Taking Title To Property Overseas—A Primer
A number of years ago, I bought a terrific property in Vilcabamba, Ecuador, from a friend. It was a good-sized parcel of land with a simple home, a guest cottage, and more than 150 feet of river frontage. With a bounty of tropical fruits and coffee plants and surrounded by beautiful mountains, it was a real paradise.
After a couple of years and much Spanish study I got around to actually reading the title. What I discovered was that I hadn’t actually bought the property outright, but rather I’d bought shares of an inheritance from four descendants of the original owner. And to make matters worse, I wasn’t completely sure if I’d accounted for all the descendants.
One of the trickiest aspects of property investing overseas is verifying that you’ve got a clean title. In North America this is something we take for granted. However, overseas, ownership laws vary from one country to the next, and can even vary among regions of the same country.
To save you having to learn this lesson the hard way (as I did), here are details of the kinds of titles you might encounter when purchasing real estate overseas, including important cautions…
A freehold title, sometimes called “fee simple,” is the highest form of property title. This is the one you want. Originally from English law, the term means you have absolute title to land, free of any other claims against the title, and that you can sell it or pass it on by will or inheritance. It’s the norm in the United States and Canada.
Freehold titles provide the only absolute form of property ownership, and, generally, it’s the only form of land title that we’d recommend. For reference, freehold title translates as cuerpo cierto in Spanish and corpo certo in Portuguese.
Rights And Shares
Rights and shares (derechos y acciones) is a term you’ll see on some Latin American titles, and it should throw up a red flag. What this means is that you’re buying someone’s “rights” to the property (or their share of the property), rather than the entire property as a whole. Normally, it’s someone’s inheritance… and it’s what I bought on the river in Ecuador, mentioned above.
Buying property this way can work for you if you’re sure that you have all the rights, from all of the heirs. In that case, you should be able to convert the rights and shares to a normal title. However, if you miss an heir, you may find yourself sharing the property with an unintended partner.
I successfully converted my title in Ecuador to a freehold title, but I was lucky, and it’s a gamble I’m not likely to make again. In the future, I’ll make the conversion to a freehold title a condition of the sale, to be met prior to closing.
A concession title means that you have documented use of the land, typically for a specified period of time. You generally have the right to occupy the land, improve it, build on it, and, in many cases, pass it on to your heirs. Most often, concession titles are granted by governments for coastal land. Essentially, it’s a form of lease.
But you don’t own the property outright or unconditionally. Concessions are used in many parts of the world, and there is a wide variation in how they are administered by the respective governments. In some areas, this is the most common form of beachfront ownership.
Be advised that when title checks are performed, local attorneys will often consider a concession title to be a good, or “clean,” title when it has no liens against it. It’s up to you as the buyer to ask if it’s a concession and decide if this is how you want to hold the land.
Land on a concession title can generally be bought and sold like land with freehold title, and it often stays in the same family for generations. I don’t know of any case where a government has revoked a concession and evicted the occupant, but you should be aware that this is permitted by law. In these cases, the government typically reimburses the occupant for any improvements he’s made to the land.
Rights Of Possession
Rights of possession is another way of holding a property in Latin America, but it’s not title. When you hold rights of possession, you have been granted the right to occupy or use the property, but you don’t own it. You can resell the rights of possession, but, again, the buyer would not be buying title to the property… only the right to use or occupy it. This is the riskiest way to acquire property, because, one more time, you’re not in fact acquiring the property, only the right to use it.
We’ve known many people over the years who have purchased rights of possession. If you find the beachfront property of your dreams in the location where you want to be only to discover that it’s rights of possession, maybe you proceed with the transaction regardless. If all you intend is to put up a shack to use for fishing weekends with your buddies, not a big deal. However, you wouldn’t want to build your dream home on a piece of rights of possession land.
Rights of possession, under various forms, are generally granted by the government. Sometimes this is done to encourage people to farm the land or to otherwise use it productively without granting ownership.
When the rights are granted to a group of people to work the land collectively, this is called cooperativa land in some countries and it’s referred to as ejido land in Mexico.
Unlike concessions, rights of possession are more transient and subject to adverse claims.
Possessory Title (Or Adverse Possession)
A possessory title is one that’s granted via some sort of “rights of possession” through “adverse possession.” In many countries, if you’ve occupied the land long enough, you eventually can petition for the rights to title it. Adverse possession is usually defined as “a method of gaining legal title to real property by the actual, open, hostile, and continuous possession of it to the exclusion of its true owner for the period prescribed by governing law.”
In simple English, this means that the right to possess the land was obtained because someone laid claim to it after occupying it for a time, perhaps as a squatter. The amount of possessory time varies from one country to another. I’ve seen “occupation times” as short as 2 years in some countries and as long as 12 in others, before one could ask for a possessory title.
A possessory title is not necessarily a bad title, but it can be. In Nicaragua, for example, there are cases where possessory titles were granted to individuals who filed claims against the government. If this happened after 1917, the title is not valid and there’s no statute of limitations.
In many countries, a possessory title can never be converted to a freehold title. This is a problem many face in Bocas del Toro, Panama, for example, where abandoned fruit plantations have underlying titles.
When buying property in Latin America, it’s critical to carry out a comprehensive title review in accordance with the laws of the country where you’re buying. The only way to do this is with the help of a qualified local real estate attorney. He (or she) will be experienced at finding liens and judgments and will know the types of problems to look for.
I’ve bought many properties in the United States and have never used an attorney because I understood my rights under the law and was familiar with the controls applied to the real estate industry. However, I would never buy property in Latin America without the help of an attorney, and you shouldn’t either.
Editor, Overseas Property Alert
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