Another in a series in legal awareness
Let the buyer beware: Some deals are done in triplicate.
In many places in Costa Rica, property values are moving so fast that a great deal reached Monday could be history Friday.
Here is the ever-so-common scenario: A dream property is found for only $100K. A deal is struck between seller and buyer, and a firm handshake is exchanged between parties to clinch it.
In the days of chivalry, when a person’s word was as good as gold, that would be enough. This in not true today. If the seller finds a better offer before money changes hands and before the property is legally transferred at the National Registry, the great deal sometimes fizzles out.
It happens every day in Costa Rica. One needs more than a handshake to protect an offer and acceptance.
Very few Costa Rican lawyers know about articles 34, 35, and 36 of the Law of Document Registration at the Régistro Nacional, the national registry, which was reformed along with the notary code in 1998.
These articles created a legal method to protect any deal pertaining to anything registerable at the National Registry. This includes real property, vehicles, boats, airplanes, pledges, mortgages and trusts, to name a few.
The term for this legal tool is reserva de prioridad which means “priority reserve.” It protects a deal or contract from changes in price and/or agreed-on terms.
It literally is a legal handshake between parties protecting the terms of a deal for 30 days at the registry. A Costa Rican notary prepares the document. Notaries are also attorneys in Costa Rica, and the notary files it with the national registry. Once filed, the document is noted immediately on the registry’s computers and can only be replaced by the document it was made to protect. If for some reason the parties decide not to make the deal, the registry can be requested to cancel the notation after 30 days.
A priority reserve works great when a buyer needs to transfer money or get a loan from a bank. Sometimes a seller needs to accomplish conditions like evict tenants, build fences or make improvements to satisfy the buyer.
There are many times when transactions are more complicated, and purchase options are needed or trusts must be created. A priority reserve can protect the basic tenets of an agreement until such time as the other documents are ready.
The most important aspect of priority reserve is to protect a price or agreed-to amount as with a mortgage. It protects a $100,000 great deal from being swiped by a higher bidder once a price is set or a mortgage from turning into a major financial nightmare.
A priority reserve works along with earnest money deposits and escrows and is not meant to replace them. The document adds additional protection to any transaction.
The main objective of this valuable legal instrument is to avoid duplicity of transactions.
Selling the same asset to many different potential buyers is very common in Costa Rica. Shysters prey on interested buyers by getting earnest money over and over again then never completing a deal.
A priority reserve can take the risk and fear out of buying property, lending money and investing in Costa Rica, protecting both parties in transactions. The major problem is most people have no knowledge of this legal tool. When shopping for a professional in this country, find one that does, it can save bundles of money and lots of grief.