By: Garland M. Baker B.
Exclusive to A.M. Costa Rica
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Vultures and rats are stalking the innocent home sellers to make a quick buck.
The game is the use of Article 1049 of the Costa Rican Civil Code and property flipping. The rules are everything goes and the best trickster wins.
Article 1049 is only one sentence long, and it states La venta es perfecta entre las partes desde que convienen en cosa y precio. In English, the string of words translates to “The sale is fixed between parties upon agreement of thing and price.” The sentence means that it is possible to cheat a naive seller out of a property because of their lack of knowledge of the law.
There are many variations of property flipping. The U.S. Federal Bureau of Investigation, Criminal Investigative Division, keeps an extensive database to control this fraudulent activity because many victims are federally insured banking institutions.
“Flipping” is a predatory practice where someone always gets hurt, and it involves artificially inflating the value of a property. One of the versions in Costa Rica plays like this:
Someone shows up and offers to buy a property with a large down payment and a mortgage secured by another property to guarantee the balance. The buyer promises to pay off the mortgage in a short period. Usually, the buyer has plentiful paperwork to reflect that the value of the property being used for the guarantee far exceeds the balance due. This is the property whose value has been inflated with fake sales or fake declarations of value.
Some eager sellers will jump at the chance to sell their property and agree to the deal. They get the down payment and a mortgage whose only guarantee is the property or properties with the inflated values. Every so often, the property has little or no real value.
This is where Article 1049 comes in to play. Any agreement is binding upon parties when they agree on “thing and price.” Verbal agreements are as binding as written ones, only a little more difficult to enforce.
With the agreement made, the scenario can go two ways:
The first and more likely is that the seller goes through with the deal. The buyer then sells the property for a big profit and fails to pay the balance on the mortgage when due. The seller has to foreclose on the guarantee property or properties and finds that its value is much less than promised or completely uncollectable.
It is almost impossible to cry fraud because the seller just did not do the homework to check out the guarantee.
In the second scenario, the seller does some homework and finds the properties offered in guarantee are not even close to the value they expected. When the seller tries to renege on the deal, the buyer shows up with an oferta real de pago, usually with an attorney, with the down payment to clinch the deal.
Oferta real de pago means a “real offer to pay” and regulated by Article 866 of the Civil Procedures Code. This is all that is necessary to force the completion of the deal. Otherwise, the contract will end up in court and a judge will immediately put a judicial lien on the property pending the outcome. The buyer, proving an agreement on “thing and price,” will win getting the property and damages.
Some owners selling property report 80 percent of the calls or showings were to someone with a deal up their sleeve. Deals abound. Qualified buyers do not.
Wise sellers qualify buyers and evaluate deals carefully. And they do so before entering into a written or verbal agreement. There are many property fraud schemes in Costa Rica. This is only one of many. Most importantly, sellers need to be aware of the bite in Article 1049 of the Civil Code and decline to agree to anything without proper representation, research, and documentation.
Purchase options registered with the National Registry is a much safer way to sell or buy property in Costa Rica.
Article first published in A.M. Costa Rica on May 8, 2006.
