out securely.
Reasons why you need an escrow account when buying properties in Costa Rica
Escrow is not just an option for real estate investors; it is a solution. Here’s why all parties involved should use an escrow account for real estate transactions here in Costa Rica.
You don’t have a bank account in Costa Rica.
Per Costa Rican law, you can only open a bank account in Costa Rica if you are a Costa Rican citizen or a resident. The money laundering laws of Costa Rica are very strict since they must follow the mandates of the US Department of Homeland Security.. It’s a bit more complicated to receive funds originating from another country as you expect. The Costa Rican financial accountability institute SUGEF may freeze your account while they investigate, or they may require numerous personal documents and bank statements.
The quick solution here is to have an escrow account that can act as a custodian for your funds. The escrow agent is legally responsible for securing all proof of where the funds are coming from and any other required documents.. You can avoid any hassles of pending investigations related to the property. This can lengthen the closing process.
Relieve the stress and the worries that go with purchasing a property in Costa Rica
Real estate agents highly recommend the use of an escrow account. Holding your money securely while you have all the necessary checks done provides you the best security. This is especially when purchasing a property in a foreign country or anywhere else. This way, using escrow takes the worries off the buyer. The security it provides real estate investors makes the process less stressful.
You can use escrow accounts to hold the earnest money either in US dollars or Costa Rican colones. For the escrow agent to disburse the money, the purchase agreement must be followed strictly. They won’t release the money until all conditions are met, and the transaction is complete.
Escrow services are advantageous to both seller and buyer
Many foreign real estate investors are interested in owning a property in Costa Rica. There are many real estate attorneys and companies that offer escrow services here. We call it a trust account where both seller and buyer benefit.
Escrow tracks the process and gives buyers a verification when everything is completed. For the sellers, escrow ensures payments. It gives them protection. In the same manner, it protects the buyers. For these reasons, we recommend using the escrow process. Be well-informed of your ways to protect yourself and your money. The process doesn’t have to be complicated. The available services can make your property investment experience a good one. Contact us if you want to purchase or sell properties in Costa Rica. We provide expert assistance to secure your investment property in this beautiful country.